- Setting up a company
- Establishing a branch of a foreign company in Italy
- Opening a Representative Office in Italy
- Innovative start-up companies
- Accoting and tax services
- Debt collection in Italy
- Employment and Payroll
22 September, 2019
The taxation of the income of an Italian company is based on its aggregate income earned both in Italy and abroad. This articles provides an introduction to corporate tax in Italy, outlining the types (IRES and IRAP) and rates of income tax and explaining how such tax is calculated.
The taxation of the income of an Italian company is based on its aggregate income earned both in Italy and abroad. The corporation tax to be paid by a foreign company is levied upon its income earned in the Italian territory where it has a permanent establishment.
The income of a company is subject to national corporate income tax (IRES) and regional income tax (IRAP). IRES is a proportional tax levied at the rate of 24% on the amount of the taxable income. IRAP is calculated at a rate of 3.9%.
The taxable income of a company is represented by the results shown in its profit and loss account. Losses of a company may be carried forward and deducted from the corporate income tax (IRES) taxable income of the subsequent fiscal years up to 80% of the taxable income. Losses incurred in the first three fiscal years may be carried forward and deducted from 100% of the corporate income tax (IRES) taxable income of the subsequent fiscal years..
Italian corporate tax law provides for two types of withholding tax: (i) final withholding tax levied at source; and (ii) withholding tax in advance payment of income tax levied upon a single item of income and which may later be added to the aggregate income. Withholding tax rates refer to dividends, interest and royalties. This document explains the types and rates of withholding tax in Italy, including double taxation relief, and a table of Italian withholding taxes applicable to European countries is provided.
Types of withholding tax
Italian tax law provides, inter alia, for two types of withholding tax:
(1) final withholding tax levied at source; and
(2) withholding tax in advance payment of income tax levied upon a single item of income and which may later be added to the aggregate income. The amount of withholding tax levied in advance is deducted from the tax levied on the aggregate income. The withholding tax is levied intermediaries, i.e. by those who pay the income subject to withholding tax. These are commercial organisations, business concerns, commercial agencies and entities which are not subject to IRES. The withholding tax is levied by companies in the following instances:
(a) on income from employment;
(b) on fees for independent services;
(c) on commissions to agents and brokers;
(d) on royalties for the use of intellectual property rights, patents, trademarks and other rights on industrial property; and
(e) on capital income (interest on loans, from bonds, bank and post office deposits and current accounts, and dividends).
Italian Tax Law provides for the application of the withholding tax with referenceto dividends, interest and royalties.
Dividends distributed to entities other than individuals, which are not resident in Italy, are levied with a withholding tax rate of 26%; however if the entity is a company, which is subject to corporate income tax in a State belonging to the European Union and to the Economic European Area the applicable withholding tax rate is reduced to 1.2%. According to the parent/subsidiary Directive (90/434), if certain conditions are met, dividends distributed to the parent company by the subsidiary are exempted from any withholding tax.
In order to avoid cases of double taxation (both legal and economic) inbound dividends received by a company (non-resident in “low tax countries”) are exempt from taxation in the amount of 95%. For the interest due, a withholding tax rate of 26% is charged; for all other interest Italian Tax Law provides for the application of general full taxation.
Royalties paid to entities not resident in Italy are levied with a withholding tax rate of 30%; for other royalties Italian Tax Law provides for the application of general full taxation.
According to the interest/royalties Directive (2003/49), if certain conditions are met, interest and royalties paid to “group companies” (25% of participation) are exempted from any withholding tax.
Some international Doub, entered into by Italy to mitigate double taxation, set forth particular provisions for exemption from withholding tax for certain types of income or fix reduced rates in relation thereto. A table of the withholding taxes on payments from an Italian company to a resident of various countries included in this Publication is set out at para .
However, as mentioned above:
In particular, Italy has signed 97 tax treaties to avoid double taxation.
For information for each countries, please visit:
Table of Italian Withholding Taxes Applicable to European Countries
|Resident corporations||0||0/26 (1)||0|
|Resident individuals||26 (2)||26||20 (3)|
|EU resident corporations||0/1.2 (4, 5)||0 (4)/DTT rates||0 (4)/DTT rates|
|Swiss resident corporations||0 (6)/DTT rates||0 (6)/DTT rates||0 (6)/DTT rates|
|Non-resident corporations and individuals:|
|Non-treaty countries||26 (7)||26||30 (3)|
|Treaty countries (8):|
This document summarises the rules on the application of registration and transfer taxes in Italy, and provides the tax rates.
Capital transactions resulting in an increase in capital in cash or in the transfer of movable goods, if they are subject to VAT, are subject to registration tax at a fixed amount of €200. Sales of real property are subject to a registration tax of between 1% and 15% depending on the type of property involved plus mortgage and cadastral taxes (about 3% as whole). Such tax is levied on deeds entered into within Italy and relates to the market value of such deeds, regardless of the values declared in the deeds themselves.
Contracts for the transfer of rights are subject (depending on the type of deed) to proportional rates ranging from 0.5% to 3%. In some cases contracts of transfer are subject to VAT provided that, in accordance with the principle of alternative applicability between VAT and the registration tax, such contracts are only subject to registration tax at a fixed amount of €200.
On the sale of property and on the performance of services by companies in Italy, VAT is applied at the rate of 21 percent on the amount of the sale or on the declared value of the services. This rate is reduced to 4 percent or 10 percent, as the case may be, if the company is involved in sales of particular categories of goods. This document explains the application of VAT on companies under Italian law.
On the sale of property and on the performance of services by companies in Italy, VAT is applied at the rate of 22% on the amount of the sale or on the declared value of the services. This rate is reduced to 4% or 10%, as the case may be, if the company is involved in sales of particular categories of goods (such as agricultural products, agronomic goods, fish, milk and dairy products, etc).
VAT is also paid on imports from non EEC countries and on transactions abroad, but it is excluded, on the basis of the territorial principle, on particular export transactions (within the limits and the conditions provided by law). Transactions carried out in Italy by non-resident entities which have a permanent establishment in Italy are also subject to VAT.
EC Directive no 91/680, amending Council Directive 2006/112/EC, set forth a transitional regime for cross-border sales between business operations in the European Community. In the case of sales of goods, the VAT must be paid in the place where the goods are located. On the performance of services, there is a distinction: if the purchaser is a VAT subject, VAT must be paid in the State where the purchaser is resident or domiciled for tax purposes; if the purchaser is a consumer, VAT must be paid in the State where the performer is resident or domiciled for tax purposes. VAT is paid on the basis of the returns made either on a monthly or on a quarterly basis.
Any sales of national or nationalised real estate or moveable property located in Italy are considered to be performed in Italy.
The act governing the application of VAT provides that certain transactions are exempt from tax (for example, credit and financing transactions; insurance transactions; foreign currency transactions; transactions concerning shares and bonds). VAT is based on the principle of ‘compulsory recourse’. Therefore, each commercial agent is bound to pay to the Italian Government, on a monthly or quarterly basis (depending upon the realised turnover) any VAT collected after deducting any VAT paid on the transactions in relation to which it was a beneficiary.
There are a series of steps involved in the application of VAT including the obligation of the performer of the service or seller of the goods to issue an invoice; the obligation to keep and maintain a book with a list of all invoices issued and purchases performed. Each year, companies must file a VAT return, at the same time as their income tax return, stating the turnover transactions performed, as well as the amount of VAT collected and the amount of VAT paid. By 16 March of each year any amount due in addition to the amount paid on a monthly or quarterly basis must be paid.
‘Capital gains’ (redditi diversi di natura finanziaria) are income deriving from the disposal of previously invested capital, including shares (or quotas in a society with restricted liability (srl)), foreign currency and bonds. As part of this commentary on company law in Italy, this document explains the tax treatment of capital gains, setting out the options as to how they may be taxed as well as the conditions for the application of the participation exemption regime.
‘Capital gains’ (`redditi diversi di natura finanziaria’) are income deriving from the disposal of previously invested capital, including shares (or quotas in an Srl), foreign currency and bonds.
Capital gains of an individual may be taxed, each having different advantages which are not dealt with in detail herefollows:
(1) Regime della dichiarazione(‘tax return option’), which taxes the gains effectively realised at a rate of 26%, on an annual basis.
(2) Regime Amministrato(‘Administration option’), which taxes the gains effectively made at the completion of each transaction at a rate of 26%. It is not applicable to qualified shareholdings, and allows anonymity for the taxpayer.
(3) Regime Gestito(‘asset management option’), where the taxation is based on a ‘yearly accrual basis’ regardless of the income realised. It is not applicable to qualified shareholdings and the tax rate is 26%.
A particular regime is applied to capital gains from participations performed by companies: if certain conditions are met (see below)the capital gain is levied only on 5% of the taxable amount (the percentage of exemption is 95%). In order to enjoy this participation exemption regime four conditions must be satisfied:
(a) uninterrupted possession of the participation from the first day of the twelfth month preceding its sale (the `holding period’);
(b) the participation must be classified as a financial fixed asset (`Immobilizzazioni finanziarie‘) in the first financial statement closed during the first holding period;
(c) the residence of the company in which the stake is held must not be in a State which is not a non-resident in “low tax countries”;;
(d) the subsidiary must carry on business activity.
12 September, 2019
Come and work in Italy and have up to 90% of your employment income tax free
The preferential tax regime for “inbound workers”(a tax regime aimed at attracting to Italy non-resident employees / self-employed workers), provides for a 50% exemption of Italian-sourced employment (and assimilated) and self-employment income.
The preferential tax regime applies for the tax year when the transfer of tax residence takes place and the following 4 tax years (i.e. 5 years).
Requirements for eligibility:
The preferential tax regime applies also to the “inbound workers” (EU Citizens or citizens of a Country with whom Italy has a Double Tax Treaty or alternatively, a Tax Exchange of Information Agreement), who meet all the following requirements:
The Decree extends the scope of application the preferential tax regime:
29 August, 2019
The Italian government has recently implemented incentives for “highly-qualified” workers that want to relocate to Italy.
The rewarding system consists in a lowering of the personal income tax base to the extent of 50% and it applies from the tax year in which the transfer of tax residence in Italy occurred and for the next four taxing periods. Please note that “tax residence” requires compliance with at least one of the following conditions for most of the tax period: (a) registration in the Italian population register; (b) centre of vital interests in Italy (family etc.); (c) physical presence on the Italian territory.
The “lavoratori impatriati” lose the tax benefits if the residence in Italy is not maintained in the two years after the transfer, with consequent obligation of return the unpaid taxes together with penalties and interests.
The rewarding system applies to the following subjects, who transfer their fiscal residence in Italy:
9 August, 2019
1 Types of shares and denomination
Only the SpAs and SapAs corporate capital is divided into shares while the corporate capital of an Srl is divided into quota which represents the amount of the corporate capital owned by each member.
Shares must generally be of equal nominal value (this need not be indicated on the share certificates or in the articles of incorporation, but the aggregate value of the issued shares cannot exceed the company’s corporate capital) and confer equal rights upon holders of shares of the same class. The articles of incorporation can provide for the issuance of different classes of share embodying different management and/or financial rights. It is also possible to have classes of share other than ordinary shares, which give their holders special rights to profits and special voting rights (eg veto rights for qualified resolutions). Pursuant to Legislative Decree 179/2012 also innovative start up incorporated as Srl can now create different categories of quotas which give their holders special right.
The issuance of new shares or new quotas is not permitted until all those already issued are fully paid up.
b Shares with limited voting rights – article 2351
The articles of incorporation can provide for the issuance of shares with limited voting rights. The shares may confer no vote, a vote limited to certain matters or a vote subject to certain conditions, but the value of these shares may not exceed half of the share capital in total. Further, it is possible for the articles of incorporation to provide a maximum limit on the votes exercisable by a single shareholder. Without prejudice to the provisions of special laws, the articles of association may provide for the creation of shares with multiple voting rights even for particular topics or subject to conditions that are not merely potestative. Each multi-voting share may have a maximum of three votes.
c Shares issued to the employees’ benefit – article 2349
If the articles of incorporation so provide, a company may, by resolution of a special shareholders’ meeting, distribute profits by the issuance of special shares to be allocated to employees or to employees of controlled companies. These shares might be subject to special regulations as regards their form, transfer, and other rights. In order to issue shares for the benefit of employees, the company’s capital must be increased by a corresponding amount. Innovative start up may offer to their collaborators, employees, suppliers and consultants capital shares by way of additional remuneration (e.g. stock option and work for equity).
d ‘Saving’ shares – Legislative Decree No 58/98
A different class of share dedicated to small investors may also be issued by Italian companies listed on the Stock Exchange. No voting rights attach to such saving shares (`azioni di risparmio‘), but their holder will have a preference in the distribution of profits and a limited share of the losses. Saving shares are not represented by share certificates and may not exceed half of the outstanding corporate capital.
e ‘Enjoyment’ shares – article 2353
`Azioni di godimento‘ (enjoyment shares) have no voting rights but give a right to dividends subject to distributions of dividends to holders of other classes of share. Azioni di godimentocan be issued only in connection with a reduction of capital and are distributed as a type of indemnity to those who are entitled to reimbursement as a consequence of the cancellation of their shares.
f ‘Tracking shares’ – article 2350
`Azioni correlate‘ (tracking shares) are shares that give their holders dividend rights that are connected with the performance of a specific line of business of the company. The articles of incorporation must specify the criteria for identifying the costs and profits attributable to the particular line of business, the accounting methods to be used in calculating the revenues and the profits or the losses of the relevant line of business, the dividends and rights granted to the holders of tracking shares and any conditions or procedure for the conversion of tracking shares into ordinary shares. Dividends will be payable to tracking shares holders only on the profits the company makes in the relevant line of business and which are tracked in the company’s accounts.
g ‘Redeemable shares’ – article 2437 sexies
As an exception to the general rules on purchase of its own shares, the articles of incorporation may authorise the issuance of redeemable shares (`azioni riscattabili‘) which are shares that are redeemable by either the company or the shareholders. The redemption price is determined in accordance with the formula used to liquidate shares to a member withdrawing from a company (when the conditions to do so are met).
h Privileged shares
A resolution of the extraordinary shareholders’ meeting may vote to issue privileged shares (`azioni privilegiate‘) to which the following rights are attached:
(a) Profit-related privileges:
(i) preference in profit distribution – the shares will carry the right to a greater dividend in relation to the profits distributed;
(ii) priority in profit distribution – these shares will participate first in any distribution of profits, with only the profits remaining after distribution being distributed to holders of other shares; and
(iii) guaranteed dividends – irrespective of a decision to distribute them.
(b) Loss-related privileges.
So called `azioni postergate‘ (deferred shares) enjoy some insulation from diminution of value in circumstances of the reduction or total loss of the company’s capital, as their value will only be reduced if necessary after the diminution of capital has been reflected in a reduction of the value of the ordinary shares. It is not possible to totally exclude any reduction in value of deferred shares.
(c) Liquidation-related privileges
The holders of privileged shares might have the rights to the return of the nominal value of the shares or greater shares in the residual capital in case of liquidation.
i Other financial instruments
SpAs may raise capital by means of:
(1) Financial instruments issued in consideration for the provision of services/goods (`strumenti emessi a fronte di particolari apporti‘, article 2346 of the Civil Code). If provided under the articles of incorporation, such financial instruments may be allocated among members or non-members as consideration for the provision to the company of goods or services. Pursuant to article 2351 of the Civil Code such financial instruments may grant their holders property or administrative rights, excluding voting at general meetings of shareholders. The articles of incorporation provide for the conditions under which those instruments can be issued and on the effect of the failure to provide the related services.
(2) Instruments issued in connection with funds established by the company to carry out specific activities (`strumenti emessi a fronte di patrimoni destinati‘, article 2447 bis and ter of the Civil Code). An SpA may constitute funds of assets dedicated to specific projects. Under Italian corporate law it is possible to finance such projects by issuing financial instruments linked to the performance of the funds and granting specific dividend rights to their holders. The instruments must be managed separately by means of a register keeping details of the nature of the instrument, the holders thereof and transactions relating thereto.
Such instruments are quite uncommon in Italian practice.
As previously indicated, Srls do not have shares, but their corporate capital is divided into quotas. Quotas are fractions of the capital and cannot be represented by shares/certificate. In contrast to shares, quotas may be of different values, but they cannot be divided into different classes, however the by-laws can grant one of more members with special rights over the management and participation in the dividends; the relevant rights will attach to the members and not the class of shares. The deed of incorporation of the so-called innovative start-ups(ie those companies registered with a special section of the competent Register of Enterprises) can create classes of shares with different rights regardless to the provisions of article 2468.2 and 2468.3 of the Italian Civil Code.
(i) Debentures: ‘Obbligazioni’ and Srls – article 2483
Under article 2483 of the Civil Code, an Srl can issue debentures to accredited investors.
Debentures issued in this way may only be subscribed to by professional investors subject to supervision pursuant to the applicable special laws. The subsequent trade in the debentures is also limited by the provision which specifies that if a debenture is transferred, the assignor will be liable in respect of the solvency of the company in circumstances in which the transferee was not a professional investor or a member of the company.
