Setting up a company in Italy

Company, branch, or representative office?

The main options to establish a business in Italy are:

As opposed to the establishment of an Italian company, a branch is not a separate legal entity but a foreign “unit” of the mother company. Branches do not enjoy, as such, organizational and decision-making autonomy. For tax purposes, branches are considered as permanent establishments and are therefore subject to taxation in Italy. They shall thus keep their own books, submit VAT and income tax returns to tax authorities (Revenue Agency or Agenzia delle Entrate) each year, and file the annual report of the foreign company with the Italian Registrar of Companies.

A representative office is a registered office of a foreign company that carries out in Italy, purely and exclusively, promotional and advertising activities, collection of information, scientific or market research. The representative office has only an auxiliary or preparatory function to facilitate the foreign company’s penetration in the Italian market. A representative office can open a bank account in Italy.

In summary, a representative office may only carry out promotional activities, not business activities (production, sales, or services), and its manager has no power to decide or to bind the foreign company.

What are the main types of companies in Italy?

Italy offers a wide range of legal forms for setting up companies depending on the company’s organization model, its business objectives, the level of capital to be committed, the extent of liability of the founders as well as tax and accounting implications.

Italy’s corporate law primarily differentiates between limited liability companies and partnerships.

Limited liability companies

In Italy, there are two main types of limited liability companies:

  • Private Limited Companies by Quotas (società a responsabilità limitata or S.r.l.) including “Traditional S.r.l. or “S.r.l.” and “Simplified S.r.l.” or “S.r.l.s.”);
  • Public Limited Companies by Shares (società per azioni or S.p.A.).

Limited liability companies are generally characterized by:

  • Limited liability for the company owners, i.e. each owner’s liability is limited to the cash or assets he/she has contributed to the company;
  • Separation of ownership and managing powers; hence the owners of the company are not necessarily also the directors of the company, and directors are not necessarily company owners;
  • Freely transferable shares;
  • Need to have at least one shareholder and one director.

Partnerships

In Italy, there are two main types of partnerships:

  • Società in nome collettivo or S.n.c., and
  • Società in accomandita semplice or S.a.s.

Partnerships (società in nome collettivo or S.n.c. and società in accomandita semplice or S.a.s.) are generally characterized by:

  • Unlimited joint and several liability of the partners for the company’s obligations;
  • Each partner acts as a director of the company with managing powers;
  • Non-transferability, either inter vivos or mortis causa of the partner status except whereby authorized by all other partners.
  • Need to have at least two partners;
  • Tax transparency

Società a responsabilità limitata (S.r.l.) – Traditional S.r.l. Vs. Simplified S.r.l.

Under Italian law, there are two main types of private limited companies including:

  • Traditional Società a Responsabilità Limitata (Traditional S.r.l.), and
  • Simplified Società a Responsabilità Limitata Semplificata (Simplified S.r.l.s.).

Traditional S.r.l. and Simplified S.r.l. are the most commone types of limited liability companies in Italy and they allows the broadest flexibility to the founder(s).

A shareholder of a Traditional S.r.l. or Simplfied S.r.l. holds only one “quota” of the company’s shares that represents a varying portion of subscribed capital. In the case of a single member company, the “quota” represents the entire share capital.

What are the main differences between Traditional S.r.l. and Simplified S.r.l.?

The main difference between Traditional S.r.l. and Simlified S.r.l. is that Simplified S.r.l. have the following restrictions as opposred to Traditional S.r.l.:

  • The shareholders of a Simplified S.r.l. can be only individuals and not other companies;
  • The initial share capital of a Simplified S.r.l. cannot be more than Euros 10,000.00;
  • Simplified S.r.l. can only adopt the standard model articles of association by-laws provided by Italian law and no amendments to model articles are allowed (i.e. you cannot tailor-make the company’s by-laws).

What are the common features of Traditional S.r.l. and Simplified S.r.l.?

Traditional S.r.l. and Simlified S.r.l. join, among others, the commone features:

  • The company shall have at least one director and one shareholder (the shareholder/s and the director/s can be the same person and do not need to be Italian residents);
  • The company must have a registered address in Italy (if you don’t have an office in Italy, we can provide registered office service);
  • The director(s) and shareholder(s) of the proposed company shall obtain a tax identification number (codice fiscale) with the Inland Revenue;
  • The company shall obtain a certified email address (PEC) which is basically an official email address for the company that has the same legal value of a registered mail with return receipt;
  • The shareholders of the proposed company shall execute an incorporation deed in front of an Italian public notary, but the incorporation deed can be executed by distance if the shareholders of the proposed company grant us a power of attorney duly notarized and apostilled (or notarized and legalized with the local Italian Embassy or Consulate).

