Business Law… The rules of business in Italy

The two most common types of limited liability corporate vehicles In Italy are the “Società per azioni” (“SPA”) (joint stock company or company limited by shares) and the “Società a responsabilità  limitata” (“SRL”) (limited liability company). The rules governing SPAs and SRLs are quite similar from the standpoint of company law (the main principle being that the liability of a member of an SPA or an SRL is limited to the amount to be paid up as capital) and identical from the standpoint of corporate tax regulations. Appendix I lists the main differences between SPAs and SRLs.


The minimum capital required for an SPA Is Euro 120,000 and Euro 10,000 for a SRL. The capital of an SPA must be divided into shares, which may or may not have a par value (if they have a par value this must be the same for all shares) may be represented by share certificates which are negotiable instruments and are also recorded In the shareholders’ ledger, whereas the capital of an SRL is divided into quotas which are not represented by certificates, but merely recorded as an entry in the companies’ register kept by the chamber of commerce and may have differing par values. In this client note the term “quota holders” will be used to refer to the members of an SRL.

In principle, unless specific circumstances require the setting up of an SPA (e.g. the possible listing of the company or activity in regulated fields such as banking or insurance, or involvement as a special purpose vehicle In project finance trans actions) a start up business in Italy should be incorporated in a SRL, since this form gives a higher degree of flexibility in corporate governance systems and control over the company’s management and accounts. If the circumstances so require, the SRL may later be converted into an SPA through a company’s reorganization.

Any company, whatever its form, must be incorporated by way of public deed (Deed of incorporation) before a public notary.

Articles of Association
At the time of entering into the Deed of incorporation, a company must also adopt Articles of Association which attached to the Deed and may only be amended after incorporation by way of an extraordinary resolution passed at a quota holders/shareholders meeting.
The Articles set out detailed rules for the internal management of the company and will cover matters such as the mechanism for issuing or transferring shares, the convening of and voting at general meetings, the appointment and removal of directors, their powers and duties and proceedings at both the meetings of the board of directors and of the shareholders/quota holders.

Shareholders (SPA) and Quota holders (SRL)
The founders may be either Individuals or legal persons, Italian or foreign. Both SRLs and SPAs may be incorporated by a sole quota holder or shareholder. A sole member enjoys limited liability provided that the corporate capital has been fully paid up and the company’s directors (or the same sole member) notify the Chamber of Commerce that the company is controlled by a sole quota holder/shareholder.

Time required for incorporation and incorporation expenses
The entire Incorporation process (preparation of documents, notarial deed of incorporation, filings at the companies’ register, etc.) now takes approximately 3 weeks but may vary depends on the workload of the local Chamber of Commerce under whose Jurisdiction the company’s registered office falls. Notarial fees, court fees, registration tax and other expenses incidental to the Incorporation of an SPA or an SRL vary depending on factors such as the level of capital.

Meetings of Shareholders (SPA) and Quota holders (SRL)
At least one meeting of shareholders or quota holders must be held each year no later than 120 days (or 180 days if so provided by the Articles in cases where the company is required to approve consolidated financial statements or where exceptional circumstances related to the structure and purpose of the company apply) from the closing of each financial year,
In order to approve the relevant accounts, meetings of SRLs and non listed SPAs are convened by written notice given to all shareholders/quota holders, to all members of the management and of the internal control bodies at least 8 clear days prior to the meeting A listed SPA is required to publish the notice in the Official Gazette or in a daily newspaper and to give 15 clear days’ notice of the meeting. In the absence of such notice, meetings are validly held if the entire corporate capital is represented at the meeting and: (i) for an SPA, if the majority of the members of the management and internal control bodies is in attendance, while (li) for an SRL, if all members of the board of directors and of the Internal control body are either present or (if not present) have been informed of the meeting and declare they do not object to the points being dealt with at the meeting.