2 Share certificates
Shares and quotas represent a portion of the company’s corporate capital as evidenced by their nominal value. Shares must be of equal nominal value. They can be issued for a value higher than the nominal value (share premium), but not for an amount lower than their nominal value.
The share certificate (which does not apply to public companies) if issued must provide for the following information:
(a) the name and address of the company;
(b) the date of execution of the articles and of the company’s registration in the Register of Enterprises and where the Register is kept;
(c) the nominal value and the share capital or, in the case of shares issued without a nominal value, an indication of the number of shares issued;
(d) the amount of shares not fully paid up; and
(e) the rights and obligations attaching thereto. Share certificates must be signed by a director (also digitally). It is also possible to issue temporary share certificates while the final ones are prepared. Share certificates can be either single (representing only one share) or multiple (representing more than one share).
As already mentioned, one of the conditions necessary for the incorporation is the full subscription of the company’s corporate capital. The subscription consists of a declaration or undertaking to contribute to the company the value of the subscribed shares/quota. If the company is incorporated by two of more shares/quota-holders, it is sufficient to have only 25% of the corporate capital paid-up at incorporation. If the consideration for the subscription of the corporate capital is in kind then the non-cash contributions must be made in full at the time of subscription regardless the number of incorporators.
If the corporate capital is increased after incorporation the share premium (if any) must be fully paid-up upon subscription of the increase while at least 25% of the nominal value of the shares/quota issued under the corporate capital increase must be paid upon subscription of the same.
An increase of corporate capital may be:
(a) for no consideration: where the increase is financed by capitalising available reserves or other funds either by distributing newly issued shares among the shareholders, or by increasing the nominal value of the existing shares; or
(b) by means of subscription for cash of newly issued shares of existing or new classes (and/or convertible bonds or warrants).
New shares cannot be issued if those already in issue have not been fully paid up, although a resolution to increase capital before existing shares have been paid up would appear to be valid.
b Option rights
The new shares/quotas must first be offered to the existing shares/quota-holders in proportion to their participation in the corporate capital and also to holders of convertible bonds (if issued). By exercising an option right members are entitled, in the event of an increase in capital, to maintain an unchanged participation (pro-quota) in the corporate capital. Those who exercise their option rights have an option right on the shares of other shareholders who have not exercised their option rights. For companies listed in the Stock Exchange, the un-exercised option rights must be offered by the directors to the market.
The resolution (by the members’ meeting or by the Board of Directors if the articles of incorporation empowers it to do so) to increase the corporate capital can limit or exclude the option rights over the increase of the company’s capital provided that: (i) the directors file with the company a report explaining the reasons why the option right has been excluded or limited, including an explanation of the company’s interests which justify such exclusion; and (ii) the statutory auditors file an opinion on the congruity of the price of the shares to-be-issued under the capital increase. Generally speaking, the exclusion of the option right is justified if:
(a) it satisfies a corporation’s interests; or
(b) the increase occurs in the context of a merger; or
(c) the increase occurs through the issue of convertible bonds; or
(d) the increase occurs through contribution in kind; or
(e) the new shares are issued for the employees’ benefit; or
(f) the new shares are issued for the benefit of an external investor.
Furthermore, for companies listed on the Stock Exchange, the resolution increasing the company’s capital and excluding or limiting option rights is subject to a favourable opinion of an auditing company. A resolution excluding option rights that fails to fulfil these conditions can be challenged and will usually not be accepted by the notarising Notary public.
While in relation to Srls the general principles as regards SpAs will apply, since 2 January 2004 it has been possible to include a clause in the articles of incorporation that allows the company to increase its capital through offers to third parties, thereby eliminating the right of option to existing members or a clause whereby the option does not operate in proportion to the quotas already held by members.
The decision to increase the corporate capital is reserved to the extraordinary shareholders’ meeting to be held before a civil law notary public. The articles of incorporation may grant the board of directors with the power to increase the corporate capital up to a defined amount and for the time indicated in the articles of incorporation and in any case for no more than five years from the date of the resolution.
Within 30 days of the subscription date of the newly issued shares, the directors must file with the Register of Enterprises a declaration certifying that the increase of the corporate capital has been fully or partially subscribed and paid up to the minimum amount required by the applicable regulations.
The above rules concern an SpA, but the same rules also apply to an Srl. It is now possible to pass a resolution concerning an increase in capital excluding the option rights.
4 Transfer – article 2355
Shares can be transferred in two ways:
(a) by notarised endorsement (either by a broker or a Notary Public) of the share certificate (if issued) and registration of the transfer in the shareholders’ ledger; or
(b) by registration of the transfer in the shareholders’ ledger (so-called ‘transfert’) performed by one of the directors of the company upon delivery of a notarised transfer deed.
Shares traded on a regulated market are transferred through registration in the account held by the intermediary (bank or other authorised body) that deals in the shares.
Bearer shares are transferred by simply handing over the certificate.
The articles of incorporation can prohibit the transfer of shares. This restriction may however last no more than five years from the date of incorporation.
The articles of incorporation may restrict the transfer of shares by pre-emption provisions or consent provisions (clausole di gradimento). This latter provision allows the Board of Directors or the shareholders’ meeting or the shareholders, to decide whether or not the registration of a new shareholder with the company should be subject to their consent, based on pre-determined criteria or personal characteristics. While until 31 December 2003, the law deemed consent provisions ineffective in SpAs if not based on reasonableness, a clause under which the consent provisions would be subject to the pure discretion of the Board of Directors are now valid provided that the articles of incorporation contain an obligation for the members or the company to buy the shares to be sold or for the selling member to withdraw from the company. Other clauses potentially affecting the transfer of quotas/shares (eg tag-along, drag-along) are enforceable under Italian laws.
With regard to an Srl and the transfer of quotas, the Civil Code states that quotas are transferable both by ‘inter vivos’ transactions or by inheritance. However, under article 2469 of the Civil Code the articles of incorporation can prohibit or limit the transfer of quotas. In the case of an absolute prohibition of transfer, on the death of a quotaholder, the estate will have a right to the liquidation of the quota.
As for the ‘inter vivos’ transfers, the change of ownership becomes effective with respect to the company from the date of the registration of the transfer with the Register of Enterprises. The registration is performed either by the Notary Public who notarises the transfer or by an accredited accountant within 30 days from actual date of the transfer.
5 Company dealings in its own shares
An Srl cannot purchase its own quotas in any circumstance save: 1) for the purpose of annulling the quota and reducing the corporate capital under articles 2357, 2357 bis and 2357 ter; and 2) it is an innovative start-upregistered with a special section of the competent Register of Enterprises and purchases its own quotas only in order to implement incentive plans in favour of its own employees, directors or service providers. An Spa may purchase its own shares up to the value of its distributable profits and of its available reserves as resulting from the last approved financial statement provided that:
(a) the shares are fully paid up;
(b) the shares do not exceed one-tenth of the capital including shares owned by a subsidiary company; and
(c) the purchase is approved by the shareholders’ meeting.
The same requirements apply to a purchase by the company through a trust company or a third party.
Such a purchase may only be carried out following a resolution of the ordinary shareholders’ meeting, which may in the same resolution make provision for post-acquisition transactions on the shares.
While the shares are owned by the company, rights to distribution of profits and options arising from them are attributed proportionally to the other shareholders.
If these requirements are breached, the company must sell the shares so acquired within a year or otherwise it must ensure that such shares are cancelled and that the corporate capital is reduced correspondingly. This can be achieved through a resolution of the shareholders’ meeting or through a decree of the competent court. However, this does not apply if the purchase is gratuitous or if the corporate capital is reduced through redemption and cancellation of part of the shares. In any event, the shares must be fully paid up. The voting rights pertaining to such shares are suspended while the shares remain the company’s property.
The acquisition by a listed company of its own shares may be implemented by means of a public purchase offer, or in compliance with the rules given by the stock market, in order to grant the shareholders equal treatment.
A company may not underwrite its own shares. If this occurs, the shares must be paid up by the promoters, the founding shareholders or the directors.
Article 2358 of the Civil Code set forth the conditions under which an Spa may finance or deliver guarantees for the acquisition or underwriting of its own shares; the same statutes also set forth the conditions under which an SpA can receive its own shares as security.
The extraordinary meeting of the members must authorise those transactions and the directors must deliver a report explaining the positive outcomes of the transaction for the company. The directors’ report must certify that the transaction is made at fair market conditions and must be filed at the registered office of the company at the latest 30 days prior to the meeting. If the shares the purchase or underwriting of which are traded on the stock market their purchase price cannot be lower than the average price at which the shares have been traded during the prior six months. Article 2358 does not apply if the financing or the guarantee support the acquisition or underwriting of shares by the employees of the company or of its subsidiaries; directors do not fall within the meaning of employees under article 2358 of the Italian civil code. An Srl cannot in any event acquire or accept as a guarantee its own quotas or grant loans or guarantees for their acquisition or subscription.
The aggregate amount of the funds financed or guaranteed by the company cannot exceed the amount of the reserves/dividends available under the latest approved financial statement.
Article 2359 bis of the Civil Code contains other provisions concerning the acquisition of shares by subsidiaries. In particular, a subsidiary can purchase shares of its controlling company for an amount not higher than the reserves/dividends available under the latest approved financial statement, and in any case it cannot exceed 1/5 of the corporate capital of the controlling company. An unavailable reserve, equal to the amount of the shares/quota must be provided and maintained until the shares/quota are non-transferred. The subsidiary cannot vote in the shareholders’ meeting of the parent company.
Article 120 of Decree No 58/1998 contains other provisions concerning cross-participations involving a listed company.
6 Reduction of capital
Only the extraordinary shareholders’ meeting has authority to resolve upon the reduction of the corporate capital. Such a resolution may result from a reduction in the assets and liabilities of the company or from losses made by the same. The law provides that a reduction of capital may take place where there is an excess of capital with respect to the company’s needs. As reduction of capital causes a decrease in the security of creditors, it can only be implemented 90 days after the registration of the relevant shareholders’ resolution with the Register of Enterprises. The creditors have the right to challenge the resolution to reduce the corporate capital before the competent court during such period. If such a claim is filed, the resolution will be suspended; the court can however authorise its interim implementation if the company gives sufficient guarantees to the creditors. A reduction of capital with a reduction of the assets and liabilities can also occur when a shareholder leaves the company. In this case, however, the law does not require the company to provide the creditors with any guarantee. Restriction to the power to reduce the corporate capital applies to companies issuing bonds.
A reduction of the corporate capital due to losses may be resolved by the shareholders’ meeting upon approval of the financial statements. If the losses exceed the amount of the corporate capital by one-third, the directors must convene the quota/share-holders’ meeting without delay in order to either dissolve the company or recapitalise it or transform it to another form having a lower corporate capital. A longer term to recapitalise or transform the company is provided for innovative start-ups. If the losses are not reduced to less than a third of the capital within the subsequent accounting period, the shareholders’ meeting approving the relevant financial statement must reduce the corporate capital (within the minimum amounts provided by the applicable laws) in proportion to the existing losses. If the shareholders’ meeting does not so resolve, the reduction of capital can be ordered by the competent court.
If, due to losses, the corporate capital falls below the minimum amount required by law, a shareholders’ meeting must be convened in order to resolve upon either:
(a) the reduction of the corporate capital for the amount of the loss and the simultaneous increase of the corporate capital up to the legal minimum corporate capital provided by the applicable laws); or
(b) the transformation of the company into a different form of company which requires a lower legal minimum capital (eg from an SpA to an Srl).
If no such resolutions are taken, the corporation will be liquidated eventually by order of the competent court.
If there is no corporate capital left to ensure the operations the corporation must be liquidated.
As a general rule under Italian corporate law, each shareholder has voting rights. Shares of different classes give title to different voting rights and under certain conditions holders of financial instruments may be granted the right to vote on certain matters. This document discusses shareholders’ rights in Italy as follows: voting under the Italian Civil Code, art 2351; dividends; general shareholders’ meetings; and protection of minority shareholders.
B SHAREHOLDERS’ RIGHTS
1 Voting – article 2351
As a general rule, each shareholder has voting rights. Nonetheless, according to article 2351 of the Civil Code the articles of incorporation could provide for the creation of shares without voting rights, with voting rights limited to particular matters, with voting rights subject to the occurrence of particular conditions that are not merely potestative. The total value of such shares may not exceed half of the share capital. The Articles of Incorporation may also provide that, in relation to the number of shares held by the same party, the right to vote is limited to a maximum amount or may provide for a staggering of voting rights. It may also provide the issue of shares with multiple voting rights even for particular topics or subject to the occurrence of particular conditions that are not merely potestative, except as set forth by special laws. Each multi-voting share may have up to a maximum of three votes. Shares of different classes give title to different voting rights and under certain conditions holders of financial instruments may be granted with the right to vote on certain matters (see above).
a Right to attend the meetings
Members vote in the quota/share-holders’ meeting. Therefore, quota/share-holders who do not have the right to vote do not have the right to attend quota/share-holders’ meetings; however under certain circumstances quota/share-holders can attend the meeting, but are not entitled to vote: quota/share-holders in arrears in the payment for their shares, quota/share-holders holding `azioni di godimento‘ (enjoyment shares) or shares with limited voting rights can generally speaking attend the meeting, but are not granted the right to vote.
The articles of incorporation can make the right of participation at the meetings subject to particular conditions.
According to article 127 of Decree No 58/1998, the articles of incorporation of listed companies can allow shareholders to exercise their voting rights by correspondence or electronically. The National Commission for Listed Companies and the Stock Exchange has indicated the formalities to comply with in order to exercise the voting rights by correspondence or electronically.
Since 1 January 2004, this procedure has been extended to all companies if the articles of incorporation authorises to do so and provides for the formalities to vote by correspondence.
b Third party rights
Under article 2352 of the Civil Code, if the shares are pledged or are subject to a right of usufruct in favour of a third party, the voting right is given (except where otherwise provided by the parties) to the pledgee or to the holder of the right of usufruct. In the event of seizure (pignoramento) or attachment (sequestro conservativo o giudiziario) of the shares, the right to participate and to vote in the shareholders’ meeting is given to the custodian of the shares, according to the instructions of the court. These rules also apply to quotas in an Srl. Furthermore, article 2468 of the Italian Civil Code provides that, where there is joint ownership of quotas in an Srl, the voting rights should be exercised by a joint representative of the co-owners.
c Limitations on the right to vote
The right to vote cannot be exercised by a shareholder who is in arrears with payments on his or her shares.
Shareholders owe fiduciary duties to the company. Under article 2373, a shareholder with a conflict of interest may take part in the debate and may in fact vote, but if the vote is determinant for the resolution to be passed and the passing of the resolution causes damage to the company, the resolution may be challenged. Directors may not vote in resolutions concerning their responsibility, also, the members of the supervisory board may not vote in resolutions concerning the appointment, dismissal or responsibility of the supervisory board members.
d Disclosure requirements
The shareholders of a company which is listed on a stock exchange, or shareholders of a private company who acquire certain participations in a listed company, may find themselves subject to various duties of disclosure by the National Commission for Listed Companies and the Stock Exchange (‘CONSOB’).
According to article 120 of Decree No 58/1998and article 117 of CONSOB Regulation No 11971/1999, Whenever a shareholder has, directly or indirectly, acquired the ownership of more than three per cent of the capital of a listed company (or five per cent in a PMI), he or she is required to give notice to the company and CONSOB within four trading days, starting from the day on which the party became aware of the variation suitable for determining the occurrence of the said obligation. Further variations of the shareholding must be communicated in accordance with the terms specified by Consob with specific regulations if such variations exceed one-half of the previously held percentage participation.
Further notices to the company and CONSOB are requested whenever the shareholder acquires more than 5%, 10%, 15% 20%, 25%, 30%, 50%, 66,6% and 90%. Where there are cross-shareholdings, the company that has notified CONSOB last is prevented from voting the shares that exceed the thresholdand is required to sell such shares within 12 months. In the event of failure to sell within the prescribed period, the suspension of voting rights extends to the entire shareholding The same notice requirements apply to listed companies which hold, directly or indirectly, a participation that exceed the mentioned thresholds .
Unless otherwise provided by the articles of incorporation, a quota/share-holders may be represented at the quota/share-holders’ meeting by proxy-holder. A proxy must be given in writing and must comply with any other condition set forth by the articles of incorporation. The proxy may be for one or more meetings and may be revoked at any time. Directors, statutory auditors cannot act as proxy holders.
f Voting agreements
So called `sindacati di voto‘ (voting agreements) are generally considered valid and admissible. They consist of a shareholders’ agreement by which some shareholders undertake reciprocally to vote according to the will of the majority of the signatories to the agreement. Shareholders’ agreements that are directed towards the regulation of the transferability of shares, voting rights, or the exercise of influence over the company are regulated by article 2341 bis and ter of the Civil Code. Shareholders agreements may not last more than five years. According to the majority of commentators the five-years term does not apply to Srls. Shareholders’ agreement are valid in so far as they do not deprive the shareholders’ meeting of its functions, abolish freedom of voting or conflict with the company’s interests.
