Under the proposals, produced by a Department of Trade and Industry steering group, the framework of company law would be altered so that small firms would only have to comply with a basic set of legislation.
Only as firms got bigger would they have to comply with more regulation relating to areas such as corporate governance, accounting, reporting and disclosure requirements.
The present framework, which dates back 150 years, imposes blanket legal requirements on all companies which smaller firms then have to seek exemption from.
Welcoming publication of the report, Stephen Byers, the Secretary of State for Trade and Industry, said that UK company law had developed around the requirements of large public companies and yet of the 1.3m registered companies, only 12,000 were plcs and of these only 2,450 were quoted.
The steering group also asked for views on whether companies should be forced to represent "stakeholder" interests on their boards or whether an "enlightened shareholder value" approach is sufficient.
However, the steering group's final report is not due until 2001, meaning there will not be any change in legislation this Parliament.