When deciding what form of business organisation to set up in Italy it is worth bearing in mind that the most useful and most commonly exploited vehicle provided for by Italian law to foreign investors and corporations are capital companies.
Although a third and rarely used type of capital company exists which has some features in common with limited partnerships, there are basically two forms a capital company can take in Italy: the limited liability company (societ… a responsabilit… limitata) and the joint stock company (societ… per azioni), both of which are regulated by the Italian Civil Code, as repeatedly amended following the relevant EEC directives.
A major practical consideration to bear in mind is that a joint stock company has the advantage over a limited liability company of being able to trade its shares as paper and thus may be admitted to stock exchanges by way of proceedings before CONSOB (the Italian Securities Exchange Commission). Moreover, unlike the limited liability company, a joint stock company can issue bonds. However, it is not unusual to come across very large companies which were set up as limited liability companies, as in other civil law countries. This is partially attributable to the fact that, for a while, Italian joint stock companies were burdened with a tax proportional to their subscribed capital, instead of being subject to a fixed rate of tax as is the case for a limited liability company.
In deciding which type of company to establish, the foreign investor should know that the minimum subscribed capital for a limited liability company is 200,000,000 Italian lire (approximately œ83,000 stg.), whilst that of a limited liability company is 20,000,000 lire (approximately œ8,300 stg.). Further, the provision of a board of auditors is obligatory for joint stock companies while it is optional for limited liability companies with modest capital. Moreover, the transfer of shares in a limited liability company may be subject, depending on its articles of association, to the arbitrary approval of the other shareholders or of the board of directors. This is not the case according to the precedents which relate to joint stock companies.
It is worth mentioning that since April 1993, it has been possible, despite the slight contradiction in terms, for a single shareholder to set up a limited liability company. However, this is not usually advisable, as the "unipersonal" company is limited in scope, the advantages of this new type of company being restricted to individuals, and only on a one-at-a-time basis (i.e., it is not permissible for any individual to take advantage of limited liability by creating or participating in more than one such company at a time). This limitation of liability is further subject to the obligation to comply with the forms of publicity required by the new Art. 2475bis of the Italian Civil Code regarding the identity of the owner, and it is also subject to the full payment of the subscribed capital and of any subsequent increases in the capital. The "Company with a single quota-holder" should also indicate its existence as such when dealing with third parties (in correspondence, etc.,) and if it does not do so, its directors will be personally subject to administrative sanctions. However, a plurality of shareholders in both joint stock and limited liability companies is often purely symbolic and may cease immediately after incorporation (even though this is not very advisable, as it might allow the company's creditors to pierce the corporate veil in the event of a winding-up).
The procedure for establishing either a joint stock company or a limited liability company is essentially the same. In principle, any Italian notary public can be directly instructed by the prospective shareholders to draw up all the necessary documents to establish a capital company, so that they receive a basic, standard and impartial service. However, it is always advisable for the foreign investor in Italy to consult a specialist lawyer who will be in a position to provide effective turn-key solutions.
It is also worth mentioning that while, generally speaking, no special authorisations are required before incorporation, in specific instances governmental authorisation may be necessary. For example, authorisation of the Bank of Italy is required for the incorporation of a bank; Ministry for Industry and Commerce authorisation is necessary for the incorporation of an insurance company and Ministry of the Treasury authorisation is required for the incorporation of companies with a share capital of more than ten billion lire.
The first step in the incorporation of a capital company is to ensure that the share capital is subscribed in its entirety and an amount equal to three-tenths of it must be paid up. Both the limited liability company and the joint stock company are incorporated through the execution of a public deed, consisting of the company's memorandum and articles of association, before an Italian notary public. Once the incorporation documents have been formalised by the notary, they will be filed by him with the registry of enterprises which is kept by the clerk of the court in the district where the registered office is to be located. Evidence of payment of the three-tenths share capital and any necessary authorisations are attached to the incorporation documents which are then reviewed by the Court. The Court will then decide whether all the formal and substantial requirements for incorporation have been complied with and whether the articles infringe any applicable rule or not. Registration of the company will be ordered by the Court once it has heard the State Attorney. A decision by the Court not to register a company may be challenged in the Court of Appeal within thirty days of receipt of the relevant notice. Once registration of the company is ordered, the memorandum and articles of association must then be published, in accordance with the Civil Code, in the Official Bulletin of Joint Stock Companies and Limited Liability Companies (BUSARL).
Only when the company has been registered does it acquire a legal personality and it may then operate within the boundaries provided by Italian law, taking advantage of the privilege of limited liability. However, any contracts made by the directors in the name of the company become binding on the company on incorporation, provided that such contracts were necessary for the incorporation of the company. On the other hand, if the Court refuses the request for incorporation, contracts entered into by the founders of the would-be company shall be binding on them and they shall remain personally liable towards third parties for the obligations undertaken.