Types of resolution
There are two type of shareholders’ resolution which may, in different circumstances, be required:
(a) an ordinary resolution: (i) for an SRL or an SPA with a traditional governance system in order to approve the financial statements, to appoint and revoke the directors and statutory auditors and their compensation for office, to appoint the external auditors, to resolve upon the directors’ liability and to approve all other matters reserved for this purpose in the Articles;
(b) an extraordinary resolution for both SPAs and SRLs, in order to amend the Articles, to increase or decrease the share capital or to appoint liquidators for the winding up of the company.
Concerning voting rights, the votes exercisable at a quota holders’ meeting of an SRL are distributed among the members in the proportion to their respective quotas, while in an SPA each share carries one vote, although as anticipated it is possible to create various categories of shares having different rights, including shares with no voting right.
An ordinary resolution requires the affirmative vote of the majority of votes cast, although the Articles may provide for a higher threshold. Extraordinary resolutions require the favourable vote of shareholders representing the majority of the share capital unless the Articles provide for a higher quorum. In case of a listed company an extraordinary resolution requires the favourable votes of at least 2/3 of the share capital represented at the meeting. Please note that in case of a “second” convocation, the quorum required will vary but Is generally lower.

Governance system of SRLs
The roles for the management system of an SRL are not heavily regulated by Italian law and it may be dealt with quite freely in the Articles. Basically, the company may be managed by one or more quota holders, a sole director or a board of directors. The directors of an SRL can be persons other than quota holders, If expressly so provided In the Articles.
The Articles may further provide: (i) requirements, powers and duties of the directors (to which some rules set forth for SPAs’ directors may apply, If compatible); and (II) that the resolutions be adopted In writing (i.e.: without a physical meeting).
The Internal control may be entrusted to a board of statutory auditors or by an external auditor, according to the provisions of the Articles.

Governance system of SPAs
An SPA may be managed under the traditional system or under one of the two alternative systems now available after the reform of company law In 2004: the “duallstic” system and the “monistic” system.

Foreign Individuals of SPAs and SRLs management and control bodies
In both SPAs and SRLs, the sole director or the members of the management and control bodies may be of any nationality, and resident or non-resident in Italy. If they are not Italians, they must apply for a tax code in Italy, but this of itself has no personal consequences.
If a non Italian director or a member Is not a EU citizen, no visa will be required in connection with his appointment, provided the director mainly performs his activities abroad.
On the basis of International bilateral treaties between Italy and certain foreign countries (not member of the EU) foreign individuals resident in said countries may be required to be resident in Italy in order to be appointed as director of an Italian SPA or SRL.

Advantages and disadvantages of operating through a Representative Office
Operating through a representative office permits the containments of administrative costs connected with the opening of a separate structure in Italy, and attracts favourable tax treatment. However, a representative office is not a legal entity from either corporate and tax perspective, being only deemed as a simple “centre of expenses” whose person in charge has no power to take decisions or bind the foreign company vis-a-vis third parties. For these reasons a foreign company may operate through a representative office only if no business activity is intended to be carried out in Italy.
The main advantages in operating through a representative office may be summarized as follows:
(a) no corporate income taxes or local income taxes are due by the representative office after Its registration, since it does not constitute a permanent establishment;
(b) the establishment of the Italian representative office will not have an impact from a VAT standpoint since a representative office is a not VAT subject and the opening of a VAT registration is not required;
(c) the representative office would not be required to keep the accounting books nor will financial statements need to be drafted;
(d) the representative office would also not be required to file its annual corporate financial statements.
However there are also disadvantages associated with a representative office:
(a) the activity exercised by a representative office must be limited to public relations, marketing research and information on the foreign company; therefore, only an activity of preparatory or auxiliary character may be carried out. Moreover, given the function as a mere “contact” office, the labour and social security issues involved would not be significant since the number of people employed should be no greater than two or three at most (in any case, all employed by the foreign company).
(b) the person responsible for the representative office must not have authority to enter into contracts In the name of the foreign company (should this happen, a permanent establishment would be deemed to exist and the tax treatment would be that for a branch);
(c) in order to recover Italian VAT on purchases made within the Italian territory, the foreign company will need to appoint an Italian VAT representative (this would represent an additional administrative burden and a service that will not be carried out free of charge), or, alternatively, deal with this directly by itself registering for VAT purposes.

How to open a Representative Office
From a corporate point of view, the establishment of a representative office is quite straightforward and relatively rapid (20 or 30 days most), as it requires (i) a resolution by the Board (or other competent body) of the foreign company, authorizing the opening of the office and appointing the individual entrusted with the power to manage and (ii) an updated Certificate of Good Standing.
The representative office is not required to be registered to the Companies’ Register nor to file the deed of incorporation and the Articles of the foreign company. Its opening must be merely declared to the local Chamber of Commerce In the so called R.E.A. (the Economic Administrative inventory) within 30 days of the effective date of the beginning of its activity, and this requires the filing of specific forms.

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