According to article 122 of Decree No 58/1998, voting agreements relating to listed companies must be disclosed to the company and CONSOB within five days from the date of their execution, published in the daily press and filed with the Register of Enterprises. If these formalities are not accomplished, the voting rights pertaining to such shares cannot be exercised. Public SpAs have a duty to declare shareholders’ agreements to the company and at the opening of shareholders’ meetings; such declaration being registered in the minutes of the meeting. This requirement is not applicable to put and call option agreements.
Each share entitles its holder to a proportionate share of the net dividends, resulting from the balance sheet, subject to any limitations in relation to particular classes of share. The same provision applies to the quotas of an Srl.
The right to receive dividends arises only as a consequence of a duly approved resolution taken at a shareholders’ meeting after a resolution approving the balance sheet has been passed. These are two distinct resolutions. If dividends are paid based on a duly approved balance sheet and the approving resolution is void, the dividends may not be reclaimed from shareholders who received them in good faith.
Dividends can be paid only out of profits actually earned (ie shown in a duly approved balance sheet). They cannot be paid where losses in the company’s capital have occurred until either the capital is refunded or reduced by an amount equal to the losses. The shareholders’ meeting may resolve not to distribute dividends but, instead, to put them into voluntary reserves. Companies that are required by law to have their balance sheets audited may distribute an interim dividend during the financial year if expressly provided by the articles of incorporation.
According to article 2340 of the Civil Code, in any case and without prejudice to any provisions of special laws, a minimum of 5% of the annual net revenue must be allocated to a reserve until the mentioned reserve has reached 5% of the share capital. The reserve must be restored if it is reduced for any reason.
The distribution of interim dividends is possible only in the case of a company whose balance sheet is legally subject to external audit. The interim distribution must be passed by a resolution of the directors, on the basis of an economic and financial statement of the company showing a forecast of profits at the end of the financial year and with the consent of the Board of Statutory Auditors. If the predicted profits are not realised by the end of the financial year, interim dividends received by shareholders in good faith cannot be reclaimed.
3 General shareholders’ meetings
A duly convened shareholders’ meeting is necessary to express the company’s will. Majority voting is the rule and is binding on absent or dissenting shareholders.
a Convening of a meeting
The shareholders’ meeting must be duly convened pursuant to the law and to the articles of incorporation; the meeting is generally convened by the directors (and, during a winding up, by the liquidators) by means of a written call notice. In special instances it may be convened by the statutory auditors or by the court.
According to article 3266 of the Civil Code and 125 bis of Decree no 58/1998 in public SpAs’ shareholders’ meeting are called with a call notice to be published in the website of the company or in a daily newspaper indicated in the articles of incorporation at least 30 days prior to the meeting’s date. In privately owned SpAs, shareholders’ meeting are called with a call notice to be published in the Official Journal of the Italian Republic (‘Gazzetta Ufficiale della Repubblica’) or in a daily newspaper indicated in the articles of incorporation at least 15 days prior to the meeting’s date; if the articles of incorporation so provides, the shareholders’ meeting may be called by means of a call notice sent to the shareholders’, to the Directors and to the statutory auditors using a means that guarantee proof of receipt (eg email delivery receipt requested, fax, registered mail) and sent at least eight days before the date of the meeting.
In Srls, members’ meeting are called by means of a notice of call sent to each shareholder at least eight days prior to the meeting unless differently provided by the articles of incorporation. The articles of incorporation can authorise the call of the meeting by any means guaranteeing proof of receipt (eg email delivery receipt requested, fax, registered mail).
The notice must state the day, time and place of the meeting and an agenda of items to be discussed. The shareholders’ meeting cannot pass resolutions on matters not contained in the agenda or not strictly connected therewith.
Failure to comply with the formalities to call a quota/shareholders meeting will not invalidate a meeting attended by the whole of the company’s capital, as represented by all the shareholders and all the directors and statutory auditors (if any) (a so-called `assemblea totalitaria‘, or full shareholders’ meeting). At such a meeting, however, participants may challenge the discussion of matters on which they have not been sufficiently informed.
Generally speaking, a shareholders’ meeting is convened at the discretion of the directors, however, in the following instances the law requires the directors to convene a meeting:
(1) at the end of the financial year and in any event at least once a year for the approval of the balance sheet;
(2) for the replacement of directors whose absence makes it impossible for the remaining directors to reach a majority;
(3) where one of the statutory auditors needs to be replaced (when, even by using alternate statutory auditors, the Board of Statutory Auditors is not complete);
(4) where the company has incurred losses exceeding one-third of its capital (if this occurs, the company’s capital must then be reduced accordingly);
(5) if requested by shareholders representing at least one-twentieth of the company’s capital;
(6) to pass resolutions for the winding up of the company, if an event causing winding up has occurred.
In all the above cases, if the directors fail to convene a meeting, then the statutory auditors or other body of control must do so. The statutory auditors are also required to convene a shareholders’ meeting where there are no directors left in office, when shareholders representing at least one-twentieth of the capital report possible violations of law which appear to the Board of Statutory Auditors to be based on reasonable grounds, or when in carrying out their function they become aware of irregularities to be discussed during such a meeting.
b Types of meeting
In SpAs there are two types of shareholders’ meeting, an ordinary meeting and an extraordinary meeting. A different majority is required to pass votes at each. Holders of shares with limited voting rights and holders of ‘saving’ shares cannot vote at ordinary meetings. Resolutions taken at ordinary meetings relate to the normal management of the company.
The business of an ordinary meeting varies depending on whether the company has a supervising board. If it does not, the business of the ordinary meeting is, inter alia, to:
(a) appoint directors and statutory auditors and replace them upon expiry of their terms of office or for other reasons, or to dismiss them, fixing the number of directors if the articles of incorporation simply indicate a minimum and maximum, and appointing the Chairman of the Board of Director and Board of Statutory Auditors;
(b) fix the remuneration of the directors and statutory auditors if not already determined by the articles of incorporation;
(c) vote to approve the annual balance sheet, distribute dividends and buy own shares, and decide what action to be taken in the event of losses to the company;
(d) decide upon any action to be taken against the directors in the event of mismanagement of the company or violation of their duties of care; and
(e) decide upon all matters concerning its own competence according to the articles and on all matters submitted to it by the directors.
In companies with a supervisory board, the business of the ordinary meeting is, generally, to:
(i) appoint and dismiss members of the supervisory board and determine their remuneration if this is not provided for in the articles of incorporation;
(ii) decide upon any action to be taken against the directors in the event of mismanagement of the company or violation of their duties of care; and
(iii) resolve upon the distribution of dividends.
The business of the extraordinary meeting, at which all shareholders may participate except the holders of ‘saving’ shares, resolves upon:
(a) amendments to the articles of incorporation and byelaws;
(b) the issue of bonds;
(c) the appointment and powers of the persons in charge of a liquidation;
(d) the proposal of composition with creditors or of temporary receivership; and
(e) the issue of shares for persons giving service to the company or financial instruments for employees of subsidiary companies.
These matters are fixed by law and any clause in the articles of incorporation that seeks to establish otherwise will be invalid. However, there are a number of other matters that can be delegated by the shareholders’ meeting to the directors for decision, including:
(a) which directors have the power to represent the company;
(b) the proposal of composition with creditors or of temporary receivership; and
(c) under certain conditions, the increase of the company’s corporate capital and suppression of the right of option.
In an investment transaction it is quite common to include in the articles of association a special quorum or to subject the resolutions on specific matters to super-majorities in order to ensure that certain resolutions are taken with the actual vote of the investors.
If the quorum or the required majorities are not met then the meeting must be convened again. The date of the subsequent meetings may be (as is often the case) contained in the call notice of the first meeting. The agenda of the second meeting must be the same as for the first. During ordinary meetings convened for the second time, a simple majority of the capital present at the meeting is sufficient, whilst at extraordinary meetings convened for the second time, resolutions must be approved by at least one third of the company’s capital. Higher majority requirements may always be provided by the articles of incorporation. A majority of more than half of the capital may even be required for certain matters in meetings convened for the second time. Again, the articles of incorporation may make provisions for different quorums, along the lines of those for the first meeting.
Special quorum and qualified majorities apply to listed companies and those having recourse to risk capital.
Srls have greater flexibility in regulating quotaholders’ meetings. Article 2479 of the Civil Code allows members to make decisions in writing as an alternative to holding an actual meeting; the articles of incorporation shall regulate the process to take decisions by means of written consent; if the articles of incorporation do not provide so, then the members shall meet in person. By operation of laws, there are a number of matters that may not be decided by means of written consent, eg the modification of the articles of incorporation and any decisions to carry out transactions out of the scope of the company’s objects or impairing members’ rights. Further, under article 2479 of the Civil Code a members’ meeting must be called if required by one or more directors or by members representing at least one-third of the company’s corporate capital.
The quorum for the members’ meeting is at least 50% of the capital. Resolutions are passed with the favourable vote of the majority of the corporate capital represented at the meeting. Decisions regarding the modification of the memorandum and articles of incorporation or transactions that require a substantial modification of the company’s objects or which impair members’ rights are taken with the favourable vote of members representing at least 50% of capital is required.
A chairman of the meeting, appointed either in the articles or by the attendees, chairs the meeting. The Chairman is assisted by a Secretary; the Chairman and the Secretary of the meeting must be in the same location during the meeting. At extraordinary meetings only, the attendance of a Notary Public is required by law. The Chairman is given powers to check that the meeting has been duly convened, to exclude from voting those not entitled to vote and to state the returns of the voting.
Minutes of the meeting must be taken. At ordinary meetings, these are signed by the Chairman and the Secretary. At extraordinary meetings, they are executed by the Chairman and the Notary Public, who is also in charge of drafting them. Upon request, shareholders are entitled to have their statements recorded in the minutes. Before being signed, the minutes must be read to and approved by the attendees. If no minutes are taken, although it is a debatable issue, the most recent court cases state that the resolutions taken are void. If the minutes are only incomplete, the resolutions are voidable.
Resolutions passed by a shareholders’ meeting may be voidable if they are unlawful under the general law or in breach of the company’s articles of incorporation or deed of incorporation. Also voidable is a resolution:
(a) in which a vote was cast by a person with no right to vote and this vote determined whether there was a constitutive quorum;
(b) where there was a vote by a person with a conflict of interest and this caused damage to the company;
(c) the minutes of the meeting are incomplete to the extent that the resolution’s content, effect or validity cannot be determined; or
(d) the deliberative quorum was reached by counting invalid votes.
However, even if a resolution is voidable, unless there is a legal challenge to it, it will have effect. An action may be brought by shareholders having a right to vote and that were absent, dissenting or abstained, directors, members of the supervising committee and statutory auditors. Third parties who have no rights over voting shares may not bring an action for voidability.
A legal challenge shall be filed within 90 days of the date of the resolution or, if it is subject to registration in the Register of Enterprises, within 90 days of its registration or, if it is subject only to filing at the office of the Register of Enterprises, within 90 days of the date of the resolution.
A further class of resolution will be void. These are resolutions that:
(a) have an impossible or unlawful object, including modifications of the company’s objects to include an impossible or unlawful object;
(b) were passed without convening a meeting (except if the meeting passing the resolution was a meeting of all the shareholders having a right to vote); or
(c) do not have any minutes.
Actions to declare a resolution void may be brought by ‘anyone having an interest’, a category that will include the company office holders and shareholders and third parties that can demonstrate their interest. Further, the court may act of its own volition. Generally, there is a three-year limitation period for challenging void resolutions save for those that modify the company’s objects, which can be challenged at any time. Further, in some cases, including resolutions taken without convening a meeting or those without minutes, the company may take remedial action that effectively makes the resolution lawful (in the two cases mentioned, this would be to obtain the consent of absent members to the resolution passed and to draft proper minutes).
e Special or class meetings – article 2376
The Civil Code provides that special or class meetings (of an SpA) must be held if there are different classes of shares or financial instruments with voting rights that will be affected by a resolution of the shareholders’ meeting. These class meetings are regulated by the rules for SpA extraordinary shareholders’ meetings. If shares or financial instruments are admitted to the centralised management system, the right to attend and vote at the relevant shareholders’ meeting shall be governed pursuant to special laws.
4 Protection of minority shareholders
In addition to rights held by minority shareholders virtue of general principles of law, such as ‘good faith’, ‘fairness’ and ‘abuse of right’, the Civil Code identifies the following rights:
(a) shareholders representing at least one-third of the company capital may have a matter included on the agenda of a shareholders’ meeting, have a meeting held despite the presence in the articles of incorporation of an alternative mechanism for decision making (article 2479 of the Civil Code) or require a meeting to be adjourned;
(b) shareholders representing one-tenth of the company capital may oppose the waving or settlement of an action for directors’ liability (article 2476 of the Civil Code); and
(c) any shareholder may bring an action against a director for the determination of the directors’ liability or put a matter to the Board of Statutory Auditors for their examination (article 2408 of the Civil Code).
Additionally, generally speaking, all shareholders have the following basic rights:
(a) the right to maintain the status of a shareholder until the winding up of the company;
(b) the right to dividends (which is, as already mentioned, subject to a resolution of the general meeting);
(c) the right of pre-emption on newly issued shares (as already stated, this right, under certain conditions, can be excluded);
(d) the right to transfer shares; and
(e) the right to share in any surplus assets on a liquidation.
3 July, 2019
22 September, 2018
Types of Italian companies and incorporation process.
This document provides an introduction to Italian corporate law, the main source of which is chapter 5 of the Italian Civil Code.
The main source of Italian corporate law is the chapter V (libro V’) of the Italian Civil Code (the ‘Civil Code’) which defines and regulates the types of business organisations available under Italian law.
In general, Italian law provides for two categories of company: the ‘società di persone’ which are unincorporated companies; and the ‘società di capitali’ which are incorporated companies. This document concentrates on the different types of incorporated company in Italy, these being the most commonly used company models in Italian business practice.
Types of companies.
In general Italian law provides for two categories of company: the first is the `società di persone‘ (namely the `società semplice‘, the ‘società in nome collettivo‘ and the `società in accomandita semplice‘) which are unincorporated companies; and the second is the `società di capitali’ (namely the `società à responsabilità limitata’, the `società a responsabilità limitata semplificata’, the `società per azioni‘ and the `società in accomandita per azioni’) which are incorporated companies.
Given their main characteristic (ie association of two or more persons to carry on as co-owners a business for profit), the ‘società di persone’ could be regarded as common law partnerships. The most significant features of the `società di persone’ are the active role of members in the management/operation of the company; the close connection between the members and the company, and the unlimited liability of the members for the company’s obligations.
The most significant features of the second category of companies, the ‘società di capitali’, are: limited liability for share/quota-holders (some limited exceptions apply), the legal status of those companies as separate entities, and the possibility to separate ownership and management (ie members can be appointed directors, but also non-members can act as directors).
This chapter deals only with ‘società di capitali’ which are the companies most commonly used in the Italian business practice.
Italian corporate law does not provide for corporate officers other than directors. Duties which are usually undertaken by officers, such as treasurer, secretary or comptroller, are usually undertaken by directors and/or corporate executives.
As indicated above, there are three types of corporations:
(a) `societa per azioni‘ (known with the acronym of `SpA’), a stock corporation in which the capital is contributed by the shareholders and divided into in shares (of one or more classes) which might be represented by certificates;
(b) `societa in accomandita per azioni‘ (known with the acronym of `SapA’), a subclass of stock corporation where some shareholders (`soci accomandatari‘) act also as directors of the company and are therefore held liable for the company’s liabilities, while other shareholders (`soci accomandanti‘) do not act as directors of the company and therefore are shielded from its obligations and are liable only up to the limit of the value of the shares they have subscribed; and
(c) `societa a responsabilita limitata‘ (known with the acronym of `Srl’), a limited liability company where the members are shielded from its obligations. The share of the corporate capital held by Srls’ members is called a `quota’. In 2012 two new types of limited liability companies have been introduced, namely the simplified limited liability company (Srls) which are subject to the same rules applicable to regular limited liability company, but:
(i) the quota holders must be individuals;
(ii) the incorporation deed must be drawn up as a public deed in accordance with the standard model typed by decree of the Minister of Justice no. 138;
(iii) the amount of the share capital, equal to at least 1 euro and lower than 10,000 euro, must be subscribed and fully paid up at the date of incorporation.
The statutes applicable to the SpA are also generally applicable to the SapA (and to some extent also to the Srl) unless a specific provision to the contrary applies. In Italian practice, SapA are not commonly used despite the fact that this company, compared to an SpA or an Srl, allows its directors greater protection in a takeover bid scenario; this higher degree of protection justifies the use of SapA in sophisticated transactions, mainly as a holding company.
