Is Audit Compulsory for a Company with No Business or Zero Turnover?

“My company is not doing any business yet. Do I still need an audit?” This is one of the most common questions from people who registered a company online. The answer is yes. Under the Companies Act, 2013, every company, whatever its size or turnover, must have its accounts audited by a Chartered Accountant every year, even if it had no transactions at all.

This article explains why, what happens if the audit and filings are skipped, and the options for a company that genuinely has no business.

The rule: every company needs a statutory audit

• Every company must appoint a statutory auditor, who must be a Chartered Accountant in practice or a firm of Chartered Accountants
• The financial statements must be audited every year and adopted by the board and, where applicable, the shareholders
• There is no turnover or profit threshold below which a company is exempt from statutory audit
• This applies to private limited companies, One Person Companies and small companies alike

A statutory audit under the Companies Act is different from a tax audit under the Income-tax law. A tax audit applies only above prescribed turnover limits; the company audit applies to every company.

The first auditor

• The board must appoint the first auditor within 30 days of incorporation
• If the board does not, the shareholders must appoint the first auditor within 90 days, at an extraordinary general meeting
• The first auditor holds office until the end of the first annual general meeting
• At the first AGM, an auditor is appointed for a term of five years, and the appointment is reported to the ROC in Form ADT-1

Many companies registered through online packages never appoint a first auditor, because nobody tells them. If that has happened, appoint one now and regularise the position.

What a company with no transactions still has to do

Requirement	Even with no transactions?
Maintain books of account and statutory registers	Yes
Prepare financial statements (balance sheet, profit and loss, notes)	Yes
Get them audited by a Chartered Accountant	Yes
Hold board meetings and the annual general meeting (except OPCs for the AGM)	Yes
File financial statements (AOC-4) and the annual return (MGT-7 or MGT-7A) with the ROC	Yes
Directors’ KYC (DIR-3 KYC) when due	Yes
File the company’s income tax return	Yes

A company with no transactions still has some entries: share capital (if paid), preliminary expenses, the bank account, ROC fees and audit fees. The financial statements for such a company are simple, but they must still be prepared, audited and filed. See filing AOC-4 and MGT-7A.

What happens if the audit and filings are skipped

• Additional fees: late filing of AOC-4 and MGT-7 attracts additional fees for every day of delay, which add up quickly. See penalties for late filing of annual returns
• Penalties: the company and its officers can be penalised for not filing financial statements and annual returns, and for not appointing an auditor
• Director disqualification: if financial statements or annual returns are not filed for three continuous financial years, all directors are disqualified for five years, and lose their directorships in other companies. See director disqualification
• Strike off by the ROC: a company that has not commenced business within a year of incorporation, or has not carried on business for two years, can be struck off by the ROC; liabilities and consequences for directors continue

Options for a company with no business

Option	When it suits	Main points
Keep the company active and compliant	You plan to start business soon	Annual audit and filings continue; costs are modest for a company with few transactions
Apply for dormant status	The company is for a future project or to hold an asset or IP, with no significant accounting transactions	Apply in Form MSC-1; a simpler annual return in Form MSC-3, certified by a Chartered Accountant, replaces the full filings; minimum directors must be maintained
Close the company by strike off	You have no plans for the company	File STK-2 after bringing filings up to date as required and settling liabilities. See how to close a company voluntarily

For a comparison of dormant status and strike off, see strike off versus dormant company.

What about LLPs?

LLPs are treated differently. An LLP’s accounts must be audited only if its turnover exceeds ₹40 lakh or its contribution exceeds ₹25 lakh in a financial year. Below these limits, audit is not mandatory, though the LLP must still file its Statement of Account and Solvency (Form 8) and Annual Return (Form 11) every year, even with no transactions. See LLP and private limited company compliance compared.

Frequently asked questions

My company has zero turnover. Is an audit really needed?

Yes. The statutory audit under the Companies Act applies to every company, regardless of turnover.

We never appointed an auditor. What now?

Appoint an auditor now, through the board or the shareholders as applicable, have the pending years audited, and file the overdue financial statements and annual returns with additional fees.

Can I skip filing until the company starts business?

No. Filings are due every year from the first financial year. Skipping them leads to additional fees, penalties and, after three years, disqualification of directors.

Is dormant status cheaper than staying active?

Dormant status reduces the annual filing burden, but has its own conditions and filings. It suits companies that are genuinely inactive for a period, such as those holding an asset for a future project.

ചുരുക്കം (Summary in Malayalam)

Companies Act പ്രകാരം ഓരോ കമ്പനിയും, ബിസിനസ് ഒന്നുമില്ലെങ്കിൽ പോലും, എല്ലാ വർഷവും Chartered Accountant-നെക്കൊണ്ട് statutory audit ചെയ്യിക്കണം; turnover പരിധി ഇല്ല. ഇൻകോർപ്പറേഷൻ കഴിഞ്ഞ് 30 ദിവസത്തിനകം board ആദ്യ auditor-നെ നിയമിക്കണം. ഇടപാടുകൾ ഇല്ലെങ്കിലും financial statements തയ്യാറാക്കി audit ചെയ്ത് AOC-4, MGT-7/7A എന്നിവ ഫയൽ ചെയ്യണം. ഫയൽ ചെയ്യാതിരുന്നാൽ late fee, penalty, മൂന്ന് വർഷത്തിനുശേഷം ഡയറക്ടർമാരുടെ അയോഗ്യത, ROC strike off എന്നിവ ഉണ്ടാകാം. ബിസിനസ് ഇല്ലാത്ത കമ്പനിക്ക് dormant status അല്ലെങ്കിൽ strike off പരിഗണിക്കാം. LLP-ക്ക് turnover ₹40 ലക്ഷം അല്ലെങ്കിൽ contribution ₹25 ലക്ഷം കവിഞ്ഞാൽ മാത്രം audit മതി.

This article gives a general overview of the audit and filing requirements under the Companies Act, 2013 and the LLP Act, 2008. Limits, fees, forms and procedures are revised from time to time; for accurate and current requirements, refer to the Acts, the rules as amended and the MCA portal. The article is not advice on any particular case.