Private companies
738.Sections 485 to 488 restate the law on appointment of auditors of private companies, providing that auditors are generally to be appointed by shareholders by ordinary resolution. For any financial year other than the first, this will generally be done within 28 days of the circulation to a company’s shareholders of the accounts for the previous year.
739.There are two changes: firstly, an auditor’s term of office will typically run from the end of the 28 day period following circulation of the accounts until the end of the corresponding period the following year. This will apply even if the auditor is appointed at a meeting where the company’s accounts are laid. The second change is that an auditor is now deemed to be re-appointed unless the company decides otherwise.
Section 485: Appointment of auditors of private company: general
740.This section provides for a private company’s obligation to appoint an auditor, unless it is taking advantage of an exemption from audit. The appointment is to be made by the shareholders by ordinary resolution, except that the directors can appoint the company’s first auditor (or the first after a period of audit exemption), and can fill a casual vacancy.
Section 486: Appointment of auditors of private company: default power of Secretary of State
741.This section requires a company to inform the Secretary of State if it has failed to appoint an auditor within 28 days of circulation of its accounts. The Secretary of State has power to appoint an auditor in those circumstances.
Section 487: Term of office of auditors of private company
742.This section provides that the end of the term of office of the auditor of a private company is to be the end of the next period for appointing auditors. At the end of his term an auditor will automatically be deemed to be re-appointed except in five cases:
if he was appointed by the directors;
if the company’s articles require actual re-appointment;
if enough members have given notice to the company under section 488;
if there has been a resolution that the auditor should not be reappointed; or
if the directors decide that they do not need auditors for the following year.
743.When there is a change of auditor the term of office of the incoming auditor does not begin before the end of the previous auditor’s term. This means that a new auditor’s term will typically begin immediately after the end of the 28-day period for appointing auditors.
Section 488: Prevention by members of deemed re-appointment of auditor
744.This section enables members with at least 5% of the voting rights in a private company to prevent an auditor being automatically re-appointed by giving notice to the company. The company’s articles can enable members to do this with less than 5% of the voting rights, but cannot increase the required percentage.
745.Subsection (3) provides that the deadline for a notice preventing the deemed reappointment of an auditor is the end of the financial year for the accounts he is auditing.
