PracticeConsultingNew rules hurt small business

New rules hurt small business

Solvency certificate and failure to introduce minimum capital rules mean small companies may be worse off after law review.

The government’s company law review is in danger of failing to meet its target of lifting the bureaucratic burden on small businesses, the associations have warned.

The English ICA and ACCA have both raised their concerns over the elements of the review which seek to re-establish company law based on the needs of small companies.

One of the English ICA’s main concerns is the suggestion that the abbreviated accounts for smaller companies be replaced by a certificate of solvency.

The chairman of the technical directorate, Graham Ward, said: ‘A certificate would only show a narrow snapshot of the business at one point in time, but would not give a stakeholder any information about its financial progress.’

He added that the exemption from posting a full set of accounts for smaller companies was more cumbersome than helpful, because of the extra cost of producing a different set of figures, and called for the law to be scrapped.

ACCA senior technical officer John Davies said he was disappointed by the document’s ‘out of hand’ rejection of introducing a minimum capital requirement for entrepreneurs.

The review argued there was no evidence that such a hurdle would limit the number of insolvencies, but Davies disagreed. ‘We say that, because limited liability status offers real benefits, there should be tangible tests that an individual has to fulfil before they are given this privileged legal status. We think a minimum-capital idea is a good one,’ he said.

Ward was disappointed that the review of accountants’ liabilities is part of the Company Law Review’s investigation of the relative roles of auditors, directors and stakeholders. It is due to be completed in 2000.

Formal responses to the review paper are due in June.

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