Where the foreign investor decides to set up a business in Italy with non-Italian citizens as its shareholders, those shareholders will first need to obtain an Italian fiscal code in order to execute the documents of incorporation (in person or through a representative duly empowered through a notarised proxy effective in Italy). Moreover, should they not be fluent in Italian, they will require the services of a sworn interpreter when executing the documents before the notary public. In order to avoid such inconvenience, it is possible to first have the company set up by Italian trustees who are committed to transfer the shares immediately after the completion of the above-described formalities.
How, then, do capital companies operate after incorporation? The administrative structure of the joint stock company consists of the general meeting ("l'Assemblea") the directors ("gli amministratori") and the board of auditors ("il collegio sindacale"). The general meeting is the deliberative organ of the company although, in reality, effective power lies with the directors. The general meeting may be either ordinary or extraordinary, depending on the matter to be deliberated. The general meeting must be held at least once a year and its function is to decide matters of ordinary administration, to approve the annual accounts and to decide any matters submitted to it by the directors. Extraordinary meetings are held to decide matters such as changes in the constitution of the company, the issue of debentures and the appointment of liquidators.
Day-to-day management may be delegated to a sole director or to several directors acting as a board. Directors are appointed for three-year terms and may be re-elected. Once a director has been appointed, the appointment must be notified to the registry of enterprises within 15 days. A director has a three-fold responsibility: first, as a result of his contractual relationship, he may be liable for damages to the company for neglecting his duties; second, he may be liable to the company's creditors for failing to preserve the company's capital and, third he may be responsible to individual shareholders and third parties who are not creditors and who are directly damaged by the director's fault or fraud.
The main function of the board of auditors is supervisory. It consists of between three and five members who need not be shareholders as well as two substitute members all of whom are entered on the Register of Chartered Accountants at the Ministry of Justice. The board of auditors makes decisions by passing resolutions by an absolute majority. It reviews the activities of the directors, participates in board meetings and is entitled to require specific information of the directors. The board of auditors also participates in general meetings and may challenge any decision made there that is contrary to the constitution of the company.
The limited liability company is regulated by specific provisions of the Italian Civil Code, some of which are the same as those for joint stock companies. However, the limited liability company, usually being a smaller enterprise than the joint stock company, has a more flexible structure and allows the greater participation of its members in the company's management. Although the administrative organs are the same as those of the joint stock company, the limited liability company's constitution may provide for the management to be entrusted to non-members. It allows directors to be appointed for terms exceeding three years, or even, indefinitely. The appointment of a board of auditors is only mandatory for limited liability companies that have a capital of 100 million Lire or more. Where no such board has been appointed, control of the company is exercised by individual members through certain rights that are guaranteed by criminal law.
However, it may be that the foreign investor has no intention of establishing his business in Italy through the setting-up of an Italian company. It may be that a corporation has been formed outside Italy but that the head office or principal place of business of that company is in Italy. In this case the company is subject to Italian law, including the provisions relating to the validity of the articles of incorporation. Such companies are treated for all purposes as "domestic companies".
Alternatively, a business may be established in Italy by means of one or more branches of a company formed abroad with a permanent representation in Italy. Such a branch ("sede secondaria") is subject to Italian law in respect of the deposit of the articles of association, the filing ("iscrizione") of the articles of incorporation with the registry of enterprises and the publication of the balance sheet. The names of the persons representing the company in Italy and their authentic signatures must also be registered. A branch will be held to exist if the foreign company organises a business with some autonomy from the foreign company through which it carries out some or all of its business in Italy. Until the formalities for the setting up of the branch are completed, art. 2508 of the Civil Code provides that the persons acting on behalf of the company are jointly liable, without limitation, for the obligations of the company.
Companies which are formed abroad and have neither their head office, nor their principle place of business nor a branch office in Italy are not expressly governed by the Italian Civil Code. Of particular relevance is the fact that such entities do not have to publish their books. This type of entity may include corporations formed abroad which have local units ("unit… locali") in Italy, a typical example of which may be a representative office established only to collect and provide information on behalf of the head office. It is not necessary for a local unit to be registered with the registry of enterprises, although registration with the Chamber of Commerce of the Province in which the unit is located is necessary.
As a final note, the life of a capital company will come to an end automatically, without the need for a resolution of the shareholders' meeting to dissolve it if either: the corporate term has expired; the corporate purpose has been achieved or a supervening event has made it impossible to achieve; if it is impossible to continue operating or the shareholders' meeting is continuously inactive; if the capital is reduced below the legal minimum; if a resolution is passed for early dissolution or another reason arises as contemplated by the articles of association. Dissolution will also occur when a declaration of bankruptcy is made or when the company has gone into compulsory administrative liquidation. Once a reason for dissolution has arisen, if the directors continue to operate they will face unlimited joint and several liability.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.