Establishing a company in Italy

Italian corporate law primarily differentiates between:

Partnership

Generally characterised by:

• unlimited joint and several liability of partners for company obligations;
• each partner acts as a director of the company with managing powers;
• non-transferability, either inter vivos or mortis causa, of the partner status except whereby authorised by all other partners.

Corporations

Generally characterised by:

• legal personality, autonomous from company owners’ personality
• limited liability for company owners, i.e. each owner’s liability is limited to the cash or assets he/she has contributed to the company
• separation of ownership and managing powers; hence company owners are not necessarily also company directors, and directors are not necessarily company owners
• ownership as freely transferable, either inter vivos or mortis causa.

Limited liability company

The most widespread types of companies in Italy are: Società per Azioni – S.p.A. (companies with liability limited by shares) and Società a responsabilità limitata – S.r.l. (companies with liability limited by quotas).

Both types of companies are to be established via a Memorandum of Association (or Deed of Incorporation) – either a unilateral instrument (whereby there is one founder only) or a contract (in the case of multiple founders). The document is complemented with the Articles of Association (or By-Laws) of the company, i.e. the set of rules governing the company’s operations through its existence. Whereby company’s owners should decide to change one or more of such rules over the years, the Articles of Association shall be consistently amended, whilst the Memorandum of Association shall remain unchanged over time. Accordingly, consideration shall always be ensured to the Articles of Association currently in force.

Società per Azioni (S.p.A.)

A Società per Azioni is the primary form of corporation, i.e. it best meets the needs of enterprises requiring significant capital.

Share Capital and Shares

S.p.A. share capital cannot be lower than € 120,000.00, and is divided into “shares”, which can be even dematerialized securities.

The share capital amount is determined at the moment the S.p.A. is incorporated and shall be subscribed by those establishing the company. In the event of a single founder, one subscription only will therefore exist; in the event of multiple founders, all shall subscribe (varying) portions of share capital until the whole capital has been subscribed.

Via capital subscription, each shareholder undertakes to pay the portion of capital subscribed upon execution of the Memorandum of Association. Payment can take place either by money contribution to the S.p.A. (to its cashier or onto a current account in the company’s name) or, whereby expressly provided in the Memorandum of Association, via in-kind contribution or contribution of receivables, whose value shall be equal to the amount of capital subscribed.

In case of multiple founding shareholders, those paying the capital subscription in cash are not required to pay the entire amount of their share(s) up front. They are entitled to deposit at least 25% initially and agree to pay the remaining 75% at a subsequent date consistently with the managing body’s request.

Conversely, whereby paid in kind or via transfer of receivables, the share capital is to be paid in its entirety. In the event of a single founder, he/she shall pay the entire share capital subscription up front, regardless of whether payment is in cash or in kind (i.e. goods or receivables).

Any share premium the founding shareholders might wish to pay for the shares shall be paid in its entirety upon S.p.A. establishment.

Once the Memorandum of Association has been filed with the competent Register of Enterprises and the S.p.A. company therefore has been incorporated, the company may issues shares representing its own share capital.

Corporate Bodies

Shareholders’ Meeting

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

Managing Body

The managing body is responsible for company management. In performing ordinary and extraordinary management tasks, it is not bound to seek approval from shareholders for its actions, except for corporate administration acts expressly subject to shareholders’ approval as by law.

In any event, the managing body composition depends on the corporate governance model adopted by the company, even if under the so-called “ordinary” model (which is the more common one) the company management is entrusted to a managing body, either composed of multiple directors (i.e. Board of Directors) or a single director (i.e. Sole Director). The Board of Directors may delegate some of its administrative powers to an executive committee or to a Managing Director. The Managing Body may be also a corporate body, unless further legal provisions setting forth restriction or requirements related to certain type of companies.

Control Body

The control body is responsible for overseeing company management and/or auditing its accounts, although the latter may also be entrusted to an independent auditing firm.

Within the so-called “ordinary” model of corporate governance management control is entrusted to a Board of Auditors composed of either 3 or 5 statutory auditors and 2 alternate statutory auditors, while accounts are audited by an external auditor or auditing firm enrolled in the Register of Auditors.

Società a responsabilità limitata (S.r.l.)

A Società a responsibilità limitata (S.r.l.) – i.e. company the liability of which is limited by quotas – has a much more streamlined corporate structure than an S.p.A., particularly due to the broader freedom that Italian law grants to the founding quotaholder(s) in establishing its functioning, organisation and other features and adapting them to their specific needs. Indeed, the Memorandum and Articles of Association may derogate from much of the legislation governing an S.r.l.

Capital and Quotas

S.r.l. capital may not be lower than € 10,000.00 and is divided into “quotas”. The amount of capital is determined at the time the S.r.l. is incorporated and (likewise S.p.A.s) shall be subscribed in its entirety by founding quotaholder(s). Quotas are dematerialized.