Is there any minimum initial share capital requirement to set-up a Traditional S.r.l. or a Simplified S.r.l.?

There is no longer any minimum capital requirement to open a Traditional S.r.l. or a Simplified S.r.l. (i.e. the initial share capital can be any amount starting from Euro 1.00).

However, if the company’s capital is less than Euros 10,000.00 the following minor restrictions will apply:

  • No contributions in kind of any assets other than cash are allowed;
  • 20% of the profit for the business year shall annually be put aside as a legal capital reserve until the net asset of the company has reached Euros 10,000.00. Such reserve can be used only to increase the capital or to cover losses.

Is it possibile to open a Traditional S.r.l. or a Simplified S.r.l. by distance?

To open an Italian company, the founder(s) shall execute an incorporation deed (including memorandum and articles of association) before an Italian public notary. The incorporation process can be carried out by distance through a power of attorney granted to our firm. In this case the power of attorney shall be notarized and apostilled or (or notarized and legalized with a local Italian Embassy or Consulate if the country where the power of attorney is executed is not a member of the apostille convention).

Allotment of the shares does not to be proportional to the value of the shareholders’ contributions to the company.

Unless otherwise specified in the Memorandum of Association, the value of each quota is calculated proportionately to the value of the shareholder’s contribution to the company, and his/her rights (e.g. voting rights, and the right to share in profits) are also proportionate. For instance, if a shareholder holds 60% of an S.r.l. or S.r.l.s. capital, he/she is the owner of a quota equal to 60% of total capital, is entitled to 60% of the company’s earnings, and his/her vote represents 60% of the quorum required for passing quota-holders’ resolutions. Nevertheless, shareholders may establish – either in the Memorandum of Association or, subsequently, in the Articles of Association – shares not proportionate to the value of the contribution to the company, and may also establish special rights for specific shareholders.

Shareholders’ meetings

Shareholders may take decisions provided for by law or company’s Articles of Association in the collegial manner typical of Shareholders’ Meetings. However, the Articles of Association may also provide for such resolutions (unless related to specified matters) to be taken through more streamlined procedures, such as written consultation or written consent.

Management Body

Unless otherwise specified in the Articles of Association, Traditional S.r.l. and Simplified S.r.l. management is entrusted to one or more directors appointed by the shareholder(s) themselves.

As such, Traditional S.r.l. and Simplified S.r.l.. may be managed by a sole director or by multiple directors. In the latter case, the company may adopt one of the following management systems:

  • Board of Directors;
  • Several Management;
  • Joint Management.

The managing body may be also a corporate body, unless further legal provisions setting forth restriction or requirements related to certain type of companies.

The articles of association may establish that multiple administration systems be used, each for a specific set of issues for which the managing body is called upon to decide. In any event, all directors’ decisions shall be documented in a dedicated corporate book.

What is a Board of Statutory Auditors (Collegio Sindacale)?

The Board of Statutory Auditors (Collegio Sindacale) or Sole Auditor (Sindaco Unico) is an internal supervisory body. It is largely entrusted with the oversight of corporate management in order to ensure compliance with the law, memorandum and articles of association; compliance with the principles of sound administration, in particular the effectiveness of the organizational, administrative and accounting systems adopted by the Company, and its effective performance.

The Board of Statutory Auditors (Collegio Sindacale) or Sole Auditor (Sindaco Unico), therefore, supervises:

  • the activities of the BoD, attending the board meetings;
  • the activities of the shareholders’ meeting, attending the meetings with the power to challenge the resolutions adopted against the law or the articles of association.

The Board of Statutory Auditors (Collegio Sindacale) or Sole Auditor (Sindaco Unico) is appointed by the shareholders’ meeting. The Board of Statutory Auditors (Collegio Sindacale) is composed of 3 or 5 standing members and 2 alternate members. The auditors must satisfy the requirements of integrity, experience, and independence prescribed by law; must be professionally independent from the company, its subsidiaries and parent companies; and must possess technical expertise.

