The great majority of private companies are also classified as "small" in terms of their asset base and turnover.

The business benefit of setting up as a limited company is that, as a company, your business debts belong to the company rather than to you. As a consequence, you enjoy a high degree of comfort that your business mistakes will not lose you your personal assets or credit rating.

But this element of protection under the law brings with it certain obligations that are the quid pro quo for the privilege of limited personal liability.

Striking the right balance between encouraging business activity and providing reasonable safeguards for stakeholders is something in which governments have an obvious interest. And it is this issue that is at the heart of the government's Company Law Reform Bill, which was presented to parliament in November last year.

In April 1998 the government appointed an expert group to carry out a thorough review of the state of UK company law to consider ways of enhancing the competitiveness of UK companies and suggesting ways of removing Victorian-era rules that may have become meaningless in the 21st century.

The bill now seeks to streamline legal rules on the administration of private companies to bring company law more into line with the reality of the modern UK corporate environment. It proposes the following changes of special significance to small private companies.

Annual accounts All limited companies, public or private, will continue to have to prepare their annual accounts in accordance with the statutory disclosure rules and the overriding "true and fair" requirement, but the time allowed for private companies to file their annual accounts with Companies House is coming down from 10 months to seven.

And while companies will still be able to file so-called "abbreviated accounts" instead of their full accounts, in future these abbreviated accounts will have to include details of the company's turnover. Currently companies can withhold informing competitors of their turnover figure.

If they approve a set of accounts when they know they do not comply with the rules, or are "reckless" as to whether they comply or not, they will commit a criminal offence. For this reason, for the great majority of small companies, it will remain essential that the accounts are prepared by a qualified external accountant.

The company secretary Currently, all limited companies, whether they be listed companies or small husband and wife companies, must appoint a company secretary (though only in public companies must the secretary hold a professional qualification).

The bill proposes that private companies should not be required to appoint a secretary. Traditionally, the post has been occupied by the spouse of the business owner and many companies will welcome this change as being one less bit of red tape to worry about.

But, even with the streamlining of red tape which the bill promotes, being in charge of a company still carries with it important and in some cases onerous obligations for directors - these obligations are in fact being strengthened under the bill.

It must be pointed out that having a qualified secretary can be extremely useful to directors and shareholders in terms of ensuring they comply with their responsibilities and do not fall foul of them.

Now that small companies do not need to appoint an auditor, operating as a company without either an auditor or a qualified company secretary could prove dangerous for them if they are not themselves competent on company law matters.

The AGM Currently, all companies are required to hold an AGM once a year where standard business is to be conducted - placing the annual accounts before members, reviewing progress and appointing auditors for the next year.

The trouble is, for most private companies this meeting serves no useful purpose. In many cases, of course, the AGM never actually happens but is simply recorded as a fictional minute in the company's books.

A recent change in the law already gives private companies the opportunity to opt out of the AGM, but the new bill exempts private companies from any legal requirement to hold an AGM.

Resolutions The new bill will allow private companies to pass legallybinding resolutions by means of written resolutions, doing away with the obligation to convene formal general meetings. And a written resolution will not need the unanimous support of the company's members - as long as the resolution has the same level of support - ie, simple majority, or 75% - that would be necessary if the same resolution were being proposed at a formal meeting, that will be sufficient to make the decision legally valid.

Directors' duties For the first time, UK company legislation will set out the essential legal responsibilities of all directors. And there are important new aspects to directors' duties.

For example, directors are now to be judged not only by reference to the skills and experience that they actually have. They are now to be judged by reference to an "objective" standard of skill and care. This means that the law will expect all directors to act in accordance with a minimum standard of skill and care, whatever their backgrounds and whatever the nature of their involvement with their company.

Having spent so long at the drafting stage, we can expect the bill be on the statute book later this year and come into force shortly thereafter.

John Davies is head of business law at the Association of Chartered Certified Accountants.