Innovatie startup companies
The Italian Government with the Decree-Law 179/2012, converted into Law 221/2012, has introduced into the Italian legal system a definition of a new innovative enterprise of high technological value, the `innovative startup’. The regulations for innovative startups have been strengthened in the last years by several subsequent legislative interventions implementing a new legislation package to favor the setting up of such technologically innovative startups, which includes the introduction of significant benefits, for a maximum of 5 years since their date of incorporation, in areas such as tax, labour, company law, access to bank loans etc.
Definition and requirements of innovative startup
The legislation in support of innovative startups apply to any companies with shared capital (i.e. limited companies, `società di capitali’), including cooperatives, whose capital shares – or equivalent – are neither listed on a regulated market nor on a multilateral negotiation system.
These enterprises must also comply with the following requirements:
The innovative character of the enterprises is identified by at least one of the following criteria:
Further requirements are:
Conversion to innovative SME
Decree-Law 3/2015 (`Investment Compact’) has extended many of the facilitations conferred to innovative startups to a wider range of companies. Successful innovative startups and whose activities are still characterized by a significant component of technological innovation, may transit to innovative SME status. An `innovative SME’ may be any Small and Medium Enterprise operating in the field of technological innovation, irrespective of its date of incorporation, its company purpose – as stated in the articles of association –and its stage of maturity.
Differently from innovative startups, the application of the supporting measures and benefits in favor of innovative SMEs is not subjected to any deadline, as long as the applicable legal requirements are met. The measures in question apply only to those small and medium size enterprises as defined by the European Commission Recommendation 361/2003 (that is, companies with less than 250 employees and with a total turnover that does not exceed €43 million).
In Italy, a company is formed when the articles of incorporation in the form approved by incorporators is filed with the competent Register of Enterprises (‘Registro delle Imprese’). This document explains how companies in Italy are incorporated, covering: pre-incorporation transactions; preliminary contracts to incorporate a company; and incorporation procedure.
A company is formed when the articles of incorporation in the form approved by incorporators is filed with the competent Register of Enterprises (`Registro delle Imprese’). Pursuant to article 2331 of the Civil Code anyone acting on behalf of a company prior to the registration of the same with the Register of Enterprises will be held liable vis-à-vis third parties for the obligations undertaken in the interest of the to-be-incorporated company. In addition, any incorporator and/or a member who has approved or otherwise authorised a pre-incorporation transaction will be jointly liable with the individual who undertook the pre-incorporation transaction.
After incorporation the members can ratify a pre-incorporation transaction and as a consequence the company will be jointly liable for all the ratified pre-incorporation transactions.
2 Preliminary contracts to incorporate a company
Parties may enter into a preliminary contract (`contratto preliminare‘) in which they agree to incorporate a company. Under an `equal dignity rule’ such a preliminary contract must be in the same form as the form required for the incorporation documents (ie notarised deed). Under the Italian case law a preliminary contract to incorporate must indicate clearly the following information:
(a) type of company to be set up;
(b) company’s purpose;
(c) company’s registered office; and
(d) company’s corporate capital and members’ shares of the corporate capital.
Failure to provide any of the information indicated above could trigger the unenforceability of the agreement; it is contentious under Italian case law as to whether a court may order specific performance of a preliminary incorporation contract and so force the parties to incorporate a company.
3 Incorporation procedure
a Pre-incorporation requirements
At incorporation the members:
(a) shall fully subscribe the company’s corporate capital;
(b) if the company is incorporated by a sole member: the entire corporate capital must be paid-up at incorporation; if the company is incorporated by two or more members: at least 25% of the corporate capital (plus the entire share premium for a Srl) must be paid-up at incorporation; and
(c) any authorisation required to start the company’s business (eg authorisation from the Bank of Italy to start a banking business) must be obtained prior to incorporation.
The incorporation deed of a company is a three-stage process:
(a) execution of the incorporation (`atto costitutivo‘) and of the articles of incorporation (`statuto‘). The incorporation of Srls requires standard, simplified articles of incorporation consistent with the template issued by the Ministry of Justice;
(b) the notarisation of those documents by a civil law Notary Public. Prior to notarising the incorporation documents, the civil law Notary Public has a duty to verify that the incorporation documents comply with all the applicable regulations and that the funds to incorporate have been paid-up in the company accounts; and
(c) registration of the company with the Register of Enterprises.
An SpA may also be incorporated through a public subscription process where incorporators will call for a public subscription of the corporate capital.
The form and content of the incorporation deed is regulated by article 2328 of the Civil Code. Members in person or represented by attorneys in fact must sign the incorporation deed before a civil law Notary Public (digital signatures are also admitted under certain conditions). The actual contents of the deed of incorporation vary depending on whether the company is an Srl or an SpA/SpaA. The deed of incorporation must contain:
(a) the name, place and date of birth, place of domicile and citizenship of the incorporators (or, if incorporated by a company, the date and place of incorporation and the registered office of that company). SpAs and Srls can be incorporated by a single member;
(b) the company’s name and the city where the company will have its registered office or any additional branch office;
(c) the company’s objects;
(d) the amount of the subscribed corporate capital;
(e) the value attributed to capital contributions made in kind (if any); and
(f) the amount of the pre-incorporation expenses.
Further, the articles of incorporation of a SpA must provide for the following information:
(i) the number and nominal value of shares issued, the class of shares (if more than one class is to be issued) and the rights belonging to each class of shares and the any restriction on the transfer of shares;
(ii) rules on distribution of profits;
(iii) the form of management, the number of directors, their respective powers and an indication of which directors have the power to legally represent the company and the names of the individuals appointed directors at incorporation;
(iv) the number of statutory auditors and the names of the individuals appointed statutory auditors at incorporation;
(v) the name of the auditor (if the by-laws provide for the appointment of an auditing body); and
(vi) the duration of the company or the notice required to withdraw from the company if no term is provided in the incorporation deed;
(vii) for a SapA the articles of incorporation shall also indicate the identity of the accomandatarimembers.
In the case of a Srl, the following information is required:
(a) the quota of the corporate capital held by each member;
(b) the form of management and the person who represents the company at law;
(c) the directors and the auditing body (if any).
In the case of a Srls, it is possible to use only the standard articles of incorporation issued by the Ministry of Justice. Any different or further clause included in the deed shall be deemed as null and void and so automatically replaced.
The failure to include the information required by the applicable laws could trigger the invalidity of the articles of association and so of the company; however, a company not complying with those requirements will be validly incorporated if registered with the Registry of Enterprises.
Non-Italian citizens/residents can be members subject to reciprocity in their jurisdiction.
Directors do not need to be Italian citizens or Italian residents subject to reciprocity (ie citizens of countries which do not allow Italian citizens to be directors cannot serve as directors in an Italian company).
Non-Italian directors and members must obtain an Italian fiscal code. Applying for an Italian fiscal code does not imply any tax liability vis-à-vis the Italian Republic.
Even if not expressly provided by the statutes companies may, under certain conditions, be appointed as directors of other companies. All quota-holders of Srls must be natural persons.
Companies with a sole member are subject to special regulations (eg at incorporation the entire corporate capital must be paid-in at incorporation).
Incorporators of all companies must, as a general rule, have legal capacity to enter into a contract, although it is possible for a member without legal capacity to participate in a company provided that there are sufficient members with legal capacity.
As indicated above, an SpA can be incorporated either by simultaneous incorporation (costituzione simultanea) by means of execution of the incorporation documents before a civil law notary public or by means of public subscription of the corporate capital (`costituzione per pubblica sottoscrizione‘) pursuant to articles 2333 to 2336 of the Civil Code (this latter form of incorporation is not available for SapAs and Srls). Under Italian practice, the incorporation by public subscription is not so common.
The minimum corporate capital for an SpA and a SapA is €50,000. The ordinary Srl must be incorporated with a minimum share capital of 10,000 euro, the amount of the share capital can be determined as less than 10,000, equal to at least one euro, but in this case contributions must be made in cash and must be paid in full to the directors. Srls can have a share capital of between 1 and 9999 euro. Shares in SpAs and SapAs must have a par value equal to €1 or a multiple thereof. Higher minimum capital requirements might apply to certain types of businesses (eg banking, financial services).
The civil law notary public is required to verify that all the legal requirements to incorporate the company are met. In particular the civil notary public must certify that:
(a) the members complied with the incorporation procedure; and
(b) the company is organised in accordance with the applicable laws and the incorporating documents comply with the applicable laws; and
(c) the corporate capital has been fully subscribed and paid-up as provided under the applicable regulations.
A civil law notary public may refuse to notarise the incorporation deed if all the legal requirements to incorporate are not met. A civil law notary public notarising an irregular incorporation deed might be subject to professional and administrative sanctions.
By signing the incorporation deed the company is formed with respect to its members against which the incorporation deed is enforceable, but the company is recognised as an autonomous legal entity only upon registration of the incorporation deed with the Register of Enterprises.
The civil law notary public must file the incorporation documents with the Registry of Enterprises within 20 days from execution and simultaneously apply for the registration of the company.
The Registry of Enterprises will verify that the documents comply with the necessary formalities and if they do so it will authorise the registration of the company with the Register of Enterprises. Registration with the register completes the legal formation of the company.
Following the incorporation there are a number of further formalities a company and its directors must comply with. Among the others, the following formalities have to be completed:
(1) prior to hiring any employee, the company must deliver a notice to the local labour office. This notice contains information on the business conducted by the company and on its work environment; and
(2) within 30 days from the start of the business a director must apply for a VAT registration number (partita IVA) and notify the commencement of business activity to the tax authorities as well as to the register of enterprises.
The costs to incorporate include:
(a) fees of the civil law Notary Public, which vary depending on the complexity of the incorporation deed;
(b) fees to register the company with the Registry of Enterprises (less than €200);
(c) registration stamp and rights €200);
(d) payment of the corporate capital (ie at least 25% for multi-member companies or 100% in companies having one member);
(e) costs of any translation to be made if some of the original incorporation documents (eg, power of attorney) are not in Italian;
(f) application fees for the VAT number: roughly €300; and
(g) other disbursements will arise from the opening of the duly certified accounting books.
A company may open a branch office anywhere in Italy including in the same place as its main office. If the by-laws so provide, a branch office may be opened at incorporation or subsequently following a resolution of the general meeting of the members or following a decision of the management body if empowered to do so.
If the branch office is set up at the time of incorporation of the company, this must be expressly indicated in the deed of incorporation. If it is set up following incorporation, the directors must comply with various registration requirements.
Generally speaking, Italian companies may also open branch offices abroad, in which case the branch will be subject to local laws and in particular to local fiscal laws; branches opened abroad usually keep separate accounts.
Generally speaking, foreign companies may set up branch offices in Italy, however a business unit which has the purpose of simply collecting and supplying information to a foreign company does not qualify as a branch office under Italian laws. In fact, a branch office requires a permanent establishment (`rappresentanza stabile‘) in Italy with one or more persons with the legal power to represent the foreign company vis-à-vis third parties and managing the affairs of the branch office on a regular basis. A branch office qualifies from a tax point of view as a permanent establishment within the Italian territory and therefore it will trigger the application of Italian taxes to all the activities conducted at such branch in Italy. For this purpose, the Italian branch of a foreign company might be required to keep autonomous accounting books.
An office collecting information on the Italian market and actually not carrying out the foreign company’s business in the Italian territory will not qualify as a permanent establishment, but as an `ufficio di rappresentanza‘. To open an `ufficio di rappresentanza‘ does not require any specific authorisation from the Italian authorities other than the fulfilment of few administrative formalities such as being registered with the ‘Repertorio Economico Amministrativo’ of the Registry of Enterprises.
Foreign branch offices are obliged to file the following documents with the competent Registry of Enterprises:
(a) an extract of the resolution of the foreign company’s competent body resolving upon the opening of the branch office. The extract must be certified by a local notary public as to its compliance with the laws in force in the country of the company;
(b) a list of powers granted to the local representative of the Italian branch; and
(c) copies of the articles of incorporation and/or by-laws of the foreign company opening the branch in Italy.
All these documents must be translated into Italian through a sworn translation.
Individuals legally empowered to act on behalf of the Italian branch (called in Italian `institori‘) must register their name and date and place of birth and their Italian fiscal code with the Registry of Enterprises and the same details must be lodged for persons subsequently appointed.
9 August, 2018
MANAGEMENT AND STATUTORY AUDIT OF AN ITALIAN COMPANY.
In Italy, companies are managed either by a Board of Directors (consiglio di amministrazione) or by a sole director (amministratore unico). The Board of Directors or the sole director can delegate certain management powers to non-directors to facilitate the day-to-day management of the company. This document discusses how companies are managed and administered under the Italian Civil Code, covering: the ordinary model under art 2380; the dual model (sistema dualistico) under art 2409 octies; and the singular model (sistema monistico).
A GENERAL ISSUES RELATED TO MANAGEMENT AND STATUTORY AUDIT
Companies have a management body (`organo amministrativo‘) and a supervisory body (organo di controllo).
Companies are managed either by a Board of Directors (`consiglio di amministrazione‘) or by a sole director (`amministratore unico‘). The Board of Directors or the sole director can delegate certain management powers to non-directors (eg to a general manager) to facilitate the day-to-day management of the company.
The structure and the duties of the `supervisory body’ in the SpA will depend on the nature of the company itself. All SpAs must have an internal Panel of Statutory Auditors (`Collegio Sindicale‘) which is appointed to protect the interests of the members and the company’s creditors by ensuring that the management acts in accordance with the law, accounting principles and the articles of incorporation.
In addition to the Panel of Statutory Auditors, under certain conditions SpAs must also appoint an auditing body to audit the accounts (`revisore legale dei conti or società di revisione legale‘) ie an external auditor. Auditors control the company’s accounts, but may also be required to deliver an opinion on certain proposed transactions. In addition, the shareholders’ meeting controls to some degree the management of the company. Under certain conditions and in particular in the case of material breaches of the applicable statutes a court can appoint an interim administrator to run the company in a way to protect its assets and the rights of the members and of the creditors.
Since 1 January 2004, SpAs and SapAs have a choice of three models that they can adopt as a management structure. The three models are outlined below.
1 The ordinary model – article 2380 et seq
The ordinary model, which will apply absent a different provision in the articles of association, provides for a management body (which may consist of a sole director or of a Board of Directors), a supervisory body and, under certain conditions, a separate auditing body.
The Panel of Statutory Auditors will act as the supervisory body. Statutory Auditors are appointed by the shareholder’s meeting, and may also exercise accounting supervision functions if the company does not have recourse to the risk capital market or does not file consolidated accounts. Statutory Auditors must satisfy the requirements set forth by the applicable laws and can carry out the auditing activities as well if the satisfy the requirements set forth by the applicable statutes for the auditing body. If the Statutory Auditors do not qualify, the auditing activity must be performed by a separate auditing body.
2 The dual model (sistema dualistico) – article 2409 octies
The dual model system is similar to the one provided under the German laws and is in fact known in Italy as the ‘German model.’ In the dual model, the shareholders’ meeting appoints a `Consiglio di Sorveglianza‘ (Supervisory Board) which is responsible for ensuring that the company is managed in accordance with the law, the articles of incorporation and the standards of proper management. The Supervisory Board takes the necessary actions in the event of improper management and approves the company’s accounts or consolidated accounts. The Supervisory Board also appoints the `consiglio di gestione‘ or Management Board and supervises the activities of this board. The Management Board is responsible for the day-to-day management of the company. In addition, the shareholders must appoint an external accounting supervisory body (`organo di controllo contabile‘).
3 The singular model (sistema monistico)
The singular model system has been compared to that existing in the United Kingdom. The shareholders meeting appoints a Board of Directors, which will then appoint a management supervision committee (`comitato per il controllo della gestione‘), at least one member of which must be an auditor registered with a register held by the Ministry of Justice. It is the responsibility of this management supervision committee to ensure that the company is managed in accordance with the law, the company’s incorporation documents and the standards of proper management. An accounting supervisory body must also be appointed.
Srls will have a management body, which may consist of one or more members. A control body or an auditor can be voluntarily appointed. Unless otherwise provided in the by-laws, the Srl’s control body consists of a sole effective member. Nevertheless an Srl must appoint a control body or an auditor if certain thresholds (ie amount of the corporate capital and turnover) are met (see para ). The quotaholders will have a certain amount of supervisory responsibility over the company. In the absence of a control body, the quotaholders will be entitled to collect certain information about the company’s financial affairs.
This document discusses the number and qualification of directors under Italian corporate law.
B NUMBER AND QUALIFICATION OF DIRECTORS
In the ordinary model, there is no specific number of directors fixed by law, and the articles of association provide for the minimum and maximum number of directors who can be appointed. The shareholders’ meeting appoints the directors.
Both individuals and companies may act as directors. Save as provided by special types of business (trust companies and companies owning ships and airplanes) there is no Italian citizenship requirement. Foreign directors must obtain an Italian tax code. The articles of association may provide for additional conditions on the appointment of directors.
Employees can act as directors.
