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.