Società a responsabilità limitata

What it is

A private company limited by shares (società a responsabilità limitata  or S.r.l.) is certainly one of the most common forms for carrying on a business. Traditionally used for businesses smaller than the joint-stock company, it is beginning to be used by companies of considerable size, as it is characterised by greater organisational flexibility. It has perfect capital freedom and the shareholders are not personally liable for the company's debts, even if they have acted in the name and on behalf of the company

To make the most of the flexibility that characterises an “s.r.l.” and so allow the shareholders to mould the company for the achievement of their own specific objectives, it is fundamental to prepare the correct memorandum and articles of association. The articles of association must be formalised by public deed by the notary who deposits them with the Registrar of Companies: only following registration with the competent Company Registry can the limited liability company be said to have actually come into existence.  

The increased flexibility of the “s.r.l.” model makes it particularly useful to have advice from the notary who can identify and suggest the most appropriate administrative solutions to the specific needs of the shareholders. For example, by intervening in the drafting of the "rules of operation" (the so-called statute) which govern relationships in a much more stable and legally binding way than in separate agreements (so-called shareholder agreements), and this both between current shareholders and for those who in the future will join the company. 

The share capital of an “s.r.l.” may be lower than Euro 10,000.

  • In an “s.r.l.” with share capital equal to or greater than Euro 10,000, at the signing of the articles of association at least 25% of the consideration must be paid in cash (the rest of the capital can be paid up later) as well as the full amount of contributions in kind.
  • When the amount of capital is, however, set at less than €10,000, but not less than one euro, contributions may be in cash only and must be fully paid upon subscription.

In the event of establishment with a capital of less than €10,000, the company has an obligation to set aside a sum to be allocated to reserves, to be deducted from the net profit shown on the balance sheet and equal to at least one-fifth of the profits; this obligation continues until reserve and capital have reached the amount of €10,000. The reserve can only be used for allocation to capital and to cover any losses, with the obligation to make it up again when it is decreased. The means of payment must be specified in the deed. 

As is the case for joint-stock corporations, in the event that the company is formed with only one partner the full amount of the share capital must be paid up. 

Corporate Governance

Extreme flexibility also marks the rules on corporate governance: an “s.r.l.” may have a sole director or a board of directors, but now also forms of joint administration (where the directors must act, in fact, jointly) or separate administration (where any director can operate on his own) or mixed forms of administration where certain actions and/or categories of actions must be undertaken jointly while the rest may be done separately (along the lines of a partnership). 

A very useful tool is that of so-called special rights whereby individual shareholders may be assigned special rights in the administration of the company and the distribution of profits. In this case too the intervention of the notary can be very useful in order to design the best organisational structure of the company. 

Except for some resolutions of particular importance, even the shareholder meeting is no longer mandatory: the "operating rules" (the so-called statute) may provide alternative methods of reaching decisions of the shareholders, such as consultation or consent made in writing (the same document circulates among the various shareholders who sign it). 

Finally, this form of limited liability company may issue debt securities similar to bonds but, unlike the latter, these may be initially subscribed to by professional investors only. 

The Oversight Body

In an “s.r.l.” the existence of a supervisory body is required only in certain circumstances provided for by law. It can consist of a board of auditors or a single auditor. In such cases, if the articles of association do not provide otherwise, the accounting control functions belong to the supervisory body. As to whether it is mandatory to appoint external auditors as well as the board of auditors, the advice of the notary should be sought. 

Winding Up

The company can be wound up by a resolution of the general meeting of shareholders recorded by a notary. A liquidator (usually a former director of the company) is appointed to handle closure of payables and receivables, and all pending accounting transactions. The liquidator will then directly request the removal of the company from the Register of Companies (no further action required).