In Italy, certain types of person may be disqualified by law from becoming directors and are therefore viewed by the law as being ineligible to manage and administer the company. This document discusses the appointment and removal of directors in Italy, including retiring directors.
C APPOINTMENT AND REMOVAL OF DIRECTORS
Certain types of person may be disqualified by law from becoming directors and are therefore viewed by the law as being ineligible. These include bankrupts, whose disqualification lasts until their name is removed from the public register, and those who are disqualified by reason of a court order, for example following conviction for a criminal offence. The appointment of such persons will be void.
Further, there is a category of persons whose employment or qualifications are deemed to be incompatible with the position of company director. These include, among others:
(a) civil servants;
(b) notaries and lawyers (who may assume other administrative roles which do not carry any management powers);
(c) Members of Parliament; and
(d) the President and members of CONSOB (the regulatory body of the Stock Exchange).
Under article 2387 of the Civil Code the articles of association can subordinate the appointment of a director to the candidate possessing ‘trustworthiness, professionalism and independence’, requirements.
Additionally, In the case of companies established under the singular model, at least one-third of the directors must hold the criteria of independence required for members of the Panel of Statutory Auditors (see below).
Generally speaking directors are entitled to remuneration for their office. The actual compensation is defined either by the articles of association or by the members’ meeting.
The company’s first directors are appointed in the memorandum of association.
In Srls and ordinary and dual model SpAs, the ordinary shareholders’ meeting is usually the body competent to appoint directors during the life of the company, and the appointment of new directors must be specifically stated in the agenda of the meeting. The company’s memorandum may provide particular provisions in relation to the appointment of new directors; common provisions include a preference for directors who are shareholders. Further, shareholders’ agreements may also regulate the mechanism of appointment. However, the director must be appointed in any instance by the shareholders’ meeting.
It is possible for a Board of Directors to nominate a director to replace one or more directors who resigned, died or forfeited their office. The Board can replace the missing director only if the majority of the directors appointed by the shareholders’ meeting remains in office – if this is not the case, a shareholders’ meeting must be called as soon as possible to appoint a new board. The appointment of the substitute director must be approved by the Panel of Statutory Auditors. In dual model companies the supervisory board appoints replacement directors. The substitute director will remain in office up to the next ordinary shareholders’ meeting.
If the State or a public body has shares in an SpA, the articles of association may allow for the State or a public body to nominate one or more directors.
The State or a public body may also have the right to appoint a director, regardless of a shareholding, in SpAs operating in specific sectors.
Generally speaking, substitute directors will remain in office as long as the existing directors, but the articles of association or the shareholders’ meeting may make provision for a different length of office.
To be validly appointed directors appointed during the life of the company must accept their appointment and thereafter must file their appointment with the Registry of Enterprises within 30 days from appointment date; powers granted to directors must be also filed with the Register of Enterprises as well as to the tax authorities. Failure to file the appointment or late filings will trigger the application of administrative fines to each director.
There is no legal limit to the length of the appointment of directors of an Srl, and so this will usually be for an indefinite period, unless there are provisions in the company’s articles of association that limit the length of the appointment.
The ‘accomandatari’ of an SapA who are automatically directors of the company are also appointed for an indefinite period of time, regardless of a provision to the contrary in the articles of association.
Directors of an SpA with an ordinary or singular structure can be appointed for a maximum of three financial years. This rule also applies to members of the management committee of dual model SpAs. They can, however, be reappointed an unlimited number of times. In the absence of a provision to the contrary in the articles of association, the directors’ term of office will expire on the date of the shareholders’ meeting called to approve the financial statements related to the third financial year of the directors’ office.
3 Retiring directors
Directors retire from office in the following circumstances:
(1) Expiry of this term of the appointment; in SpAs directors can be appointed for a maximum of three fiscal years while in the Srls they could also be appointed with no term if the articles of association so provide.
(3) Resignation. This must be in writing. A company may seek damages against a director resigning without ‘just cause’. The resignation will be immediately effective if the majority of the board remains in office.
(4) Removal by the shareholders’ meeting. In an SpA, the removal is automatic when the shareholders’ meeting resolves to start legal action based on the breach of a director’s duties upon the vote of shareholders holding at least one-fifth of the capital in the company. Generally speaking a removal must be sustained by a ‘just cause,’ which will include: breach of the directors’ duties of good faith, loss of confidence in the director’s ability, etc. A removal without ‘just cause’ is effective, however the removed director may seek damages against the company and under certain circumstances against its members. A `just cause’ is not required to remove an Srl’s director, however if the director is remunerated for his/her office and is not given due notice he/she can seek compensation for damages.
(5) Disqualification, should a situation occur which disqualifies the director from holding office.
(6) Operation of a ‘simul stabunt, simul cadent’ clause. Under such a clause share/quota-holders are provided with greater control over the management of the company; in fact, under a ‘simul stabunt, simul cadent’ clause, if one of the directors retires from office, then all the other directors must also retire from office and a shareholders’ urgent meeting must be called by the directors to appoint a new board.
(7) Liquidation of the company and, under certain circumstances, mergers and acquisitions.
In dual SpAs, members of the management board can be removed at any time by members of the supervisory board, save that removal without just cause will give rise to a cause of action.
In the case of a SapA, the ‘accomandatario’ can be removed from office in the following circumstances:
(1) Death. Some commentators argue that the death of the ‘accomandatario’ simply terminates his or her position as a director, leaving his or her share in the company to pass to his or her heirs who will become ‘accomandanti.’ Others suggest that death will result in the immediate liquidation of the ‘accomandatario’s’ share that will pass to his or her estate.
(2) Removal from office. This must occur through an extraordinary shareholders’ meeting. In the absence of ‘just cause’ damages may be sought. Upon removal, the ‘accomandatario’ will become an ‘accomandante’ and benefit from a limitation of liability.
(3) Resignation. Either by disposing of his or her share in the company or by resigning from the role of ‘accomandatario’ to become an ‘accomandante’.
(4) Liquidation of the company, mergers and acquisitions.
(5) Age. Under current practice the articles of association can provide for the automatic removal from the office of an ‘accomandatario’ when he/she becomes older than a certain age provided in the articles of association. The enforceability of this clause is the subject of dispute among commentators.
The fact that a director has retired from office must be filed with the Registry of Enterprises within 30 days.
With reference to the Italian Civil Code, directors must act diligently and on an informed basis (using experts’ reports and advice if necessary) in order to ensure the prudent management of the company. This document discusses directors’ positive duties under Italian Civil Code, art 2381, and also their negative duties.
D DIRECTORS’ DUTIES
1 Positive duties – article 2381
Directors must act diligently and on an informed basis (using experts’ reports and advice if necessary) in order to ensure the prudent management of the company.
The supervisory board has a ‘duty of vigilance’, i.e. a duty to monitor the management of the company in order to ensure that the organisational, administrative and accounting resources of the company are adequate to the size and nature of the business and also to notify on a regular basis – at least every 180 days – the directors and the Statutory Auditors of the on-going management and on the forecasted developments of the business.
The Board of Directors (or the management committee in dual companies) can request information and/or documentation from its delegates. It must ensure that the organisational, administrative and accounting resources of the company are adequate, examine strategic, industrial and financial plans of the company and evaluate the on-going activities of the company. Directors also undertake the operations needed for the implementation of the corporate purpose.
Additionally, directors must act diligently and consistently with the law, the articles of association and the by-laws. The standard of diligence is that defined in article 2392 of the Civil Code under which directors must use the diligence required ‘by the nature of the office and their specific areas of competence.’ Furthermore, directors are jointly and severally liable if they fail to prevent damaging acts or where they have already occurred and are known to the directors if they fail to mitigate any damage.
The directors are also liable vis à vis the company’s creditors for breaching the obligations relating to the preservation of the integrity of company’s assets.
Furthermore, directors of public companies must disclose to CONSOB their transactions in the company’s shares or related financial instruments.
2 Negative duties
Directors are prohibited from taking certain actions, for example they cannot subscribe for the company’s own shares on behalf of the company, they cannot provide financial assistance for the purchase of the company’s shares in circumstances other than those provided for by the law or issue shares for a value less than their nominal value.
Additionally, there are general prohibitions on a director acting in conflict of interests or in competition with the business of the company. Under article 2390 of the Civil Code directors can neither act as directors or managing directors of competitors nor carry out for their account a competing business. Furthermore, directors could be held liable for damages caused to the company through the use of data, information or business opportunities they have acquired by means of their office.
The articles of association or a resolution of the shareholders’ meeting may authorize a director to undertake activities that are in competition with the company. Failing to get such an authorisation could qualify as a `just cause’ for dismissal and the company may bring an action for damages against the director. In addition, directors of public companies are banned from carrying out any transaction in respect of the company’s financial instruments taking advantage of privileged information obtained by reason of their office; the ban applies to all operations including those carried out by means of an intermediary. The breach of this ban qualifies as a crime.
In Italy, a corporation can be managed either by a sole director (amministratore unico) or a Board of Directors (consiglio di amministrazione). This document discusses the nature and characteristics of the sole director and the board of directors under the Italian Civil Code.
E SOLE DIRECTOR AND BOARD OF DIRECTORS
A corporation can be managed either by a sole director (`amministratore unico‘) or a Board of Directors (`consiglio di amministrazione‘).
1 Sole director
The sole director has the power of management of the company and the power to legally represent it. Management powers for specific transactions could be delegated to one or more attorneys-in-fact.
Public companies cannot be managed by a sole director.
2 Board of Directors
according to article 2380bis of the Civil Code the management of the company is an exclusive duty of the directors, who perform the operations necessary for the implementation of the corporate purpose. The Board of directors is chaired by the chairman of the Board to be appointed either by the shareholders’ meeting or by the Board of directors. The articles of association may include a clause regulating the method of appointment.
The chairman has the following duties, unless the articles of association otherwise provides:
(1) to call Board meetings;
(2) to set the agenda of Board meetings;
(3) to co-ordinate the work of the directors; and
(4) to ensure that adequate information in relation to the matters on the agenda is provided to the directors.
A Board of Directors may delegate its powers either to a director or to a non-director which will be then subject to the general directors’ duties.
b Meetings of the Board of Directors
It is the responsibility of the chairman to call meetings when appropriate or requested by another director. The call notice must be sent to all Board members and the failure to do so could cause the invalidity of the meeting if some directors are absent.
The chairman is responsible for declaring a quorum. Directors must attend the meeting in person (proxies are not permitted) and the articles of association can authorise directors to attend the meeting by any means of telecommunication ensuring proper participation in the discussion.
Directors who have a conflict of interest can vote during the Board meetings, although the conflict must be disclosed to the other directors during the relevant meeting prior to expressing the vote. Under article 2391 of the Civil Code directors who were absent from the meeting or who dissented from the resolution taken with a conflict of interest have three months to challenge a decision damaging the company. The resolution can be validly challenged only if the majority necessary to pass the resolution would not have been reached without the vote of director with the conflict of interest. The burden of proving the conflict of interest falls on the party challenging the decision.
Finally, article 2388 of the Civil Code provides that resolutions passed in violation of the law or the articles of association may onlybe challenged by dissenting or absent directors or the statutory auditors within 90 days of the resolution. Company members may challenge Board resolutions that damage their rights.
Under Italian corporate law, breach of the directors’ duties resulting in the company suffering damage could trigger the directors’ liability vis-à-vis the company and its creditors. As part of this commentary on the management and administration of companies in Italy, this document discusses directors’ civil and criminal liabilities.
F DIRECTORS’ LIABILITY
1 Civil Liability
a Liability to the company
Breach of the directors’ duties resulting in the company suffering damage could trigger the director’s liability vis-à-vis the company and its creditors. This applies either to a single director and to the Board of Directors. In the latter case, the Board as a whole will be jointly and severally liable for the actions of all directors, provided that they did not delegate their powers to an attorney-in-fact. In the case of a delegation of power, the attorney-in-fact will be held liable while the directors responsible for delegating the power will be held liable only if they breached the duty of vigilance (‘culpa in vigilando’) over the attorney-in-fact activity. Additionally, a dissenting director will not be held liable if their dissent has been recorded in the board’s minutes and if the Panel of Statutory Auditors has been notified of such a dissent (see para ).
A company may subsequently ratify a director’s decision and thus remove the director’s liability.
Examples of conduct which could trigger directors’ liabilities are:
(1) management decisions which result in damage for the company. Liability may arise if the decision damaging the company would not have been taken by a director exercising the required diligence and the damage was foreseeable at the time the decision was taken;
(2) irregularities in the keeping of the account books, or producing accounts which hide losses;
(3) failure to correct irregularities in management that occurred prior to the director’s appointment. Upon taking office, by virtue of the general duty of vigilance and the duty to act in an informed manner, the director should ensure that the previous management of the company was correct and, if not, take steps to remedy any irregularities.
The statute of limitation for claims against directors is five years from the date the director left the office. The company has the burden of proof of unlawful conduct, the damages suffered by the company suffered and the causal connection between the two. Damages will be the remedy sought.
b Liability to creditors
Joint liability will arise in relation to conduct that violates the general duty of the director to protect the company’s assets, causing a diminution in the assets and so preventing creditors from recovering their receivables. Directors who took correct management decisions with unfortunate outcomes will not be liable. There is a five-year limitation period from the date the company’s assets became insufficient to pay the company’s debts or from the date the creditor could have discovered the mismanagement by using reasonable diligence. The burden of proof is on the creditor who must prove that the director breached his/her duties and that this resulted in loss for the company. The remedy available will be damages, which will be recoverable for the sums lost as well as the loss of earnings on that sum.
c Liability to shareholders and/or third parties
Directors will be held liable for wilful or negligent conduct (eg approval of incorrect financial statements, misrepresentation of the financial position of the company, failure to allot new shares upon a share redistribution) causing direct damage to the assets of the company, a share/quota holder or a third party.
Liability to a third party may arise, for example in the provision of documents to the third party which are misleading as to the company’s financial position for the purpose of securing a line of credit.
Liability will attach to all directors that gave consent to the decision. The burden of proof is on the plaintiff, who must prove the wilful conduct or negligence on the part of the director. There is a five years’ limitation period from the date on which the damaging act was committed and the remedy available is damages for the loss suffered.
2 Criminal liability
Italian corporate laws provide for a wide variety of crimes applicable to directors. A company itself will not be held criminally liable, but in certain circumstances it may be held administratively liable for its operation. Directors are not jointly and severally liable in relation to criminal offences, but the concept of aiding and abetting the commission of an offence could apply.
The criminal liability of a director will be defined with reference to the requirements of the individual offence, but normally there is a requirement of guilty knowledge and/or intention.
The limitation period applicable for liability if that fixed by the specific offence. Punishments available and will be also fixed by the offence and can consist in imprisonment and/or a fine. There is also provision for the confiscation of the proceeds of the crime whether this is profits or goods obtained.
This document discusses other company officers under Italian corporate law, as follows: de facto director (Amministratore di Fatto); general manager (Direttore Generale); panel of statutory auditors (Collegio Sindicale); audit by an auditing company (Società di Revisione); supervisory board; and management board and supervisory board (Consiglio di Sorveglianza) of dual model companies.
G OTHER COMPANY OFFICERS
1 De facto director (‘Amministratore di Fatto’)
A de facto director is a person who manages a company without having been formally appointed as a director. The defining feature of this role is the taking of management decisions on behalf of the company.
Both civil and criminal liability attach to a de facto director, who is subject to the same duties as a formal director.
2 General manager (‘Direttore Generale’)
A general manager could be either an employee of the company or a non-employee and can be a member of the board of directors. A general manager implements the board’s decisions and is involved in the management of the company. No limits apply to the number of general managers which can be appointed and to the term of their office.
A general manager can be granted powers to represent the company in transactions with third parties. Powers granted to the general manager must be filed with the Registry of Enterprises.
The Board of Directors (or sole director) will be responsible for instructing the general manager; directors’ duties apply to the general manager as well.
3 Panel of statutory auditors (‘Collegio Sindacale’)
SpAs and SapAs always have a panel of Statutory Auditors or an Auditor; while pursuant to article 2477 of the Civil Code, an Srl must have such a panel only if:
(a) the Srl files consolidated financial statements;
(c) in two consecutive financial years, two of the following thresholds are achieved:
(i) total assets are equal to (or greater than) €2,200,000,
(ii) the average number of employees during the financial year was 10 or more, or
(iii) revenue of sales and work done is equal to or greater than €2,000,00.
The mandatory appointment of the supervisory body or the auditor referred to in point (c) shall cease when, for three consecutive financial years, none of the above limits is exceeded.
The control body of an Srl, where appointed, is subject to the provisions applicable to the Panel of the Statutory Auditors of SpAs.
Generally the Statutory Auditors must review whether the management of the company complies with the applicable law as well as with the accounting and auditing principles. There are additional responsibilities for the panel of the Statutory Auditors of listed companies.
