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Dormant companies and the Audit framework

Updated: Nov 8, 2023

1) Definition

A dormant company entity is defined in S365 of the Companies Act:

(a) it has no significant accounting transaction (ie. a transaction that is required by s.281 and s.282 Companies Act 2014, to be entered in the company’s accounting records); and (b) its assets and liabilities comprise only permitted assets and liabilities (ie. investments in shares of, and amounts due to or from [the company]).

In determining whether or when a company is dormant for the purposes of s.365, the following shall be disregarded:

(a) any transaction arising from the taking of shares in the company by a subscriber to the constitution as a result of an undertaking of his or her in connection with the formation of the company; (b) any transaction consisting of the payment of—

(i) a fee to the Registrar on a change of the company’s name; (ii) a fee to the Registrar on the re-registration of the company; or (iii) a fee to the Registrar for the registration of an annual return (including any fee of an increased amount by virtue of regulations under section 889(6)).

2) Dormant company audit exemption

To avail of the dormant company exemption, directors must:

(i) be of the opinion that in respect of the financial year concerned, the company is dormant and will satisfy the conditions as defined in S363.

(ii) decide that the company should avail of the exemption in that year (and record that decision in the minutes of the meeting concerned):

(iii) disclose on the face of the Balance Sheet that the S363 dormant company exemption is being invoked.

The Dormant Company Audit Exemption is not defined by company size. A company can qualify to claim audit exemption based on the fact that it is dormant. This allows a holding or a subsidiary company within a group to claim the dormant company exemption, while other trading entities in a group may require an audit in circumstances where the group as a whole surpasses ‘small’ group thresholds as per the Companies Acts.

A stand alone company which qualifies as dormant can avail of the dormant company audit exemption S365 OR the small company audit exemption S359 which is usually invoked.

3) If a dormant company is late filing in Company Registration Office can it invoke the dormant company audit exemption?

No, Section 363 overrides Section 365 – if accompany, including a dormant company, is late filing in the Companies Registration Office, it will require a statutory audit in the subsequent two years.

(Note: where a missed annual return is the company’s first annual return, at 6 months from incorporation, there is not a loss of the audit exemption)

(Note: a PLC, PUC or PULC cannot claim the dormant company audit exemption because they are public companies; Schedule 5 companies and credit institution entities cannot claim the dormant company exemption)

For further information regarding dormant company entities and the prescribed filing requirements, please contact Company Auditor 4U Ltd for advice.

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