Foreign investors and CEOs often feel puzzled by the plethora of different types of companies available under Italian law.
The good news is that we can limit the scope to two types of Italian companies: società a responsabilità limitata (limited liability company) whose acronym is “SRL” and società per azioni (joint stock company) whose acronym is “SPA”. The other types of Italian companies are not well-suited for foreing investors.
The bad news is that SRL and, in minor degree, SPA may be established in different forms, including innovative start-ups and innovative SMEs.
Let’s start from the most widespread among Italian companies: the SRL. This will help to understand the other types of Italian companies which will be examined in the next posts.
General aspects of SRL
The SRL is the most common company with share capital in Italy, generally established as small or middle company often run by family members or by a few shareholders which act as directors as well.
SRL’s structure is flexible and adjustable to the shareholders’ needs.
The SRL is a limited liability legal entity. As such:
- it may own any type of assets;
- the shareholders are not liable for its obligations (with an exception explained below).
The SRL is regulated by the Italian Civil Code, by the Articles of Association and the By-Laws.
In order to establish a SRL, the prospective shareholders need to appear before a Notary Public.
Shareholders of a SRL may be individuals or legal entities.
The shareholders are not liable for the debts of the SRL: their liability is limited to the contributions paid-in in the SRL (whether in kind or money). The only exception to this rule being the SRL with a sole shareholder: if the sole shareholder fails to perform the contributions and to inform the general public of this status, the limited liability is not applicable.
Each shareholder which is not a director of the SRL has the right to have access to any documents, contracts and communications of the SRL.
Also, each shareholder may ask the Court to remove a director who is acting against the interests of the SRL and may start a lawsuit for damages suffered by the SRL due to the director’s misconduct.
SRL: exit from the company
Shareholders are meant to be bound to the company and they can not withdraw from that relationship as they please. The possible exits from a SRL are the following:
- sale of the share: this requires contractual agreements with a third party (sale and purchase agreements, put/call option rights or tag/drag along rights) keeping in mind possible limitations, such as the pre-emption right, provided for in the by-Laws:
- withdrawal right: it is subject to specific conditions established by the law or by the By-Laws (e.g. shareholders assembly decisions affecting the scope of the company or the rights of the shareholders, no-term company duration);
- exclusion from the company: the By-Laws may provide a list of events which trigger the shareholder assembly’s right to exclude a shareholder from the SRL;
- winding-up of the company: this leads to the extinction of the company.
Shareholders’ contributions are represented by shares (quota under Italian law): a percentage of the entire share capital of the company whose value is in proportion to the paid-in contribution. The shareholder’s rights are proportional to the owned share but the By-Laws may provide otherwise.
In principle, shares can be freely transferred to third parties, but the By-Laws usually provide limitations such as pre-emption right, lockdown period, internal approvals.
In case of a capital increase, each shareholder has an option to acquire the new capital in proportion to the owned share in order to avoid dilution.
SRL: corporate governance
SRL comprises two main bodies: the shareholders assembly and the management body. Under certain circumstancies, there might be an internal or external auditor.
The shareholders form the shareholders assembly whose main powers are the following:
- appointment of the managing body;
- appointment of the internal or external auditors;
- approval of the balance sheets;
- dividends distribution;
- decision about the winding-up of the company;
- amendments to the By-Laws.
The shareholders assembly is summoned by the managing body with a written communication setting agenda, place, date and time of the meeting.
The shareholders assembly is validly held when at least half of the share capital is present. Decisions are taken by simple majority of the share capital present at the assembly but certain matters, such as amendments to the By-Laws, require the positive vote of half share capital and the presence of a Notary Public.
The By-Laws may set higher majorities.
If the entire share capital is present, the managing body is present or informed and noone challanges the agenda, a shareholder assembly can be held with no previous written convocation (assemblea totalitaria under Italian law).
The managing body of the SRL can be either:
- a Sole Director (Amministratore Unico under Italian law);
- a Board of Directors (Consiglio di Amministrazione under Italian law);
- Directors with joint or sever powers (Amministrazione Congiunta o Disgiunta under Italian law)
The managing body has the duty to manage the company in a profitable and compliant way.
The By-Laws may set limitations on the Board of Directors powers: for example, decisions on extraordinary matters (such as sale and purchase of businesses as a going concern or participating interests) could be attributed to the shareholders assembly.
When a Board of Directors is appointed, the Directors elect a Chairman who acts as legal representative of the company. Usually, the Board of Directors appoints one or more Managing Director(s) (Amministratore Delegato under Italian law) with powers limited to specific areas, activities or functions.
The Board of Directors meeting is usually summoned by the Chairman with a written communication stating the agenda, place, date and time of the meeting . The Board of Directors meeting is validly held when at least half of its members are present. Decisions are usually taken by simple majority of the present directors but the By-Laws may provide for higher majorities.
The managing body is not directly liable for the company’s debts. However, shareholders and creditors may sue the managing body in order to recover damages if the SRL’s debts are consequence of its negligence or willful misconduct.
SRL are obliged to appoint auditors only if the company:
- drafts a group balance sheet;
- controls a company obliged to appoint auditors;
- overcomes for two consequential years two of the following limits: (i) € 4.400.000,00 as net worth, (ii) € 8.800.000,00 as revenues and (iii) 50 employees.
The statutory auditing body of the SRL can be a Sole Statutory Auditor (Sindaco Unico under Italian law), a Board of Statutory Auditors (Collegio Sindacale under Italian law) or an external auditor.
About the Author: Raffaele Battaglini (LLM. at The University of Edinburgh) is a lawyer expert in international contracts, innovation, M&A deals and start-ups.