With regard to Traditional S.r.l. and Simplified S.r.l. the appointment of a Board of Statutory Auditors (Collegio Sindacale) or a Sole Auditor (Sindaco Unico) is mandatory only if:

  • The company is required to keep a consolidated balance; or
  • The company controls or is controlled by a company which is subject to statutory audit (e.g. a Public Limited Company by Shares or S.p.A.); or
  • for two years has exceeded the following limits: (a) total assets of the balance sheet: Euro 4,4 millions; (b) revenues from sales and services: Euro 8,8 millions; (iii) workers employed on average during a financial yeare are more than 50 units.

Audit requirments.

An audit of the accounts of a Traditional S.r.l. or Simplified S.r.l is mandatory only if the requirement to appoint a Board of Statutory Auditors or a Sole Statutory Auditor is triggered. As a general rule, such an audit is carried out by an external Auditor or Audit Firm. The bylaws can assign the audit to the Board of Statutory Auditors or to the Sole Statutory Auditor

Public Limited Companies By Shares – Società per Azioni (S.p.A.)

A Società per Azioni is a public limited company by shares. This form of corporation better suits the needs of large businesses requiring a significant amount of capital

Share capital and shares

The initial share capital of a S.p.A. hsa to be at least € 50,000.00, and is divided into “shares”, that can be physically issued to the shareholders or dematerialized.

Capital can be paid up either by cash contribution or, whereby expressly provided in the Memorandum of Association, as an in-kind contribution or contribution of receivables, whose value shall be equal to the amount of capital subscribed.

In the case of multiple shareholders, subscribers shall pay up prior to the incorporation of the company at least 25% of the share capital. In case of a single member, the entire share capital shall be paid up prior to the incorporation of the company.

Conversely, whereby paid in kind or via transfer of receivables, the share capital is to be paid in its entirety.

Is it possibile to open a S.p.A. by distance?

To open an Italian company, the founder(s) shall execute an incorporation deed (including memorandum and articles of association) before an Italian public notary. The incorporation process can be carried out by distance through a power of attorney granted to our firm. In this case the power of attorney shall be notarized and apostilled or (or notarized and legalized with a local Italian Embassy or Consulate if the country where the power of attorney is executed is not a member of the apostille convention).

Shareholders’ Meetings

The Shareholders’ Meeting is the S.p.A.’s sovereign corporate body, i.e. the forum within which its shareholders form their will as to the company, then implemented by the managing body. The shareholders pass resolutions collectively. Resolutions legitimately passed during the meeting are binding for all shareholders, including those absent and those who voted against the resolution passed; nevertheless, in some cases it is possible for such parties to withdraw from the company, following procedures established by law.

Corporate governance system.

S.p.A.’s can choose between three different corporate governance systems:

  • Italian traditional management and control system;
  • one-tier management and control system, of British inspiration;
  • two-tier management and control system, of German inspiration.

Italian traditional corporate governance system.

In the Italian traditional system, the management of the Company will be entrusted to a sole director or a Board of Directors (“BoD”) appointed by the shareholders’ meeting. Directors stay in office for 3 financial years; they may, however, be re-elected, unless otherwise provided in the articles of association. They, also, may be revoked, at any time, through a resolution of the shareholders’ meeting.

One or more directors can be appointed as Chief Executive Officer(s) (Amministratore Delegato, “CEO”) by the BoD. The BoD can also appoint an executive committee (Comitato Esecutivo).

The Board of Statutory Auditors (Collegio Sindacale), instead, is the internal supervisory body of a S.p.A. It is largely entrusted with the oversight of corporate management in order to ensure compliance with the law, memorandum and articles of association; compliance with the principles of sound administration, in particular the effectiveness of the organizational, administrative and accounting systems adopted by the Company, and its effective performance.

The Board of Statutory Auditors, therefore, supervises:

  • the activities of the BoD, attending the board meetings;
  • the activities of the shareholders’ meeting, attending the meetings with the power to challenge the resolutions adopted against the law or the articles of association.

The Board of Statutory Auditors is also appointed by the shareholders’ meeting and is composed of 3 or 5 standing members and 2 alternate members. The auditors must satisfy the requirements of integrity, experience, and independence prescribed by law; must be professionally independent from the company, its subsidiaries and parent companies; and must possess technical expertise.

One-tier system.

A first alternative to the traditional system is the one-tier system. The latter provides a governance system substantially similar to the traditional one, except that there is no Board of Statutory Auditors; instead, there is a Management Control Committee (Comitato per il Controllo sulla Gestione) appointed within the BoD.

