New corporate rules will mean more SME red tape, say lawyers

New laws hailed as making it easier to start and grow a business are actually likely to increase the burden of red tape on Scottish SMEs, according to law firm HBJ Gateley.

Laura Falls, senior associate at HBJ Gateley, said the new Small Business, Enterprise and Employment Act – introduced by the previous coalition Government under then business secretary Vince Cable – would probably add to paperwork for smaller firms rather than make life significantly easier.

The Act, which comes into force in stages between this month and April 2016, will introduce measures including simpler processes for annual returns and registration of directors, which Falls said would be welcomed by business owners.

However, the legislation will also introduce a new ‘people with significant control’ (PSC) register. This will have to hold details of any person owning 25 per cent or more of the shares or voting rights in a company or anyone who otherwise exerts significant control or influence over the company.

Failing to meet the new obligations can result in criminal sanctions for the company, its directors, secretary and anyone who qualifies to be entered on a PSC register. If that person fails to provide the necessary information the company can restrict the voting rights of that shareholder and their ability to transfer their shares. The changes apply to private companies, with more guidance expected soon, and limited liability partnerships may have to face a similar regime.

Laura Falls said: “SMEs often say Government could help them by removing as much red tape and administration as possible, and there are elements of this legislation which will provide some incremental help.

“The intention of much of the Act is to improve transparency about who owns and controls British companies, which is a laudable goal. However, a bigger part of it feels very much like a long list of additional compliance requirements which I’m not convinced will make a material difference. The PSC register in particular involves a lot of checking and information gathering I’m sure most SMEs could live without.

“The fact is, though, that these laws are coming into force over the next year or so, and business owners in Scotland will have to get up to speed with their new obligations sooner rather than later.”

The changes to annual returns processes mean a company will instead submit a ‘confirmation statement’ stating it has delivered all the information required during the relevant time period.

Despite being introduced by the previous government, Laura Falls said it was unlikely any part of the legislation would be repealed by the Conservatives.

She added: “This won’t be something the country is jumping up and down about, but for small business owners who have majority shareholdings in their organisations, it’s a distraction from doing what they really want to be doing – growing their businesses.”