In the SpAs the Panel of the Statutory Auditors is made up by either three or five effective auditors and by two alternate auditors. At least one effective auditor and one alternate auditor have to be registered with the Register of Auditors kept by the Ministry of Justice and the remaining auditors must have the qualifications specified by the Ministry of Justice. Statutory auditors are subject to rules of ineligibility and incompatibility similar to those of directors and are remunerated for their services. Under Italian practice, statutory auditors are usually chosen from accountants.
The first auditors are appointed upon incorporation and their office will last three financial years.
Auditors can resign, but could be held liable for damages vis-à-vis the company if they do so without a ‘just cause’. The shareholders can also resolve upon the removal of statutory auditors, but this must be for ‘just cause’ and the resolution must be submitted to the court for approval. If an auditor fails to attend two consecutive meetings of the Board of Directors without justification, he or she will automatically lose office.
The panel of Statutory Auditors must meet every 90 days. The Statutory Auditors’ duties vary depending on whether the auditors supervise both the management and the accounting of the corporation or exclusively the management, while an auditing body is appointed to supervise the accounting.
If the panel of statutory auditors is required to monitor the accounting, it must verify the adequacy of the resources the company has made available for accounting and observe the rules for external auditors. It must carry out inspections on a quarterly basis to ensure that the book-keeping of the company is properly carried out and accurate.
If the panel of Statutory Auditors is required to monitor the management of the company, then it must ensure observance of the law and the provisions of the articles of association and the correct management of the company, with reference to the adequacy of the management resources available. The Statutory Auditors are required to attend meetings of the Board of Directors and of the Executive Committee (if appointed). They must also attend shareholders’ meetings.
Statutory Auditors must comply with the high standards provided by law and failure to do so may result in civil or criminal liability. They are jointly and severally liable in relation to their responsibilities to the directors of the company and each other, but personally liable in their responsibilities to the company and to creditors. They must discharge their duties with the professionalism and diligence required by the nature of their office.
Whenever the panel of Statutory Auditors discovers management or financial irregularities, it must act to stop the irregular activities. The Auditors must enter any opinion contrary to the management’s action in the minute book of the Board of Statutory Auditor meetings. They must also inform the share/quota holders and can call an extraordinary meeting of shareholders in urgent cases. If the shareholders do not take action, the Board can report the matter to the public prosecutor.
4 Audit by an auditing company (‘Società di Revisione’)
SpAs are subject to audit by an auditing company; SpAs with publicly traded shares are audited by an auditor approved by CONSOB. If the company is not required to draft consolidated financial statements, the audit can be undertaken by the statutory auditors (provided that all are licensed to do so). External auditors are appointed for three financial years; and can be re-appointed. Auditors are subject to the same rules of professional conduct and legal duties and liability as statutory auditors; external auditing companies are jointly and severally liable with the individual company members that carry out the audit.
Pursuant to Legislative Decree no 39 of January 27, 2010 as amended by Legislative Decree no 135 of July 17, 2016 the duties of the auditors are to:
(a) carry out inspections with reference to the company’s accounts are being properly maintained and that the entries in the accounts are accurate;
(b) check that the accounts (or consolidated accounts where applicable) conform with the accounting records and are in compliance with proper accounting procedures; and
(c) give a report on the accounts or the consolidated accounts.
The auditors may request documents from the company and can carry out on-site inspections. Auditors could be liable vis-à-vis the company, the shareholders and third party creditors for any loss resulting from their failure to carry out their duties.
The external auditors are also obliged to deliver an opinion on any proposed increase in capital, merger, or distribution of profits.
Auditors are jointly liable with directors vis-à-vis the company, shareholders and other third parties for damages arising out of the breach of their professional duties.
5 Supervisory board
In single model SpAs, a supervisory board must be appointed by the Board of Directors, composed of directors who satisfy requirements of trustworthiness, professionalism and independence. It will remain in office for as long as the Board of Directors is in office.
The role of the supervisory board is to monitor the organisational structure, internal control systems and the accounting and management of the company as well as to carry out whatever other tasks are assigned to it by the Board of Directors.
Members of the supervisory board have the same civil liability as the Statutory Auditors; criminal liability depends on the nature of the offence.
6 Dual model companies – management board
In dual model companies, article 2409 octies and novies of the Civil Code requires and regulates the management board (‘Consiglio di Gestione’).
The management board must be made up of at least two members. Their initial appointment will be by the incorporation documents of the company and the duration of their office will be for three financial years of the company, although they will be re-electable at the end of this period. A member of the management board may be dismissed at any time by the Supervisory Board (‘consiglio di sorveglianza’), but will be entitled to claim compensation for dismissal if the dismissal is not justified by ‘good cause’. It is the supervisory board that is responsible for appointing new members of the management board during the life of the company.
The responsibilities of the management board are specified by article 2409 novies, which states that the management of the company is its exclusive responsibility and specifies that it must do all that is necessary to achieve the corporate purpose of the company.
Both the company itself and the company members may take action against members of the management board as may the supervisory board.
7 Dual model companies – the supervisory board (‘Consiglio di Sorveglianza’)
In dualistic companies, a supervisory board is required under article 2409 octies and regulated by article 2409 duodecies of the Civil Code.
The supervisory board must have at least three members, at least one of whom must be enrolled on the register of auditors held by the Ministry of Justice, and may be subject to other pre-requisites under the articles of association. Nomination to membership will be by the articles of association initially and thereafter normally by the shareholders. Members will remain in office for three financial years.
The responsibilities of the supervisory board are a mixture of responsibilities otherwise held by the Board of Statutory Auditors or the shareholders’ meeting and include, inter alia:
(a) the approval of the annual accounts (or any consolidated accounts);
(b) the appointment and revocation of members of the management committee and the determination of the remuneration of members;
(c) ensuring that the company is run in accordance with the law and by-laws and with respect to the principles of correct management and that the administration, organisation and accounting of the company is adequate; and
(d) taking action against members of the management committee.
The supervisory board must report to the shareholders in writing once a year in relation to its activities.
The standard of care required of members of the Board is diligence to the degree required by the nature of the office. Members of the supervisory board are jointly liable with the management board for acts or omissions that cause damage where such acts or omissions would not have occurred had the members of the supervisory board acted in accordance with the required standard of diligence.
Criminal liability will depend on the actual nature of the offence.
8 August, 2018
Acquisitions and joint ventures.
Italian Decree Law No 58/98 and the regulations made under this law provide, amongst other things, the legal framework for public offers for the acquisition of shares, whether these are listed on the stock exchange or not. This document discusses matters relating to acquisitions of company shares in Italy, covering: public and mandatory offers; asset deal/share deal in a private company; preliminary negotiations; and asset deal.
1 Public Offers
Decree Law No 58/98 and the regulations made thereunder provide, amongst other things, the legal framework for public offers for the acquisition of shares, whether these are listed or not on the stock exchange.
Anyone intending to make a public offer for shares must give advance notice of this intention to the ‘Commissione Nazionale Per La Società e La Borsa’ (CONSOB), the regulatory authority for companies and to Borsa Italiana SpA (the corporation managing the Italian Stock Exchange) enclosing the offer document and the acceptance form.
Details of the notice to CONSOB must be disclosed to the market along with the essential details of the offer such as the purpose of the transaction, the proposed guarantees, the financing, any conditions of the offer, and the details of any advisors.
CONSOB may, within 15 days (30 days for private companies) of receipt of the notice of intention, ask the offeror to deliver additional information or to provide guarantee and can define by which means the offer must be announced to the public.
At the end of the term indicated above, the offering prospectus may be published either in the press or by filing it with an authorised intermediary or by using any other means as provided by the CONSOB.
The target company must in turn issue a statement which must contain the following information:
(a) all information necessary to evaluate the offer along with an analytic evaluation of the same by the directors; such evaluation shall take into account the effects that the offer could have on the future activities of the company as well as in respect of the workforce employed by the target and shall expressly indicate the number and (if requested) the names of the directors rejecting the proposed offer;
(b) notice of any call of the shareholders’ meeting to resolve upon the reject of the offer. Any subsequent decision to reject the offer and to challenge it must be disclosed to the market in due course;
(c) updated information on the ownership of the corporate capital, on the directors, on the controlled companies as well as on any shareholders’ agreements relating to the target shares; and
(d) any material information not mentioned in the last published financial statements.
This statement must be submitted to the CONSOB not less than two days before publication and in any case made known to the market by the first day of the acceptance period.
The offer itself is irrevocable, any clause within it to the contrary will be void. It may, however, be subject to variation, which may not be in the nature of a reduction in the quantity of shares subject to the offer. Any variation must be disclosed to the public by no later than three days before the end of the acceptance period. Competing offers must be published in accordance with the same provisions.
The terms of the offer must be the same for all the target’s shareholders. The period to accept the offer is set by the market authority (for public companies) and by the CONSOB (for private companies) and will vary according to whether or not the offer made is mandatory. The acceptance period may not start earlier than five days from the date of publication of the offer (save in cases where the offer document includes a statement from the target company) and in any event not before any authorisation required by law as a pre-condition for the offer has been granted.
All statements issued must be clear, complete and understandable by recipients. Further, the offeror and any other interested party must carry out all its obligations in a timely fashion, refrain from any activity on the markets aimed at influencing the acceptance of the offer. The target company must refrain from any activity which might influence the acceptance/rejection of the offer, unless authorised to do so by a vote in its shareholders’ meeting (which resolves on decisions relating to offers with a majority of at least 30% of the outstanding shares having voting rights).
CONSOB supervises general compliance with the provisions indicated above, but cannot make any assessment on the merits of the offer. Failure of a party to comply with the disclosure obligations could trigger the application of administrative fine.
Acceptance of the offer must usually be communicated to the offeror by sending the acceptance form to the offeror or its intermediary.
2 Mandatory offers
The obligation to make a mandatory public offer to purchase (‘offerta pubblica di acquisto obbligatoria’) arises only in connection with public companies. The mandatory offer is of two types: mandatory offer for the totality of the shares (‘OPA totalitaria’, ‘OPA successiva’) and a mandatory offer for residual shares (‘OPA residuale’).
An offer to purchase the totality of the shares becomes mandatory when the offeror holds more than 30% of the ordinary shares traded in the market. The offer must be made within 20 days from the date the 30% threshold has been exceeded at a price equal to the higher of the average price at which the shares were traded during the preceding 12 months and the highest price eventually paid by the purchaser for the purchase of ordinary shares of the company during the preceding 12 months.
The obligation to make a mandatory offer for the totality of the shares does not arise where there are other shareholders retaining control over the company or where the 30% threshold has been exceeded as a result of:
(a) a merger or de-merger;
(b) a transaction to save a distressed company;
(c) a cause independent from the will of the purchaser;
(d) a temporary transaction; or
(e) transfer of the securities among parties linked by significant investment relationships;
(f) purchases free of charge.
Furthermore, under certain other conditions, such a mandatory offer does not need to be made after the purchase of a shareholding which exceeds 30% under a public offer for at least 60% of the target’s ordinary shares.
An offer (upon request) for residual shares is mandatory upon a shareholder obtaining control over more than 90% of the shares. In these circumstances the offer to purchase must be for the totality of remaining shares with voting rights at a price fixed by CONSOB if it is not possible to purchase a sufficient number of shares to secure this within four months.
Anyone who, following a public offer for the totality of the shares, acquires a shareholding of more than 95% of shares must purchase (if requested to do so) the residual shares to those who requires it. The acquisition price of the residual shares will be fixed by CONSOB by means of specific regulations.
The regulations relating to mandatory offers apply also to several parties acting in concert for the purchase of shares.
3 Asset deal/share deal in a private company
Under Italian laws both assets deals and share deals are possible. Generally, those transactions are governed by the Civil Code and the steps of the acquisition can be summarised as follows.
4 Preliminary negotiations
Letters of Intent are very common in Italian transactional practice. Letters of intent cover issues such as the shares/quotas or assets to be sold, the price, the general terms of the agreement, the allocation of the costs of the transaction, the time frame within which the parties intend to complete the transaction, the applicable laws and forum selection.
Whether or not a letter of intent is binding between the parties, depends on the actual wording used by the parties. Without an express provision in this respect, letters of intent providing for vague declarations of the parties’ intentions and not containing detailed provisions relating to the transaction are not binding. Letters of intent containing detailed provisions as to all aspects of the transaction will be binding under the general law of contract and might be qualified as preliminary contracts. The assessment on the binding nature of a letter of intent must be made on a case-by-case basis.
During the course of the negotiations (and also during the execution of the agreement) the parties owe each other a duty of good faith. Breach of the duty of good faith could trigger, through a specific legal action, the award of damages (direct damages and loss of business opportunity) as well as the reimbursement of the expenses incurred by the non-breaching party in the course of the negotiation.
Additionally, lock-out and lock-in agreements and confidentiality agreements are commonly used under Italian practice.
Legal and financial due diligence activity usually follow the execution of the letter of intent. Several types of agreements are used in the business practice depending on the structure/type of the deal and the closing of the transaction usually involves a civil law notary public notarising the share transfer deed.
5 Asset deal
Article 2555 of the Italian Civil Code defines the ‘azienda’ (the going concern) as the assets employed by an entrepreneur in the conduct of a business. The Italian definition of going concern includes, among the others, goods, employees as well as contracts entered into for the operation of the business. Personal contracts do not fall in the definition of going concern.
In an asset deal, it is possible to purchase the going concern as a whole or single units of the same. Any asset not included in an asset deal must be expressly excluded from the going concern to be sold since the assets transfer by operation of law along with the going concern they are part of.
As an exception to the general rule under which the assignment of a contract requires the consent of the assigned party to be effective, in an asset deal on-going contracts belonging to the going concern and for which the personal identity of the parties is not essential, shall transfer automatically with the business without the express consent of the assigned party. This is to say that under article 2558 Civil Code in an asset deal the buyer replaces the seller in on-going contracts. However, the assigned party has the right to terminate the contract within three months from the asset deal if there is a ‘just cause’ and in this scenario the seller could be held liable for the damages due to the termination of the agreement.
Employment contracts transfer along with the going concern for which employees work for. Employees retain all their contractual rights and those deriving from their seniority, and the purchaser is bound by the all the conditions of the transferred employment agreements. Furthermore, in an asset deal the seller and purchaser are jointly and severally liable for all the sums owed to the employees as of the date of asset deal. There are precautions which the seller can take to insulate himself from employment liabilities.
Additionally, if more than 15 employees are employed in the going concern a specific procedure involving the unions applies. The parties to the asset deal must deliver a written notice to the trade unions at least 25 days before the date scheduled to close the asset deal. Such a notice must contain the reasons for the proposed transfer of business, the legal, social and economic consequences of the transfer for employees and any proposals relating to them.
The union representatives in the business, or those for the sector in general, may, within seven days of the receipt of the notice, ask for additional information on the transaction, and if they do so the seller and the buyer shall meet with the unions’ representative do discuss the transaction. The examination period ends in any case within 10 days from the first meeting with the unions’ representatives. Unions do not have in any circumstance the right to freeze the deal.
Failure to notify the unions of the proposed asset deal could constitute anti-trade unions activity under article 28 of Law 300/1970.
Italian law does not provide a precise definition of a merger (‘fusione’), preferring instead to define the methods by which it can take place. This document discusses the procedure regarding corporate mergers in Italy, also looking at the types of such mergers and the requirements of them if subject to competition law. Reference is made to Law No 287/1990.
Italian law does not provide a precise definition of a merger (‘fusione’), preferring instead to define the methods by which it can take place. It is, however, commonly recognised as being a transaction by which the assets and liabilities of two or more companies are united, either in a newly incorporated company (‘fusione propriamente detta’) or by the incorporation of the asset and liabilities of one company into those of the other(s) (‘fusione per incorporazione’).
In the first kind of transaction (‘fusione propriamente detta’), the merging entities interrupt their activity, are liquidated and a newly incorporated company acquires all the assets and liabilities of the merging entities. In order to do so shares/quotas the merged companies are cancelled and new shares/quotas are allotted in accordance with an agreed rate of exchange.
In the second type of transaction (‘fusione per incorporazione’), only one of the merging entities interrupts it activity and is liquidated while the other acquires all its assets and liabilities. The members of the absorbing corporation receive newly allotted shares/quotas based on an agreed rate of exchange.
There are three stages in a merger transaction, the preliminary phase (‘fase preliminare’), the decision phase (‘deliberazione di fusione’) and the closing phase when the parties execute the merger deed (‘atto di fusione’).
In the preliminary phase the management of the merging entities drafts a merger plan (‘progetto di fusione’) which must contain the following information:
(a) details of the merging companies (eg registered offices, corporate names);
(b) the proposed new deed of incorporation of the to-be-incorporated post-merger company or of the incorporating company;
(c) the exchange rate to be applied to shares/quotas;
(d) details of the method to be used for the allotment of the shares/quotas of the post-merger company;
(e) the date from which such shares/quotas will get profit sharing;
(f) the date from which transactions of the companies participating to the merger are registered in the financial statements of the to-be-incorporated post-merger company or of the incorporating company;
(g) treatment reserved to particular shares categories and to the owner of titles different from shares (e.g. convertible notes), and any benefits which the directors may receive under the proposal, special rights for each class of shares (if any).
