Company Law Reform Bill [HL]

House of Commons

Session 2005 - 06
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Other Bills before Parliament

Company Law Reform Bill [HL]

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
220

460
Right of members to require audit
(1)
The members of a company that would otherwise be entitled to exemption
from audit under any of the provisions mentioned in section 459(1)(a) may by
notice under this section require it to obtain an audit of its accounts for a
financial year.
5
(2)
The notice must be given by—
(a)
members holding not less in total than 10% in nominal value of the
company’s issued share capital, or any class of it, or
(b)
if the company does not have a share capital, not less than 10% in
number of the members of the company.
10
(3)
The notice may not be given before the financial year to which it relates and
must be given not later than one month before the end of that year.
Exemption from audit: small companies
461
Small companies: conditions for exemption from audit
(1)
A company that meets the following conditions in respect of a financial year is
15
exempt from the requirements of this Act relating to the audit of accounts for
that year.
(2)
The conditions are—
(a)
that the company qualifies as a small company in relation to that year,
(b)
that its turnover in that year is not more than £5.6 million, and
20
(c)
that its balance sheet total for that year is not more than £2.8 million.
(3)
In relation to a company that is a charity, for the condition in subsection (2)(b)
substitute the condition that its gross income for the year is not more than
£90,000.
(4)
For a period which is a company’s financial year but not in fact a year the
25
maximum figures for turnover or gross income shall be proportionately
adjusted.
(5)
For the purposes of this section—
(a)
whether a company qualifies as a small company shall be determined
in accordance with section 364(1) to (6),
30
(b)
“balance sheet total” has the same meaning as in that section, and
(c)
“gross income” means the company’s income from all sources, as
shown in the company’s income and expenditure account.
(6)
This section has effect subject to—
section 459(2) and (3) (requirements as to statements to be contained in
35
balance sheet),
section 460 (right of members to require audit),
section 462 (companies excluded from small companies exemption), and
section 463 (availability of small companies exemption in case of group
company).
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Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
221

462
Companies excluded from small companies exemption
(1)
A company is not entitled to the exemption conferred by section 461 (small
companies) if it was at any time within the financial year in question—
(a)
a public company,
(b)
a company that—
5
(i)
has permission under Part 4 of the Financial Services and
Markets Act 2000 (c. 8) to carry on a regulated activity,
(ii)
carries on insurance market activity, or
(iii)
is an appointed representative within the meaning of section 39
of that Act (other than an appointed representative whose scope
10
of appointment is limited to activities that are not regulated
activities for the purposes of this Part),
(c)
a special register body as defined in section 117(1) of the Trade Union
and Labour Relations (Consolidation) Act 1992 (c. 52) or an employers’
association as defined in section 122 of that Act or Article 4 of the
15
Industrial Relations (Northern Ireland) Order 1992 (S.I. 1992/807 (N.I.
5)), or
(d)
a member of an ineligible group.
(2)
A group is ineligible if any of its members is—
(a)
a public company,
20
(b)
a body corporate (other than a company) whose shares are admitted to
trading on a regulated market in an EEA State, or
(c)
a person who—
(i)
has permission under Part 4 of the Financial Services and
Markets Act 2000 to carry on a regulated activity, or
25
(ii)
carries on insurance market activity.
463
Availability of small companies exemption in case of group company
(1)
A company is not entitled to the exemption conferred by section 461 (small
companies) in respect of a financial year during any part of which it was a
group company unless—
30
(a)
the conditions specified in subsection (2) below are met, or
(b)
subsection (3) applies.
(2)
The conditions are—
(a)
that the group—
(i)
qualifies as a small group in relation to that financial year, and
35
(ii)
was not at any time in that year an ineligible group;
(b)
that the group’s aggregate turnover in that year is—
(i)
in the case of a company registered in England and Wales or
Northern Ireland that is a charity, not more than £700,000 net (or
£840,000 gross),
40
(ii)
in the case of a company registered in Scotland that is a charity,
of such amount as may be specified by regulations under the
Charities and Trustee Investment (Scotland) Act 2005 (asp 10),
and
(iii)
in any other case, not more than £5.6 million net (or £6.72
45
million gross);

