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ACCA Applied Skills · Corporate and Business Law (Global) · Other company officers

Kestrel Ltd qualifies as a small company and is entitled to an audit exemption. Members holding a significant proportion of its shares want an audit anyway. Under the typical rule in company law, what is the position?

Members holding the required minimum proportion of shares can serve notice requiring Kestrel to obtain an audit despite qualifying for exemption. This protects minority shareholders, so the exemption is not automatic and the directors do not have sole control.

  1. AThe exemption is automatic and members cannot require an audit
  2. BMembers holding the required minimum percentage of shares may serve notice requiring the company to obtain an auditCorrect
  3. COnly the directors may decide whether an audit is obtained

Explanation

Exemption rules commonly allow members holding a specified minimum proportion of shares to give notice demanding an audit, protecting minority investors. The exemption is therefore not absolute, and the decision does not rest solely with directors. Sections and percentages vary by jurisdiction.

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