The merger plan must be filed with the Register of Enterprises and at the registered offices of the merging entities at least 30 (15 days for a limited liability company) days before the date on which the members’ meeting has been called to resolve upon the proposed merger. Alternatively, the merger proposal can be published within the same terms on the merging entities’ websites if the safety of the browsing, the authenticity of the uploaded documents and the certainty of the uploading date can be certified. At least 30 days must elapse between the filing with the Register of Enterprises and the date scheduled for the resolution on the merger. The term to file the merger proposal can be waived by the members. If the company has issued convertible bonds or the proposed merger is cross-border the merger proposal must be published in the Official Journal (‘Gazzetta Ufficiale’).
The directors of each company involved in the merger must provide a report designed to provide information for company members, creditors and third parties. The report must illustrate and justify the merger, both legally and economically, unless it is unanimously waived by the members. Moreover the directors of each company shall inform members and directors of the other company about significant changes within the assets and liabilities of the company occurred from the filing or publication of the merger proposal. Directors of each merging company shall also draft a temporary balance sheet to be filed with the Register of Enterprises or alternatively to be published on the company’s website, unless it is unanimously waived by the members. The temporary balance sheet can be replaced by the annual financial statements if approved by the members within 120 days from the filing or publication of the merger proposal. In addition, an expert’s report over the proposed merger shall be drafted as well to resolve disputes as to value of assets and, in any event, a report estimating the value of the assets transferred should be obtained, unless it is unanimously waived by the members. The directors’ and expert’s reports must be filed at the registered offices of the merging entities at least 30 days (15 days for a limited liability company) prior to members’ meeting resolving on the proposed merger, unless it is unanimously waived by the members.
The approval of the proposed merger (and of the relevant merger plan) by the merging entities is taken in the share/quota-holders’ meeting. If the merger is approved the relevant resolution by the members must be filed within 30 days with the Register of Enterprises. The execution of the merger agreement shall not take place earlier than 60 days (30 days for a limited liability) from the filing of the share/quota-holders’ resolution with the Register of Enterprises.
Thereafter, the merging companies’ representatives will sign before a civil law Notary Public a merger agreement (‘atto di fusione’) which must be filed with the relevant Register of Enterprises of each company participating the merge. The merger agreement shall be effective only upon filing of the same with the Register of Enterprises and after the registration of the same with the Register the merger cannot be challenged.
Operations of merger or acquisition may be subject to both domestic (Law No 287/1990) and European competition laws which seeks to regulate business concentrations.
Italian domestic law will apply if the effect of the merger exceeds legally prescribed thresholds. The thresholds are subject to annual review by the Italian competition authority (‘Autorità Garante Della Concorrenza e Del Mercato’) and refer to the turnover of the companies involved. As of March 25, 2019, a merger or acquisition will be subject to the competition law if:
(a) the turnover of all the undertakings involved is equal or greater to €498,000,000; or
(b) the turnover of one of the undertakings involved in the transaction is equal or greater than €30,000,000.
Italian law defines a concentration as arising when:
(a) two or more companies merge;
(b) one or more subjects control at least one undertaking, or acquire such control either directly or indirectly; and
(c) two or more undertakings form, through a new company, a common undertaking.
Notice of a proposed concentrations exceeding the thresholds must be delivered in advance to the competition authority. The authority will then carry out an analysis over the transaction the outcome of which could be either a full authorisation, an authorisation subject to conditions or a prohibition.
Merger in specific sectors could be subject to scrutiny by other authorities as ‘Autorità per le Garanzie nelle Comunicazioni’ in the case of mergers in the media sector.
There is no specific Italian law relating to joint ventures. Joint ventures are commonly implemented through the establishment of a joint venture company (‘joint venture societaria’) or through a contractual joint venture (‘joint venture contrattuale’) where two or more companies sign a contract of collaboration. This document discusses the application of Italian company law to joint ventures, including international joint ventures when the management office is in Italy or Italy is the location for the principal activity of the joint venture company.
There is no specific Italian law relating to joint ventures. Joint ventures are commonly implemented through the establishment of a joint venture company (‘joint venture societaria’) or through a contractual joint venture (‘joint venture contrattuale’) where two or more companies sign a contract of collaboration.
Under the Italian law, the law applicable to international joint ventures is that of the State in which the joint venture company is located, provided that the Italian law will be applicable when the management office is in Italy or Italy is the location for the principal activity of the joint venture company.
The actual contents of the joint venture agreement will depend on the agreement made by the parties and on the nature of the business to be jointly carried out. Clauses on lock-up, dead-lock, reserved matters to the approval of the shareholders, liquidation, distribution of dividends and allocation of losses are commonly used in joint venture agreements.
Contractual joint ventures will be governed by the provisions of the general law of contract. International contractual joint ventures involving companies based in different States will be governed by the laws applicable to the Italian provisions on conflicts of law (eg Rome Convention).
The contract will deal with such matters as the purpose of the venture, the structure to be used to manage the business, the responsibilities and liabilities of the members, the distribution of the profits achieved and the dissolution of the contract.
A discussion of the legislative reforms in Italy on cross-border mergers involving EU and non-EU entities, including the requirements of creditors of the companies involved in the mergers and for the merger agreement.
Legislative Decree No 108/2008 provides for specific requirements applying in cross-border mergers involving both EU and non-EU entities. Stricter disclosure obligations apply and, under certain conditions, special rights (eg right to withdraw from the post-merger entity) are granted to the share/quota-holders dissenting with the cross-border merger. Legislative Decree no 123/2012 has amended provisions on this matter providing that the experts’ report cannot be unanimously waived by the members of the companies involved in the crossborder merger.
Creditors of the companies involved in the merger can file a petition against the merger at any time prior to the filing of the resolution approving the merger with the Register of Enterprises. In order to avoid this, the merging companies can obtain a certified report from an auditing company attesting that the assets and the financial position of the merging entities guarantee creditors’ rights.
The merger agreement can be signed not earlier than 60 days (30 days for an Srl) from the filing of the resolution approving the merger. The merger agreement can also be signed before the said term if:
(a) the creditors have given their prior consent;
(b) non-consenting creditors have been paid; or
(c) the expert’s report confirms there are no risks for the creditors.
The merger will be effective with the registration of the merger agreement with the Register of Enterprises.
‘Irregular’ mergers (ie mergers involving two companies where the shares or quotas of one are entirely owned by the other or where one company owns 90% of the shares/quotas in the other) benefit of a simplified merger procedure described in articles 2505 and 2505 bis of the Civil Code.
Further, for the first time, there are specific regulations relating to ‘mergers following the acquisition through indebtedness’ (article 2501 bis ‘fusione a seguito di acquisizione con indebitamento’) or leveraged buy outs, which in particular indicate which documents must be filed in support of the merger proposal.
4 July, 2018
Publicly available information on Italian companies
Registrar of Companies
The ‘Registro delle Imprese’ (Register of Enterprises) was formally established in 1996, by Presidential Decree No 581/1995. All Spas, Sapas and Srls must be registered with it and must file a wide variety of documentation and information with the Register of Enterprises. The filing is required in order to make such information available to the public.
The following information is available to the public through the Register of Enterprises:
(a) company’s memorandum and articles of association;
(b) details of the directors;
(c) registered office;
(d) details of any branch office;
(e) appointment/removal of directors;
(f) details, appointment/removal of Statutory Auditors;
(g) transfer of a quota in the case of an Srl;
(h) financial statements;
(i) external auditors’ report on annual accounts in the case of the quoted Spa;
(j) share/quota holders; and
(k) dissolution or liquidation of company and extraordinary transactions (eg. mergers and demergers).
Generally, third parties are deemed to have constructive notice of the information filed with the Register of Enterprises.
In addition to accounting books, corporations must keep the following records:
(a) a Shareholders’ Ledger (in the case of an Spa and Sapa);
(b) a minute book of the meetings and resolutions of the shareholders;
(c) a minute book of the meetings and resolutions of the Board of Directors;
(d) a minute book of the meetings and resolutions of the Executive Committee (if any); and
(e) a minute book of the meetings and resolutions of the Panel of statutory auditors (if required).
In the case of alternative models of governance:
(f) a minute book of the meetings of the Management Board;
(g) a minute book of the meetings of the Supervisory Board;
(h) a minute book of the meetings of the management supervision committee.
For an Spa which has issued bonds, a bonds register and a minute book of the meetings and resolutions of the bearers of bonds are also required. For an Spa which has issued financial instruments a financial instruments register is also required.
The Shareholders’ Ledger of a Spa and a Sapa must state, for any share category:
(a) the name of the registered shareholders;
(b) the number of shares owned by each shareholder;
(c) the payments made on shares; and
(d) the transfers of the shares and the charges upon them.
Only the shareholders, the directors and the statutory auditors have access to the Shareholders’ ledger. Shareholders have access only to the Shareholders’ ledger and to the minute book of the meetings and resolutions of the shareholders.
Like other legal entities and natural persons, Italian companies are under an obligation to register contracts relating to real property, cars, ships and planes with the appropriate registers: Land Register, Automobiles’ Register, Ships Register and Aircraft Register. This document describes this obligation in the context of publicly available information under Italian company law.
Land and other registers
No specific provisions exist for real property owned by companies. Like other legal entities and natural persons, companies are under an obligation to register contracts relating to real property, cars, ships and planes with the appropriate registers: Land Register, Automobiles’ Register, Ships Register and Aircraft Register. The registration of such contracts has generally a declaratory effect, meaning that contracts to be registered are not effective with respect to third parties who acquired rights in the asset and registered their contract before others. For example, if company A sells the same apartment twice, first to B and then to C, even though both contracts are valid and effective among the parties, the first of the two buyers to register the contract at the Land Register is considered to be the legitimate owner by any third parties and will also be preferred to the other buyer who did not register the contract. Finally, the Land Register is set up on a person-reference system and not on a land-reference system, ie it is the persons (or companies) buying and selling who must be searched against in the Register and not the piece of land bought or sold.
26 June, 2018
Q. Is it mandatory for an employer establish a relevant body and register at public bodies before hiring employees?
A. Yes, it is.
Q. Who wants to hire employees in Italy must establish a relevant body (legal entity, like an «S.r.l.» or, at least, a branch; a rep-office is not enough).
A. After the employer has been established it must be registered at the relevant payroll public bodies.
Q. How long does it take to register a new company with the Payroll bodies?
A. 1-4 working days.
Q. Is there any difference between big or small employers?
A. Yes, many. We will consider – roughly – as a «big employer» the one who has:
In the first case, the rules for big employers are applied only to the business unit (and not, for example, to the other business unit far from the first which hires four employees); in the second case, the employer will always be considered as «big».
We will consider as «small employers» the other ones.
Q. What kind of CBAs are applicable?
A. The most important is the national CBA. Often there are also regional or local CBAs regulating some aspects.
Q. Is the application of a CBA mandatory?
A. No. The company is free to choose whether applying a CBA or not. If applied, the CBA prevail over the law in favour of the employees.
Q. Is the application of a CBA advisable?
A. It depends on the specific situations. On a general basis, the application of a CBA is advisable:
Employees are grouped in four legal categories:
The Executives have a special regulation and a specific CBA, different from the other employees. This memo focuses on non-executive employees. The CBAs usually splits the non-executives employees in «levels» (6-8 depending on the CBA). Each level describes a kind of duties (from the cleaning staff up to the top level employees).
The level of the employee affects many aspects of the employment. E.g.:
Q. What is the maximum probationary period allowed by law?
A. The law providesas follows:
The CBA, where applied, provides for a range starting with 45 days for lower level employees up to 6 months for top level ones.
Q. What is the notice in case of withdrawal from the employment relationship during the trial period?
A. Each party may terminate the employment relationship at any time, without notice.
Q. Are fixed-term contacts prohibited for specific duties or employees?
A. No, they aren’t.
Q. Are fixed-term contacts prohibited for permanent tasks?
A.No, they can be stipulated for any kind of duty.
Q. What is the maximum duration of a single fixed-term contract, including any renewals?
A. It’s 36 months. After this period, a fixed-term worker acquires the right to a permanent position in the same firm.
Q. Is there a minimum duration for a single contract?
A. No, there isn’t.
Q. How many times can be prorogued a single fixed-term contract?
A. Any contract – if shorter than 36 months – can be renewed or prorogued up to 5 times. If the number of prorogations is higher, the worker acquires the right to a permanent position in the same firm. If the worker is hired with a fixed term contract within ten days of the end of a precedent contract lasting up to six months, or within twenty days of the end of a precedent contract lasting more than six months, the second contract becomes a permanent contract.
Q. Should the Company respect a notice period at the end of the contract?
Q.Are there any prohibitions to the stipulation of a fixed-terms contract?
A. Yes, the prohibitions concerns:
Q. Has a company to respect a limit on hiring by fixed-term contracts?
A. Yes, the law provides 20% of permanent workers; the CBA provides 28% of permanent worker. In the business units with up to 15 employees, 4 fixed-term contracts are allowed.
The percentage limits do not concern:
Q. Does the law mandate additional compensation for overtime hours worked by an employee on a temporary contract?
A. Yes, it does: as overtime work.
Q. Is part-time work allowed?
A. Yes, it is.
Q. Is it allowed to switch from part-time to full-time and vice versa?
A. Yes, if both parties agree.
Q. What is the specific character of the part-time work?
A. The working hours of part-timers are restricted to the working time provided for by the contract and can be changed by the employer, only within the limits of the «clausole elastiche» o delle «clausole flessibili».
Q. What are the so called «clausole elastiche» and the «clausole flessibili»?
A. They are provisions of the individual contract – under the limits and conditions of the CBA – which allow the employer to change the extent or the temporal collocation of the working time.
Q. Can the employer request additional work?
A. Yes, within limits. It is called «lavoro supplementare» and must be rewarded with an additional wages.
Q. What is the wage premium for the italian «lavoro supplementare»?
A. The law provides 15% of global hourly remuneration. The CBA provides 35% of global hourly remuneration.
Q. What is a job on call?
A. It is an employment contract in which the worker is available for a certain period in the day, the week, etc. The employee will work (and will get the salary) only if the employer calls him/her to work.
There are two types of job on call contract:
Q. Are set forth limits to the stipulation of a job on call contract?
A. Yes. The contract can be stipulated with subjects over 55 years of age and with subjects under 24 years of age (in this case, the work performance must be carried out within the twenty-fifth year of age). In any case, the use of the job on call contract is allowed, for each worker with the same employer, for a maximum period of 400 days of effective work, in a period of 3 years. In case of exceeding this period, the employee will be entitled to a full-time and permanent employment contract.
Q. Are there any prohibitions to the stipulation of a job on call contract?
A. Yes, the same as for the fixed-term contracts (see before, § 1.5.g).
Q. Must the employer notify or consult a third party?
A. The employer must just notify the duration of the performance to the public bodies, by «sms» or e-mail. The employer must annually inform trades unions about the use of the job on call contract.
Q. What are the minimum wages for employees as of 1st March 2018 according with the CBA?
A. As follows, roughly (Euro gross per month for 14 monthly instalments per year):
Q. What is the «TFR»?
A. It is a part of the salary which is accrued all along the employment contract and paid on at its termination (except for special reasons). The TFR is roughly equal to 7,41% of the yearly salary.
Q. What is the cost of the salary?
A. The total cost that an employer has to pay with regard to its employees. It is composed by remuneration, contributions and other subsidiary costs charged to the employer.
Q. How does we calculate the cost of the salary?
A. Basically the cost of the salary is calculated adding:
Q. Are there reductions of the costs of the salary?
A. Yes, in several cases depending on the kind of employer, the kind of employee (people with handicaps, unemployed workers, young workers, trainees, …)
Q. How many hours are there in a standard working week?
A. 40 hours;
Q. What is the maximum number of hours (including overtime) allowed in a workweek?
A. 48 hours, for each seven-day period. The average duration of the working time must be calculated with reference to a period not exceeding 4 months. The CBA may provide a longer period up to six months or up to twelve months for objective reasons, related to the organization of work.
Q. What is the maximum number of working days allowed in a workweek?
A. Six days.This amount can be calculated as an average on 14 days. Therefore, the employee must have one day off for each work week, on an average period of two weeks.
Q. Is there a legally designated weekly day of rest (i.e. a customary weekly holiday)?
A. Usually Sunday, but this is not mandatory.
Q. What are, if any, the restrictions on overtime work?
A. Overtime cannot exceed 250 hours per year. CBAs may introduce different rules.
Q. What is the wage premium for overtime?
A. According with the CBA:
Q. What is «night work»?
A. It is the work carried out between 22.00 and 6.00 a.m.
Q. Can women work the same night hours as men?
A. Yes, they can.
Q. What are, if any, the restrictions on the night work?
A. As follows:
Q. What is the wage premium for night work?
A. It’s an increase of 15% of the gross salary.
Q. What is the mandatory paid annual leave for an employee?
A. The law provides that the employee is entitled to an annual period of paid leave not lower than 4 weeks. The CBA increases the annual leave to 26 working days, to be calculated on a work week of six days.
