Can shareholders demand an audit

Yes. Under section 476 of the Companies Act 2006, members holding at least 10% in nominal value of a company’s issued share capital, or of any class of it, can give notice requiring the company to have its accounts audited for a financial year, even if it would otherwise be exempt. The notice cannot be given before that financial year starts and must be given no later than one month before it ends. The right is personal to the members: no vote is needed and the directors cannot refuse.

Which companies does the right apply to?

Section 476(1) gives the right to the members of a company that would otherwise be exempt under one of the provisions listed in section 475(1)(a). Those are section 477 (small companies), section 479A (subsidiaries with a parent guarantee) and section 480 (dormant companies). Section 480(3) confirms that the dormant exemption is subject to section 476.

For the subsidiary exemption the members have an even stronger position. Section 479A(2)(a) makes the exemption conditional on all members of the company agreeing to it for the year, so any single member can stop that route without needing 10%.

The right is only relevant where the company would otherwise be exempt. A company that is excluded from the exemptions, or is in a group that fails the small group test, needs an audit anyway; see small company in a group: audit exemption. The company’s own articles can also require an audit, which GOV.UK lists alongside a shareholder request.

Who can give the notice?

Section 476(2) requires the notice to be given by members representing in total:

• not less than 10% in nominal value of the company’s issued share capital, or of any class of it; or
• if the company has no share capital, such as most companies limited by guarantee, not less than 10% in number of the members.

Three points follow from the wording.

• Holdings can be combined. The test is members representing 10% “in total”, and GOV.UK confirms the request can come from an individual shareholder or a group of shareholders.
• Any class counts. A member holding 10% of a single class, for example a class of non voting shares, qualifies even if their stake in the company overall is small. Voting rights are irrelevant.
• Nominal value, not headcount of shares. GOV.UK describes the threshold as 10% of shares by number or value. Where all shares have the same nominal value the answer is the same; where classes have different nominal values, apply the statutory test in section 476(2).

The right belongs to members, and section 112 defines a member as a person who agrees to become one and whose name is entered in the register of members. Someone who owns shares beneficially through a nominee is not a member, so the nominee must give or join in the notice; see nominee shareholders.

When must the notice be given?

Section 476(3) sets a window. 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. GOV.UK puts it as the request having to arrive at least one month before the end of the financial year.

Two consequences are easy to miss:

• A notice covers one year. The section refers to an audit for “a financial year”, and a notice cannot be given before that year begins. A member who wants audits every year must give a fresh notice in each year’s window.
• A late notice fails. Once the deadline has passed, section 476 cannot force an audit of that year. The members’ options then lie elsewhere, for example in the articles, a shareholders’ agreement or the general protections for minorities covered in minority shareholder protection.

How should the notice be given?

Section 476 does not prescribe a form. Section 1144(1) says documents sent to a company must be sent in accordance with Schedule 4, and paragraphs 3 and 4 of that Schedule allow hard copy delivery by hand or by post to the company’s registered office or another address the company has specified. GOV.UK says the request must be in writing and sent to the registered office.

A sensible notice:

• names the company and its registered number;
• identifies the financial year by its end date;
• states that the members require the company to obtain an audit of its accounts for that year under section 476;
• lists each member giving the notice and the number, class and nominal value of their shares; and
• is signed by each of them, with proof of delivery kept.

What must the company do once a valid notice arrives?

• Appoint an auditor. Section 485(3)(b) lets the directors appoint an auditor following a period in which the company, being exempt, had none. If they fail to, section 485(4) allows the members to appoint by ordinary resolution, and section 486 gives the Secretary of State a default power to appoint. The process is covered in appointing and removing auditors.
• Fix the fee. Under section 492, an auditor appointed by the directors has their remuneration fixed by the directors, and one appointed by the members has it fixed by ordinary resolution or as the members decide.
• Drop the exemption statement. Section 475(3)(a) makes every audit exemption conditional on the directors stating on the balance sheet that the members have not required an audit under section 476. After a valid notice that statement cannot truthfully be made. Delivering a document to Companies House that is misleading, false or deceptive in a material particular is an offence under section 1112 unless there is a reasonable excuse.
• Expect a first year audit. If the previous year was not audited, ISA (UK) 710 paragraph 14 requires the report to say in an Other Matter paragraph that the comparatives are unaudited, and the auditor still needs evidence over opening balances. See emphasis of matter and other matter paragraphs.

There is also a knock on effect for dividends. Section 837(3) says that unless the company is exempt from audit and the directors take advantage of the exemption, the auditor must have reported on the accounts used to justify a distribution. Once members have required an audit, those accounts cannot support a dividend until the audit report is signed; see relevant accounts for distributions.

Can the directors or majority shareholders stop it?

Section 476 does not make the right subject to a resolution, the articles or the directors’ discretion. If the members giving the notice meet the threshold and the notice is in time, the company is not entitled to the exemption for that year. A majority shareholder who controls the board can delay appointing an auditor, but the members’ fallback power in section 485(4) and the Secretary of State’s power in section 486 exist precisely for that situation.

In practice the request often comes during a dispute, when a minority holder no longer trusts management accounts prepared by the controlling director. An audit gives independent assurance on the figures. It does not investigate every transaction, and a minority holder who suspects wrongdoing may also need to consider the remedies covered in unfair prejudice petitions.

How does this work in practice?

Illustration only. A small trading company has 1,000 ordinary shares of £1 each and a 31 December year end. Sam holds 60 shares and Priya holds 50. Neither reaches 10% alone, but together they hold £110 of the £1,000 nominal value, which is 11%.

• For the year ending 31 December 2026, they can give notice from 1 January 2026 until one month before 31 December 2026. A notice delivered to the registered office on 2 November 2026 is comfortably in time. One posted on 20 December 2026 is too late.
• They cannot give a notice in December 2026 for the year ending 31 December 2027; they must wait until 1 January 2027.
• If the company also had 100 B shares of 10p each, a member holding 10 B shares would meet the class test alone.

What mistakes come up most often?

• Serving the notice after the deadline or before the financial year has begun.
• Assuming one notice covers future years.
• Counting votes or percentage of profits instead of nominal value of shares.
• Beneficial owners giving notice in their own names when the shares are registered to a nominee.
• Directors filing unaudited accounts with the standard exemption statement after receiving a valid notice.
• Leaving the auditor appointment so late that the audit cannot be finished before the filing deadline.

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Related Accountapedia entries

• Audit exemption for small companies
• Statements on a small company balance sheet
• Should a small company have a voluntary audit
• Can an LLP claim audit exemption
• Subsidiary audit exemption with a parent guarantee
• Can HMRC demand emails and messages in an enquiry
• Documents in your possession or power: what HMRC can demand

Related cover: Directors and officers insurance. Ask for a quote or call 01795 841 310.

Sources

• legislation.gov.uk: Act 2006 c. 46, section 476
• legislation.gov.uk: Act 2006 c. 46, section 475
• legislation.gov.uk: Act 2006 c. 46, section 480
• legislation.gov.uk: Act 2006 c. 46, section 479A
• GOV.UK: Audit exemptions for private limited companies
• legislation.gov.uk: Act 2006 c. 46, section 112
• legislation.gov.uk: Act 2006 c. 46, schedule 4
• legislation.gov.uk: Act 2006 c. 46, section 1144
• legislation.gov.uk: Act 2006 c. 46, section 485
• legislation.gov.uk: Act 2006 c. 46, section 486

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 19 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.