Members of the Management Control Committee are directors who do not perform management functions.

As for its tasks, the Management Control Committee performs functions that are similar to the ones exercised by the Board of Statutory Auditors in the traditional governance system (and, as a consequence, its members must satisfy the same requirements of integrity, experience, and independence prescribed by law with respect to Statutory Auditors):

  • supervisory functions related to the effectiveness of the organizational, administrative, internal control and accounting systems;
  • additional tasks entrusted to it by the BoD, in particular the ones related to the relationship with the independent auditor.

Two-tier system.

In companies that adopt the two-tier system, the management function is entrusted exclusively to the Management Board (Consiglio di Gestione). The control function is, instead, exercised by the Supervisory Board (Consiglio di Sorveglianza).

The Management Board is composed of at least 2 members, who stay in office for 3 financial years. The members, unlike the traditional system, are appointed (and revoked) by the Supervisory Board and not by the shareholders’ meeting.

The Supervisory Board is formed by at least 3 members, appointed (and revoked) by the shareholders’ meeting, who stay in office for at least 3 financial years. Such Board:

  • oversees and supervises the corporate management in order to ensure compliance with the law, memorandum and articles of association; compliance with the principles of good administration and effectiveness of the administrative system;
  • exercises a significant portion of the functions that usually are held by the shareholders’ meeting (appointment, revocation and compensation of members of the Management Board, approval of the financial statements).

External audit requirements.

A S.p.A. must have its accounts audited. This can be carried out by the Board of Statutory Auditors only if:

  • all members are chosen from the register of auditors, and
  • the company is not listed on a stock exchange and is not are considered a “public-interest entitiy”, as defined by art. 16 of the Legislative Decree n. 39/2010 (which transposed European Directive 2006/43/CE) reforming the audit system, and
  • the company is not required to draw up a consolidated balance sheet.

Auditors shall:

  • express a judgment on the financial statements with a special report;
  • carry out audits during the year.

Auditors also have the right to obtain from the directors documents and information useful to perform the audit activities and can carry out inspections, investigations and examination of deeds and documents of the company.

Auditors are appointed by the shareholders’ meeting.

General or Unlimited Partnership – Società in nome collettivo (S.n.c.)

The company’s business name must contain the name of at least one of the partners and an indication that it is an unlimited partnership.

The members have unlimited liability for partnership obligations and there can be no agreement to the contrary. When seeking repayment of debts owed by the partnership, creditors must first enforce them against the partnership before applying to the members. The unlimited partnership is subject to bankruptcy law with the contemporaneous bankruptcy of all partners.

The partners generally have separately exercisable powers of administration and representation. If agreed, powers of administration may be reserved to some members only.

Limited Partnership – Società in accomandita semplice (S.a.s.)

The limited partnership has two categories of partners:

  • general partners (soci accomandatari), who are responsible for the administration and management of the company and who have unlimited liability for the fulfillment of partnership obligations;
  • limited partners (soci accomandanti), who are not directors and will be liable for partnership debts within the limits of the investment made in the partnership, subject to certain exceptions governed by law.

The partnership name (business name) must contain the name of at least one general partner and an indication that it is a limited partnership.

If a limited partner’s name is included in the partnership name, he or she will have unlimited liability, jointly and severally with the general partners, for partnership debts.

Limited partners cannot perform acts of administration or negotiate or do business in the name of the partnership, except when granted a special power of attorney for specific business activities. Any limited partner who disregards this prohibition will take on unlimited liability for all partnership debts and may be excluded from the partnership itself.

Who can set up a company in Italy?

In principle, foreign investors (companies or individuals) may open a company in Italy subject to the condition of reciprocity (i.e. when a similar right is granted to Italians in their country of origin).

Verification of the condition of reciprocity is not necessary when the foreign investor:

  • is a citizen of a Member State of the European Union;
  • is a citizen of one of the States of the European Economic Area (i.e. Iceland, Liechtenstein and Norway);
  • is a citizen of a country that has an international agreement with Italy (e.g. agreement governing international investment, treaty of friendship and trade, or other such agreements). It should be noted that Italy has such agreements with most of the countries.
  • has a refugee or stateless person status.

Verification of the condition of reciprocity can be done through the “Country Reports” issued by Italy’s Ministry of Foreign Affairs (MAE).

Contact us for more information about company formation in Italy.


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