Q. Does the law mandate paid maternity leave?
A. Yes, it does.
Q. What is the mandatory minimum length of paid maternity leave?
A. It’s 5 months.
Q. What is the wages during the maternity leave?
A. The Governments pays roughly the 80% of the normal salary. The CBA provides that the employer to pay the difference as to reach 100% of the pay.
Q. The employee will receive a pay during sick leaves?
A. Yes. A part of it is borne by the Government («INPS»), as follows:
Q. Is it legal for an employer to terminate the contract of an employee on the basis of redundancy only?
A. Yes, it is. If a company with more than 15 employees decides to lay off at least 5 workers within 120 days it’s a collective lay off, subject to a specific proceeding involving trade unions. Otherwise, the company can proceed with an individual dismissal for redundancy.
Q. Must the employer notify or consult a third party before dismissing one redundant employee?
A. Yes, but only for big employers. The individual dismissal must be preceded by a communication to the public body and a short proceeding aimed to reach an agreement among the parties. If there is no agreement the dismissal can be performed as well.
Q. Must the employer obtain the approval of a third party in order to dismiss one or more redundant employees?
A. No, it doesn’t.
Q. What is the length of the notice period that an employer must provide before making an employee redundant?
A. According with the CBA, the notice periods are calculated in calendar days, starting from the first and the sixteenth day of each month.
The notice periods are the following:
Q. Assuming that an employee is made redundant after one year of employment, would he automatically be eligible for unemployment protection and receive unemployment benefits?
A. Yes, he would: but under certain conditions. The main protection is called «Naspi».
The Naspiis granted to the employee when he/she:
12 May, 2018
Read our guide on doing business in Lombardy
12 May, 2018
Read our Guide on National and Regional Incentives for Companies and Individuals in Italy.
27 February, 2018
Italy has recently taken important new steps to position itself as a welcoming home for foreign investments. Compared to the past, it is becoming increasingly attractive to open companies in Italy for non-EU and EU residents, also from a tax point of view.
Please find below general information on some of the main tax incentives.
The Italian government has introduced a favorable tax regime for highly-skilled employees coming to Italy to perform their working activities.
The benefit is the reduction to 50% of taxable income (i.e. only 50% of the income earned by the individual from the employment activity will be subject to taxation in Italy).
It can apply for 5 years starting with the year in which the individual becomes an Italian tax resident.
To benefit of the 50% tax reduction, the employee:
According to the Patent Box regime, a company can exempt 50 % of certain qualifying income derived from licensing or direct exploitation of intangibles from its tax base for Corporate Income Tax (“IRES” at a rate of 24%) and Regional Tax (“IRAP” a rate of 3,9%) purposes.
The Patent Box regime is available to Italian companies as well as to Italian permanent establishments (PEs) of entities resident in countries having an effective exchange of information with Italy.
Entities investing in R&D activities (e.g. human resources, equipment used, research contracts and technical skills) within year 2020 are entitled to benefit from a tax credit equal to 50% of the annual R&D incremental expenses exceeding the average expenses of fiscal years 2012, 2013 and 2014.
For new incorporated entities (after 2014), the average to be considered is zero (i.e. all R&D expenses are considered eligible for the tax credit).
The benefit applies also to resident companies, Italian permanent establishments of nonresident companies included, that carry out R&D activities through contracts with group entities that are resident for tax purposes in Eu/European Economic Area countries or in other countries and territories that allow an exchange of information with Italy.
The Allowance for Corporate Equity (also known as Notional Interest Deduction on capital increase) is a tax incentive introduced to promote the recapitalization of undertakings and to mitigate the different tax treatment applied to companies funded with debt and others funded with equity.
ACE benefit entails a notional deduction from Italian Corporate Income Taxable base (Italian Corporate Income tax rate is equal to 24%).
Italian Budget law for 2018 confirmed a 30% extra depreciation deduction (i.e. total tax depreciation of up to 130% of the cost, so called “super depreciation”) for purchases of new tangible fixed assets, excluding cars.
In practice, the tax basis is increased by 30% so that the tax depreciation exceeds the book depreciation of 30%.
Italian Budget law for 2018 also confirmed the 150% extra depreciation deduction (i.e. total tax depreciation of up to 250% of the cost, so called “hyper depreciation”) for new assets acquired for the technological transformation of enterprises. The law contains a list of qualifying assets, which are related to plant, equipment and machinery whose operations are digitally controlled or operated by smart sensors and drivers interconnected with a factory’s computer systems.
28 January, 2018
Italian AIF’s are regulated mainly by:
Of course, all Italian AIFs are impacted operationally by Directive 2011/61/EU on Alternative Investment Fund Managers (the “AIFM Directive”).
All Italian AIF managers must be authorized by Bank of Italy after consultation with CONSOB (the Italian Financial Services Authority). The authorization shall be granted by Bank of Italy within 90 calendar days beginning from the day of filing the application. Bank of Italy can suspend one or more times the term if it requires additional documents and/or information. Generally, the authorization procedure should not exceed 120 days.
AIFs themselves need not to be authorized, but their regulations must be approved by Bank of Italy.
Ministerial Decree 5 March 2015, n. 30 distinguishes between 4 types of Italian AIFs:
The capital of an Italian Open-ended AIF can be invested in:
It can also invest in financial instruments not traded on a regulated market, if the amount of the investment does not exceed 20% of the capital.
The investors have the right to request redemption of the units/shares of the capital of an Open-ended AIF at least once a year. Furthermore, the AIF must calculate the value of the units/shares every year, or any time new units/shares are issued. The investors have the right to receive the redemption within 15 days from the request.
The capital of an Italian Closed-ended AIF can be invested in:
The redemption of the units/shares of the capital of a Closed-ended AIF takes place at maturity of the fund. In this respect, please note that the regulation of the AIF may allow the anticipated redemption of the unit/shares in the following cases: (i) at the initiative of the AIF’s manger, to all the participants, proportionally to the shares owned by each participant; (ii) at the request of a single participant, for an amount: (iia) not higher than the sums acquired through new subscription; (iib) not higher than the value of the loans received by the AIF, even though they do not exceed 10% of the AIF’s value.
The law does not establish a minimum or maximum duration period for a Closed-ended AIF, although these types of AIFs usually mature after 5-10 years.
Italian Real estate AIF are Closed-ended AIF that can invest in:
The value of this type of real estate investment cannot be lower than 2/3 of the gross value of all the investments made by the AIF, reduced to 51% if at least 20% of the capital of the AIF is invested in securitization transactions involving immovable assets, immovable property rights, or credits secured by mortgage.
Italian Reserved AIFs are alternative investment funds reserved exclusively:
An Italian Reserved AIF can be Open-ended or Closed-ended.
Bank of Italy (after consulting CONSOB) will authorize an AIFM when the following conditions, inter alia, are met:
Authorization will be denied if upon verification of the above conditions, Bank of Italy deems that the sound and prudent management of the company is not ensured.
The application to obtain approval of an AIF regulation from Bank of Italy must annex:
The regulation is deemed to be approved 60 days after the date of receipt of the application by the Bank of Italy complete with all necessary documentation.
Are there local residence or other local qualification requirements?
The AIFM must have its registered office and head office in Italy.
What service providers are required?
The AIFM must enter into an agreement with a depositary bank to safekeep the assets of the fund.
The statutory audit must be devolved to an independent audit firm (revisore legale dei conti) enrolled in the relevant public register.
The list of agreements and cooperation actions is available on the website of the Ministry of Economy and Finance (http://www.finanze.gov.it/opencms/it/fiscalita-comunitaria-e-internazionale/convenzioni-e-accordi/).
Under Italian law, the setting-up of alternative investments funds is reserved to companies authorized by Bank of Italy (having consulted CONSOB) to operate either as:
The main difference between the two schemes is the contractual relationship between the company and its investors. Particularly, a SICAF is closed-ended undertaking for collective investments (“UCI”) incorporated as private limited liability company by shares (società per azioni), whose share capital is fixed, having as its exclusive corporate purpose the collective investment of the assets raised by offering its shares and other hybrid financial instruments to the public; the sub-funds are established by the SICAF and the investors become shareholders of the SICAF itself. As a consequence, investors will have governance rights on the SICAF and may have a voice on the investment strategies of the funds, by exercising their voting right within the SICAF.
Instead, under a SGR scheme, the funds are set-up by the SGR and the investors will purchase only units of the funds, without becoming shareholders of the SGR. Consequently, the investors do not have any voting rights whatsoever in relation to the management of the funds; the investors, by subscribing the funds’ units, will establish a contractual relationship only with the SGR.
Please describe the limited liability of investors.
Investors will not be liable beyond the amount of their contributions.
In Open-ended AIFs, the investors have the right to request redemption of the units/shares of the capital of an Open-ended AIF at least once a year. Furthermore, the AIF must calculate the value of the units/shares every year, or any time new units/shares are issued. The investors have the right to receive the redemption within 15 days from the request.
In exceptional cases specifically indicated in the AIF regulation or in the AIFM by-laws, the right to receive the redemption can be suspended for not more than one month. The suspension must be immediately communicated to Bank of Italy and CONSOB.
In Closed-ended funds, the investors have the right to request redemption of the units/shares of the capital of a Closed-ended AIF at maturity of the fund. The maturity can be postponed, for no more than 3 years, if provided for in the AIF regulation or in the AIFM by-laws. The postponement must be immediately communicated to Bank of Italy and CONSOB.
The AIF regulation or the AIFM by-laws can also establish the cases in which the right to request redemption can be anticipated.
Are there any legislative restrictions on transfers of investors’ interests in Alternative Investment Funds?
There are no restrictions, apart from the ones provided for by the fund’s management rules, if any.
Marketing materials must be accurate, clear and not misleading.
Open-ended and Closed-ended AIFs can be marketed to retail investors as long as they’re not Reserved AIFs.
Consob Regulation No. 16190 of 29 October 2007 (“Regolamento Intermediari”) defines a “client” as the individual or company to whom the intermediary provides investment services. It identifies three categories of clients: (i) retail clients; (ii) professional clients and (iii) qualified counterparties.
Retail clients are all “customers whom do not qualify as professional customers or qualified counterparties”. Professional clients are (i) those specifically identified as such by CONSOB (so called “Professional Client by Law”) and (ii) those who request to the fund manager be qualified as professional clients.
The fund manager is required to assess the client’s characteristics and its ability to be classified as Professional Client.
Generally speaking public bodies are classified as retail investors.
However, Italian law also defines professional public clients. Professional public clients by law are the Government and Bank of Italy. Instead, professional public clients on request are Regions, the Autonomous Provinces of Trento and Bolzano, the subjects referred to in art. 2 of Legislative Decree no. 267/2000, as well as national and regional public entities, provided that they meet the following requirements:
The intermediary must be authorized to provide investment services in relation the marketing of the AIFs. The use of intermediaries so licensed is not restricted.
There are no specific restrictions on the participation by financial institutions besides the measures designed to contain systemic risk.
Under Italian Law, specifically Ministerial Decree 5 March 2015, n. 30, the capital of an Alternative Investment Fund (“AIF”) can be invested in one or more of the following categories:
AIFMs must communicate to Bank of Italy:
Furthermore, Bank of Italy and Consob, to the extent of their duties, may require to communicate data and information and to transmit documents and records in the manner and within the time limits they establish.
The independent statutory auditors shall notify the Bank of Italy and Consob without delay of the acts or facts that may (i) constitute a serious violation of the provisions governing the activity of the AIFM, (ii) jeopardize the continued existence of the AIFM or (iii) result in an adverse opinion or a qualified opinion on the annual accounts or interim statements of AIFMs.
The board of statutory auditors shall inform the Bank of Italy and Consob without delay of any act or fact it comes to know of in the performance of its duties that may constitute a management irregularity or a violation of the provisions governing the activity of AIFM.
The use of side letters is not restricted as long as their existence is disclosed to the other investors.
The tax treatment of the main forms of AIF is as follows:
Withholding taxation is limited to certain capital gains.
For FIA managers / consultants, the Italian legislator has not provided any ad hoc rules.
Therefore, the Consolidated Text of the Laws on Income Tax (TIUR) applies.
The tax treatment of investors is differentiated, depending on:
It is not necessary, but it is highly advised.
The Italian Tax Authority must annually exchange information automatically with the other tax authorities of other countries in accordance with the Common Reporting Standard, based on common rules concerning the automatic exchange of information on financial accounts, including AIF.
Most of the BEPS recommendations have already been implemented or will be in the near future.
1 November, 2017
Avv. Francesco Dagnino (Partner LEXIA Avvocati – www.lexia.it)
Blockchain technology (or distributed ledger technology) could assume great significance for financial markets, understood in the broad sense. Among the many economic transactions that can be done through blockchain technology, the so-called initial coin offerings (ICOs) are spreading. ICOs represent a digital form of raising financial resources through the offer to investors of a certain amount of newly issued cryptocurrencies (called digital token) – which can be easily generated by anyone through the open source Ethereum platform – in exchange for other cryptocurrencies (typically bitcoin or ether) and / or currencies with legal tender such as euros and dollars, based on a predetermined conversion ratio. Since the “good” offered to subscribers consists of “digital tokens”, ICOs are also called token bids.
Although there are numerous ways of structuring such operation, the scheme is generally the following:
The relationship between the issuer and the subscriber is governed by the so called digital token agreement, which is digitally underwritten by the subscriber by accepting the offer on the issuer’s website.
Those who buy digital tokens on the primary market through membership to an ICO are basically gambling on their value increase. Digital tokens can be sold and traded on the many cryptocurrency exchange platforms available on the Internet.
From a regulatory point of view, the legal problem of digital token sales lies in the fact that the economic rights marketed can be considered – on a case-by-case analysis – as stocks, bonds, derivatives, units of collective investment undertakings or more generally financial instruments or products. Since investors generally do not acquire any right on the issuer’s business or on the issuing company, ICOs can easily be used as tools to cheat investors.
The exponential increase of the cryptocurrency market and of savings accumulated through ICOs (over 2 billion € in the last twelve months) has attracted the attention of financial market Supervisory Authorities of different countries, which – on the basis of the principle of technological neutrality of the regulation – essentially abstained from uniquely characterizing ICOs and digital tokens, noting that, depending on the concrete structure of the ICO and the rights incorporated in the tokens, the latter may fall within the scope of the regulation of public offers of financial instruments, provision of services and investment activities, collective asset management, or equity crowdfunding.
The US Securities and Exchange Commission has expressed itself in the specific DAO / Slock.it case with communication no. 81207 of July 25, 2017, stating that tokens represented securities under federal law and that the general principles of financial instruments regulations also apply to those who collect savings through distributed ledger technology. Additionally, with communication dated September 25, 2017, the SEC announced the establishment of a new organizational unit, called “Cyber Unit”, which will have the task of hindering fraudulent conduct perpetrated by online traders through IT platforms (peer to peer platforms), including ICOs.
Similarly, the British Financial Conduct Authority, as far as the UK market is concerned, also warned investors of the high risks associated with the subscription of digital tokens, and prepared an online form and a webpage to report frauds.
With communication dated September 29, 2017, Swiss FINMA found that: (i) if digital tokens present typical features of securities (e.g. in the form of derivatives), there may be an authorization obligation; (ii) if assets collected under ICOs are managed by a third party, the rules on collective asset management could apply and (iii) if the token constitutes a means of payment, anti-money laundering provisions will apply. FINMA also stated that it initiated investigations on many ICOs, and, in the event regulatory violations are found, it will initiate enforcement actions.
Hong Kong’s Securities and Futures Commission reiterated that it should be assessed on a case-by-case basis if the ICO entails the conduct of a regulated activity and, therefore, if the subjects involved need the relevant authorizations.
A similar position has been taken by the Canadian Securities Administrators, which has stated that it will adopt a substantive and non-formalistic approach to qualify digital tokens as financial products.
The Monetary Authority of Singapore, instead, in its communication dated August 10, 2017, focused mainly on reporting the risks associated with ICOs and the purchase of tokens.
In Italy, CONSOB has not yet issued any communication. However, in our view, the applicability to ICOs of the supervisory provisions provided for by TUF, and the obligation to publish a “prospectus”, must be assessed on a case by case basis.
The investigation should be aimed at verifying:
If the offer meets all three of these requirements, the ICO will have to be treated as a public offer of financial products, as defined in art. 1, paragraph 1, lett. t), of TUF, resulting in the obligation to publish a prospectus.
In many cases the qualification of tokens as “financial products” will depend on the possibility of framing them in the residual category of “financial investments”. On this point, it is appropriate to recall CONSOB’s consolidated position based on which the concept of “financial investments” implies the coexistence of three elements:
From another perspective, the qualification of an ICO as a “public offer of financial products” could also result in the application of the provisions on “investment services and activities”, the provisions on collective asset management (in case of upstream management of resources collected by third parties), as well as the authorization requirement for trading platforms engaging in cryptocurrencies.