Italy: Mergers and Acquisitions - Sole Member Companies

Last Updated: 15 October 1998
The law in Italy on companies with a sole member was amended in 1993 when the EC Directive on this issue (XII EC Directive no. 89/667 (1)) was implemented by the Legislative Decree of 3rd March 1993, no. 88 (the "Decree"). The Decree amended a number of articles of the Italian Civil Code.

In considering the law on this subject a distinction must be made between two types of limited liability company, i.e. between limited liability companies with shares (societa per azioni - "s.p.a.") and limited liability companies without shares (societa a responsabilita limitata - "s.r.l.").

A. The Position relating to an S.r.l.

(I) Incorporation

Following the Decree it is now possible to incorporate an s.r.l. by way of unilateral deed and hence with a sole quotaholder. As previously, the number of quotaholders may also be reduced to one following incorporation.

(II) Limited/Unlimited Liability

The most important changes introduced by the Decree relate to the question of liability of a sole quotaholder of an s.r.l.. By virtue of the new second paragraph of Article 2497 of the civil code, in the event of the insolvency of the company, a sole quotaholder (both where the company was incorporated with a sole quotaholder and where the number of quotaholders was subsequently reduced) will nonetheless be able to maintain the benefit of limited liability unless:

a) that sole member is a legal person or, if an individual, is already the sole member of another company;
b) the contributions have not been paid up in accordance with the provisions of Article 2476 paragraphs 2 and 3 (see (III) below);
c) the advertising requirements referred to in Article 2475 bis have not been complied with (until such time as those requirements have been complied with - see (IV) below).

However, if any of the above are applicable, then the sole quotaholder will, in the event of the insolvency of the company, have unlimited liability for such of the company's debts as arose in the period when he/she was sole quotaholder.

It can be seen therefore that the benefit of limited liability will only be retained by an individual (never a company) who can satisfy certain conditions.

(III) Payment of Contributions

- where an s.r.l. is incorporated by way of a unilateral deed the contributions must be fully paid up on incorporation;
- where on the other hand, the company was incorporated with more than one member, but there is a subsequent reduction to a sole member, then any outstanding contributions must be paid up within three months of such reduction;
- as seen above, failure to comply with these requirements means that an individual who is a sole quotaholder will lose the benefit of limited liability on insolvency of the company.

(IV) Advertising Requirements

(a) Article 2475 bis imposes a number of advertising requirements in relation to an s.r.l. with a sole quotaholder:

- the directors are required to file a declaration containing details of the sole quotaholder (including where there is a change of identity) with the Companies Registry, and another declaration if the company ceases to be a sole quotaholder company;
- such declaration must be made within 15 days of the date of the relevant registration in the quotaholders' register;
- the sole quotaholder is also given the right to make such declaration and it is indeed it is in his/her interests to do so if the directors have not complied with their duty within the relevant time limit;
- failure to make the declaration means that the sole quotaholder will be unable to take advantage of the limited liability provisions for any period in relation to which the declaration has not been made.

(b) the fact that an s.r.l. has a sole quotaholder must be indicated in all correspondence and documents of the company.

(c) any contracts entered into between the sole quotaholder and the company or transactions carried out to the benefit of the sole quotaholder must be entered in the minute book of the directors' meetings or recorded in a written instrument.

(V) General

Where the sole quotaholder is a creditor in respect of the company and such quotaholder is not subject to unlimited liability, then the debts of such quotaholder will not have priority over the other creditors of the company.

It can therefore be seen that the main effect of the Decree is to give an individual the right to carry on a business activity (as an s.r.l.) and at the same time, subject to the exceptions referred to above and contained in Article 2497, maintain the benefit of limited liability in the event of the insolvency of the company.

B. The Position in relation to an s.p.a.

(I) Incorporation

An s.p.a. must still have at least two members on incorporation. As previously, this restriction applies only at the moment of incorporation and the number of members may subsequently be reduced to one.

(II) Unlimited Liability

The Decree did not alter the position with regard to the liability of a sole shareholder in an s.p.a., which remains as follows:

- Article 2362 of the Civil Code states that in the event of insolvency of an s.p.a., a sole shareholder will have unlimited liability for any debts of the company which arose in the period in which he/she was sole shareholder;
- it is well established in case law that in such circumstances it is irrelevant whether the sole shareholder is an individual or a legal person;
- the courts have considered a number of cases in which attempts were made to argue that the majority shareholder in question should in fact have been treated as a sole shareholder, the minority shareholder being a mere nominee of the former;
- although the courts have varied in their treatment of such cases, one decision of the Court of Cassation is worth noting. In this case a majority shareholder which held practically all of the shares in an s.p.a. was deemed to be a sole shareholder for the purposes of Article 2362, where it was proved that in reality the registration of the remainder of the shares in the name of a third party was a "fiction" for the purposes of avoiding the provisions of Article 2362.

Accordingly, Article 2362 may be applicable both where the number of shareholders is reduced to one at any time after incorporation of an s.p.a., or in certain limited circumstances where on paper there is more than one shareholder but the second shareholder is deemed to be a "fiction".

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.

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