The Italian Civil Code  (“ICC”) recognizes three types of limited liability companies[1]:

– Società a responsabilità limitata, also known as S.r.l. (a private limited company);

– Società per Azioni, also  known as S.p.a. (a joint-stock company);

– Società in Accomandita per Azioni, also known as S.a.p.a. (an hybrid form, rarely used in practice, that involves two categories of shareholders, some with and some without limited liability).

The S.r.l. is the most commonly used corporate form in Italy, although the Spa is the corporate form used by major public corporations listed on the Italian stock exchange and preferred by large private enterprises. The S.p.a. is, obviously,  the most regulated of the two major limited liability companies, requiring a full-blown board of directors and board of auditors, as well as higher minimum capital requirements (€120.000,00).

The regulations set forth in the Italian Civil Code (“ICC”) for the S.p.a. also apply to the S.r.l., unless stated otherwise.  The following are the main differences between the S.p.a. and the S.r.l.[2]:

– In the S.p.a. the capital is represented by shares which can be transferred by endorsement. All shares in Italy are nominal. In the S.r.l. the capital is represented by quotas, which are not represented by an endorsable instrument.

– The minimum capital of the S.p.a. is €120,000.00, as compared to €10,000.00 for the S.r.l.

II. Limited Liability Company (S.r.l. – Società a Responsabilità Limitata)

The S.r.l. is the most commonly used corporate form in Italy[3]. The Italian Società a Responsabilità Limitata is equivalent to the Limited Liability Company and the German G.m.b.H. (Gesellschaft mit beschränkter Haftung)[4].

The S.r.l. may be established by one (incorporation made by unilateral act)[5] or more founders (incorporation made by contract) who must be residents of EU-member states, or have residence permits. There are no requirements that directors be Italian citizens or residents, nor does the law require a company secretary.

For the incorporation of a Società a Responsabilità Limitata in Italy it is necessary to:

– enroll the company within 30 days at the competent Chamber of Commerce (Camera di Commercio), register with the Italian Registrar of Companies and publish in the Official Journal;

– enroll the company at the Tax office and VAT office for the release of a VAT code;

– enroll the director of the company or any employees at the Welfare Fund (Istituto Nazionale Previdenza Sociale – INPS) and with the Istituto Nazionale Infortuni sul Lavoro – INAIL for insurance of injuries of director or employees;

– get the release of the Smart Card for electronic signature of the director of the company;

– Open a bank account (and therefore the titular may be required to travel to Italy once before setting up the account).

All shareholders (better qualified as “quotaholders”) must sign all the company documents in front of an Italian Notary, or they can issue a Power of Attorney to enable a lawyer to sign and provide all the required documentation.

The Deed of Incorporation of an S.r.l. consists of a Certificate of Incorporation and by-laws. The following details must be provided therein[6]:

– Quotaholder’s name and address;

– The name of the company , followed by the expression “Società a Responsabilità Limitata” or the abbreviation “S.r.l.” (Limited Liability Company) and the address of the legal office company;

– Company’s address;

– A complete description of the purposes of the company;

– Amount of the share capital;

– Number and nominal value of the quotas held by any and all quotaholders;

– Quotaholders’ contributions;

– Rules of administration and method of representation;

– Board of directors;

– Board of auditors; and

– The approximate costs borne by the company for the incorporation.

Registration with the Register of Companies is done by a Notary, who files the incorporation deed with the Register of Companies. Once the Company is duly registered pursuant to Article 2331 of the Italian Civil Code, it acquires its legal status.

It is important, at the time of incorporation, to consider the contents of the deed and the by-laws very carefully because, in addition to the information which must be set out, there are other provisions concerning the company, which should be included in order to avoid potential legal problems. Although the amendment of the above documents  through a resolution of the quotaholders is always possible, this may not be easy when the foreign company does not have control of the Italian subsidiary.

1. Estimated Time of Formation

Excluding regulated industries such as banking, insurance, shipping, or aviation, which require government licensing and compliance with special laws, formation of an S.r.l. usually takes about two weeks.

2.  Estimated Costs of Formation

For the incorporation of the Italian S.r.l. it is necessary, as stated above, to have the Certificate of Incorporation (Atto Costitutivo) and the Article of Association o by-laws (Statuto) sworn in front of a notary. The medium cost of a notary for these documents, which includes registration tax, governmental tax and notary fee, are €2.000.00.

3.  Tax treatment

An S.r.l. shall pay the company income tax (“IRES”) and the regional tax on business activities (“IRAP”). IRES corresponds to 27,5% of a company’s net income, whereas the tax rate of the IRAP is 3,9%, applied on the gross income plus certain items and minus the deduction of certain costs and depreciation.

As to the dividends paid by an Italian company to its foreign quotaholders, it should be observed that under most income tax treaties the withholding applied in Italy cannot exceed a certain percentage of the gross amount of the dividends.

4. Capital Structure

In the S.r.l. liability is limited by quotas instead of shares as in the S.p.a.[7] Thus an individual participant’s capital contribution in an S.r.l. is termed a participant’s “quota” and the participants are termed “quotaholders”.

No certificate thereto is issued by the company and no public offering of financial instruments in connection therewith is allowed[8].

The minimum authorized capital stock (“share capital”) of an S.r.l. is, as stated above, fixed at  €10.000,00, which may be contributed in cash or kind and, under the new Business Corporation Act, individuals may even contribute professional work or services[9].