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
222

(c)
that the group’s aggregate balance sheet total for that year is not more
than £2.8 million net (or £3.36 million gross).
(3)
A company is not excluded by subsection (1) if, throughout the whole of the
period or periods during the financial year when it was a group company, it
was both a subsidiary undertaking and dormant.
5
(4)
In this section—
(a)
“group company” means a company that is a parent company or a
subsidiary undertaking, and
(b)
“the group”, in relation to a group company, means that company
together with all its associated undertakings.
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For this purpose undertakings are associated if one is a subsidiary undertaking
of the other or both are subsidiary undertakings of a third undertaking.
(5)
For the purposes of this section—
(a)
whether a group qualifies as small shall be determined in accordance
with section 365 (qualifying conditions for small companies accounts
15
regime),
(b)
“ineligible group” has the meaning given by section 366(2);
(c)
a group’s aggregate turnover and aggregate balance sheet total shall be
determined as for the purposes of section 365;
(d)
“net” and “gross” have the same meaning as in that section.
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(6)
The provisions mentioned in subsection (5) apply for the purposes of this
section as if all the bodies corporate in the group were companies.
Exemption from audit: dormant companies
464
Dormant companies: conditions for exemption from audit
(1)
A company is exempt from the requirements of this Act relating to the audit of
25
accounts in respect of a financial year if—
(a)
it has been dormant since its formation, or
(b)
it has been dormant since the end of the previous financial year and the
following conditions are met.
(2)
The conditions are that the company—
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(a)
as regards its individual accounts for the financial year in question—
(i)
is entitled to prepare accounts in accordance with the small
companies regime (see sections 363 to 366), or
(ii)
would be so entitled but for having been a public company or a
member of an ineligible group, and
35
(b)
is not required to prepare group accounts for that year.
(3)
This section has effect subject to—
section 459(2) and (3) (requirements as to statements to be contained in
balance sheet),
section 460 (right of members to require audit), and
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section 465 (companies excluded from dormant companies exemption).

Company Law Reform Bill [HL]
Part 16 — Audit
Chapter 1 — Requirement for audited accounts
223

465
Companies excluded from dormant companies exemption

A company is not entitled to the exemption conferred by section 464 (dormant
companies) if it was at any time within the financial year in question a
company that—
(a)
has permission under Part 4 of the Financial Services and Markets Act
5
2000 (c. 8) to carry on a regulated activity, or
(b)
carries on insurance market activity.
Exemption from audit: certain charities
466
Small charities: independent examiner’s report in lieu of audit
(1)
A company that is a charity is exempt from the requirements of this Act
10
relating to the audit of accounts in respect of a financial year if—
(a)
it meets the conditions set out in subsection (2) below, and
(b)
the directors cause a report in respect of the company’s individual
accounts for that year to be prepared in accordance with section 469
and made to the company’s members.
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(2)
The conditions referred to above are that—
(a)
the company qualifies as a small company in relation to that year;
(b)
its balance sheet total for that year is—
(i)
in the case of a company registered in England and Wales or
Northern Ireland, not more than £2.8 million, and
20
(ii)
in the case of a company registered in Scotland, of such amount
as may be specified by regulations under the Charities and
Trustee Investment (Scotland) Act 2005 (asp 10);
(c)
its gross income in that year is—
(i)
in the case of a company registered in England and Wales or
25
Northern Ireland, more than £90,000 but not more than
£500,000, and
(ii)
in the case of a company registered in Scotland, of such amount
as may be specified by regulations under the Charities and
Trustee Investment (Scotland) Act 2005.
30
(3)
For a period which is a company’s financial year but not in fact a year the
maximum figure for gross income shall be proportionately adjusted.
(4)
For the purposes of this section—
(a)
whether a company qualifies as a small company shall be determined
in accordance with section 364(1) to (6);
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(b)
“balance sheet total” has the same meaning as in that section; and
(c)
“gross income” means the company’s income from all sources, as
shown in the company’s income and expenditure account.
(5)
This section has effect subject to—
section 459(2) and (3) (requirements as to statements to be contained in
40
balance sheet),
section 460 (right of members to require audit),
section 467 (companies excluded from report exemption), and
section 468 (availability of report exemption in case of group company).