As the S.p.A.s, in the case of multiple founders, those paying the subscription of capital in cash are not required to pay the entire amount of their quota; they may deposit 25% initially and agree to pay the remaining 75% at a subsequent date upon the managing body’s request. Conversely, sole quotaholder is required to pay its capital contribution in its entirety, likewise multiple quotaholders intending to make in-kind contributions or contributions of receivables. Any premium on quotas shall always be fully paid up front.

Unlike S.p.A.s, quotaholders may also contribute the value of services to be provided to an S.r.l. by one or more of them. The subscribed capital shall be paid in its entirety by those quotaholders electing to contribute the value of their services; such contribution shall take the guise of a formal undertaking by the quotaholders to provide such services to the S.r.l.

Each S.r.l. quotaholder holds only one quota, which represents a varying portion of subscribed capital. In the case of sole quotaholder, his/her quota represents the whole capital.

Unless otherwise specified in the Memorandum of Association, the value of each quota is calculated proportionately to the value of the quotaholder’s contribution to the company, and his/her rights (e.g. voting rights, and the right to share in profits) are also proportionate. For instance, if a quotaholder holds 60% of an S.r.l. capital, he/she is the owner of a quota equal to 60% of total capital, is entitled to 60% of the company’s earnings, and his/her vote represents 60% of the quorum required for passing quotaholders’ resolutions.

Nevertheless, quotaholders may establish – either in the Memorandum of Association or, subsequently, in the Articles of Association – quotas not proportionate to the value of the contribution to the company, and may also establish special rights for specific quotaholders.

Corporate Bodies and Governance

Quotaholders’ Meeting

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

Management Body

Unless otherwise specified in the Articles of Association, S.r.l. management is entrusted to one or more shareholders appointed by the quotaholders themselves.

As such, an S.r.l. may be managed by a Sole Director or by multiple Directors. In the latter case, the company may adopt one of the following administration systems: (i) Board of Directors; (ii) Several Management; (iii) Joint Management.

The Managing Body may be also a corporate body, unless further legal provisions setting forth restriction or requirements related to certain type of companies. The Articles of Association may establish that multiple administration systems be used, each for a specific set of issues for which the managing body is called upon to decide. In any event, all directors’ decisions shall be documented in a dedicated corporate book.

Control Body

In S.r.l.s. management control and accounts auditing are entrusted to a Board of Auditors or a Sole Auditor. Control Body is not mandatory, except if certain circumstances occur, that is if the company:

• has got a capital equal or more than Euro 120,000.00; or
• must keep a consolidated balance; or
• controls a company obliged to statutory audit; or
• for two years has exceeded the following limits: (i) total assets of the balance sheet: Euro 4,400 million; (ii) revenues from sales and services: Euro 8,800 millions Euros; (iii) workers employed on average during the year: 50 units.

Whenever the company may got an income or a net worth equal or higher than Euro one million, the Control Body must be a Board of Auditors, not a sole Auditor.The Statutory Audit will be carried out by the Control Body, unless the Quotaholders’s Meeting deliberate to entrust it to an Auditor or an Auditor Firm; any revocation must be approved only by the resolution of quotaholders, according by the law. 

Recently, in addition to the ordinary model, other two new types of S.r.l. have been introduced:

1. Low capital S.r.l. (Società a responsabilità limitata a capitale ridotto) – “S.r.l.c.r.”; and 2. Simplified S.r.l. (Società a responsabilità limitata semplificata) – “S.r.l.s.”.

The main differences among ordinary S.r.l. and a S.r.l.c.r. or a S.r.l.s. are the following:

(i) S.r.l.c.r. can be only incorporated by individuals (a wholly-owned S.r.l.c.r. is allowed); therefore, legal entities (such as companies) are excluded. Quotaholders of a S.r.l.s. can be only individuals (not corporations or other entities) who are less than 35 years old. Conversely, an ordinary S.r.l. can be incorporated by individuals as well as legal entities;

(ii) S.r.l.c.r. or S.r.l.s. capital may not be lower than Euro 1.00 and higher than 9,999.99. Conversely, the capital of an ordinary S.r.l. may not be lower than Euro 10,000.00;

(iii) S.r.l.c.r. or S.r.l.s. capital contributions can be carried out in cash only. Conversely, in the event of ordinary S.r.l., in-kind contributions, contributions of receivables, and contributions of services may be also made. In particular, in cash contributions towards the S.r.l.c.r. or S.r.l.s. have to be paid-in directly to the Managing Body when the company is being incorporated. It implies that the Managing Body must attend the company’s incorporation before the Notary Public in order to immediately accept its charge and it has to formally state, before the Notary, that the corporate capital has been paid-in. The foregoing is different from an ordinary S.r.l., whereby in the latter case, preliminary to the execution of the Memorandum of Association, the founders shall open a temporary account with a bank, and shall deposit there the future company’s capital, so that the Notary Public needs only the bank’s receipt in order to assess the corporate capital existence and deposit. As a consequence the directors can accept their relevant charge also once the company has been incorporated.

(iv) Directors of S.r.l.s. should be necessary company’s quotaholders, while Directors of S.r.l.c.r. should be natural persons, quotaholders or less. Otherwise, Directors of the ordinary S.r.l. may be individual or corporate entity, quotaholders or less.