Specifically, the quotaholders’ contributions of an S.r.l. must be in cash, unless the deed of incorporation provides otherwise; any type of asset which can be economically evaluated can be the object of a contribution. If a contribution is in kind, or consists of a credit, a report of an expert must be submitted. A contribution can also consist of an insurance policy or a bank guarantee[10].

In order to set up an Italian S.r.l., the company’s capital has to be fully subscribed and, if the S.r.l. is established by more than one partner, at least 25% must be paid in.

In practice, prior to formation, quotaholders are required to deposit €2.500,00 in cash or bonds with a local Bank corresponding to 25% of the minimum authorized capital stock. If the S.r.l. is established by just one partner, the share capital to be deposited in the bank account has to be € 10.000, in order to have and maintain the limitation of liability.

S.r.l.s may issue bonds (debentures)[11].

5. Relationship of Quotaholders, Directors and Officers, Limitation of Liability

Unless otherwise stated in the by-laws, the management of an S.r.l. is entrusted to the quotaholders.

The Company is governed by the quotaholders and (generally) by the board of directors[12]. However, there are no requirements for management by a board of directors[13]. In most cases, small S.r.l.s can do without a board of auditors but there must be at least one director (Sole Director).

Non resident directors must elect a domicile in Italy and obtain a personal tax code (Codice Fiscale). If the director to be appointed is a non E.U. resident, it is necessary for them to obtain a business visa permit from the Italian government.  One or more managing directors can be appointed pursuant to the deed of incorporation or a resolution of the quotaholders’ meeting.

Directors are generally entitled to take all decisions concerning the company’s corporate object, with the exception of the restrictions contained in the deed of incorporation or in the by-laws. Restrictions are not valid in respect of third parties, unless it is proven that such parties have intentionally acted against the company[14].

The memorandum of association may provide that the decisions of the board of directors can be taken by means of written consultation or consent, expressed in writing (both the subject matter and the consent must be indicated). In any event, the draft of a project of balance-sheet or of a merger project, as well as any decision to increase the stock capital in accordance with Article 2481 of the Civil Code are within the exclusive competence of the board of directors.

Directors are jointly liable to the company for any damage due to breach of their duties.

The quotaholders’ meeting is competent to[15]:

– approve the company’s balance-sheet;

– appoint directors and auditors;

– fix their remuneration;

– decide any other question provided by the deed of incorporation or the by-laws including, the amendment of the deed of incorporation or the by-laws and the appointment of the liquidators, if the company is wound up.

The quotaholders’ meeting can pass resolutions if at least half of the stock capital is represented and the resolution is approved by the absolute majority. Resolutions that concern the modification of the deed of incorporation or by- laws, or that imply a substantial modification of the corporate object, requires the approval of at least half of the stock capital[16]. A quotaholder can appoint a proxy to represent him at the meeting.

Like shareholders of an S.p.a., quotaholders of an S.r.l. also enjoy limited liability up to the par value of their “quotas”: the participants are not personally liable except where they have fraudulently used the company for their own purposes[17].

As stated above, S.r.l.s may be formed by two or more quotaholders or unilaterally by a single (sole) quotaholder. An individual or corporate entity may be the sole quotaholder of an S.r.l. without such person losing limited liability status, regardless of similar holdings by the same quotaholder in other limited liability companies. And, in the event of insolvency, the sole quotaholder will continue to have limited liability, provided all capital contributions have been fully paid-up or the S.r.l.’s sole quotaholder has been identified and the entity’s sole quotaholder status has been publicized in the Registry of Companies[18].

6. Transfer of quotas

Unlike other Italian corporations, the by-laws of an S.r.l. may contain a clause restricting the transfer of shares or subjecting transfers to the unanimous approval of the other quotaholders, making the S.r.l. the ideal form of “closed” corporation and well-suited for defending substantial private fortunes and holdings[19].

7. The Board of Auditors and the Balance Sheet

A board of statutory auditors is mandatory for S.r.l.s under the following conditions[20]:

– It is required by the by-laws;

– The capital stock is not less than the minimum required for a joint stock company (S.p.a.), i.e. €120.000,00; and

– Two of the limits contained in Article 2435bis (concerning the simplified balance sheet) are reached during two subsequent fiscal years, or if their appointment is required by the deed of incorporation.

Auditors must control the company’s management, by verifying that the law and the deed of incorporation are duly complied with and that the financial books and the balance sheet are properly kept and drafted. Under certain conditions, the auditors may be jointly liable with the directors for breach of the director’s duties[21].

Quotaholders can exercise control over the company’s management by notifying either the auditors or the Court of any possible violation in the management of the company.  This control is stricter if no board of auditors exists.

The balance sheet may be “simplified” if, during the first year, or during two subsequent years, two of the following conditions are met:

– the total value of the net assets did not exceed Euro 3.125.000;

– the total turnover from sales and services did not exceed Euro 6.250.000; and

– the average number of the employees occupied during the year was not more than 50.

It should be noted that Italian principles of accounting conform to internationally accepted principles of accounting.

8. Dissolution

The dissolution of a S.r.l. can occur in one of the following cases:

– At the end of the duration provided for in the deed of incorporation;

– If the corporate object has been achieved, or it is deemed impossible to achieve it;

– If the quotaholders’ meeting cannot further carry out its duties;

– If the stock capital falls under the minimum legally required amount;

– Because of a resolution of the quotaholders’ meeting;

– In any other case laid down by the deed of incorporation.

A company can also be wound up because of a judicial order or bankruptcy.

Massimiliano Caruso                     

SINGULANCE – Italy