Types of companies

Types of company


In setting up a company, it is desirable to be assisted by a notary who will help you choose the form of company that, from the organizational standpoint, is best suited to achieving the corporate purpose.

From the organizational point of view, companies can be distinguished into the following types:

1. Partnerships

These include:
- informal partnerships;
- general partnerships;
- limited partnerships.
 

2. Companies limited by shares

These comprise:
- joint-stock companies;
- limited partnership with share capital;
- limited liability companies.

All the above companies are for profit, that is to say, they are set up in order to make profits which will subsequently be distributed among the partners.

The type of company to be set up is decided by the partners; companies with the purpose of carrying out a commercial activity can only take the form of an informal partnership. This is the only restriction with which they must comply.

There is also the possibility of setting up other types of company in the form of cooperatives and mutual societies based on the principle of mutuality. Their aim is to provide their members with goods, services and job opportunities at better conditions than those offered in the marketplace. The provisions that govern joint-stock companies may also apply to cooperatives and when this is envisaged in the Memorandum of Association, the provisions governing limited liability companies shall apply.  Mutual societies are governed by the rules that govern cooperatives.

Finally, all companies, except for informal partnerships, may have the aims of a consortium, i.e. coordinate the economic activities of several entrepreneurs who do similar business or who contribute to specific steps in the overall business cycle.


Partnerships


General

Let us take the case in which the Parties decide to undertake an entrepreneurial activity by setting up  a partnership.

What would the general characteristics of such a company be?

First of all, as regards the unlimited and joint liability of the partners:
- in the case of a general partnership, all the partners have unlimited and joint liability;
- in the case of an informal partnership, all the partners have unlimited and joint liability, but there can be an agreement whereby the partners who do not have powers of agency are relieved of such liability;
- in limited partnerships only the working partners are liable, whereas the inactive partners enjoy the benefit of limited liability.

Unlimited liability means that the partners answers for the company’s debts with their present and future assets.

Joint liability instead means that the creditor of the company may, at his discretion, address any of the partners and demand payment for the entire debt from that partner.

Secondly, each partner, as such, has the power of running the company, unless otherwise agreed. An exception is the limited partnership in which the inactive partner cannot have this power.

Finally, a partner cannot transfer his/her quota of participation without the approval of the other partners, both during the lifetime and after the death of the partners.  Indeed, if one of the partners dies, except for the inactive partner, his share is not automatically transferred to his/her heirs.

In order for the shares to be transferred, both the heirs and the surviving partners must give their consent.

However, partners can add a clause (called the continuation and consolidation clause) allowing shares to be transferred through a deed while the partners are alive and after their death;  seek the professional advice of your notary to help you word this clause appropriately without violating any legal regulations.


Informal Partnerships


Activities that can be carried out by this type of company – Liability of the partnership and liability of the partners in regard to social security liabilities

Informal partnerships are the most elementary form of enterprise.

The fundamental characteristic of an informal partnership is that the scope of its activities is limited to non-commercial profit-making economic activities.

The scope of an informal partnership may therefore include:
- agricultural activities, with certain limitations because:
• the purpose of the enterprise cannot be merely that of using assets, but must consist in the joint operation of a business activity;
• tacit family ‘community of interests’, such as family groups practising agriculture on their own land or on other people’s land, are regulated by customs and not by partnership contracts;
- real estate management:  Art. 29 of Act n° 449 dated 27 December 1997 envisages that enterprises whose exclusive activity is that of managing property which is not instrumental for the business of the enterprise, or of managing registered financial investments or equity interest in companies, are to be turned into informal partnerships.  However, this is an exceptional, and temporary, provision.

 

Another characteristic is the unlimited liability of partners for social security liabilities.  Special agreements can be concluded whereby the partners without powers of representation have no liability.

In the case of an enterprise that has a debt:  what assets are to be used to pay for that debt?  The assets of the company, or those of the individual partners?

In an informal partnership a  creditor can claim his/her due either against the assets of the company, or of the unlimited liability partners.  However it should be noted that, if payment of the sum owed were to be demanded directly from the partner, the latter may request the creditor to claim payment from the company’s assets, or he may indicate the company assets that may be seized to enforce such payment (so-called benefit of prior enforcement on company assets).


How to set up an informal partnership

It is extremely simple to set up an informal partnership:
- the contract needs not be of any special type, except where special types of assets are involved (and except for evidentiary limitations);
- all that is needed to set up an informal partnership is the mutual engagement by the partners to jointly carry out a non-commercial profit-making activity;
- informal partnerships must be entered into the register of companies. 

Such registration takes place in a special section and does not imply any legal effects, its sole function being that of establishing official identification details and of providing public notice.

Therefore, since no special forms are prescribed, setting up a company may take place even verbally or in the form of conclusive facts (de facto informal partnership). Of course, in such cases there will be obvious difficulties if a partner needs to provide evidence of the existence of the partnership.

In any case, a written agreement is necessarily required when:
- real estate or real estate rights are transferred to the partnership;
- the right to use property is granted to the partnership for an unlimited time or for a period of time in excess of nine years.

When a partnership contract is concluded, the contracting parties take on the capacity of partners, thus giving rise to rights and duties explicitly envisaged by the law.

The obligation of transferring assets is essential for the acquisition of such capacity.  Especially in the case of an informal partnership, the law establishes that partners are obliged to transfer assets or capital as set forth in the partnership contract.

 

Unlike joint-stock companies and limited partnerships with share capital, for partnerships, and as now occurs with limited liability companies as of 1st January 2004,  there is no limitation on the bargaining autonomy of the parties as regards the assets which may be contributed to the partnership.  Any asset or service that has economic value or that is useful for achieving the partnership’s purpose may be transferred to it.

Consequently, contributions may consist in money credits or they may be in kind (real estate, machinery, raw or processed materials).   

The contributions may consist in transferring the ownership or in using firms, also firms encumbered with debts, and also guarantees (endorsements and sureties).

Contributions may also consist in the obligation of a partner to work (manually or intellectually) for the company (so-called working partner).


Management and legal representation of the company

The management of a company is the activity of running the corporate enterprise. The power of management is the power of carrying out any activity that falls within the scope of the corporate purpose.

When the management of the company falls on more than one partner (all or some), and the partnership contract makes no provision on how the power of management is to be exercised, then the notion of  separate management shall apply:  each partner is a director, that is, he has the power of managing the company and may carry out by himself any transaction comprised in the corporate purpose, without the obligation of requesting the consent or the opinion of the other directors, or to informing them in advance of any transactions he has planned.

Separate management offers the advantage of taking decisions rapidly, but is not without pitfalls, since the individual director may carry out transactions which are not profitable for the company without the others being aware of what is going on.

For this very reason joint management is envisaged. Joint management must be explicitly agreed on by the partners in the partnership deed  (Memorandum of Association) or by amending the latter if this is not envisaged, since, unless explicitly specified, separate management is the rule.

 

Furthermore, joint management may be based either on unanimity or on a majority vote. Where unanimity is required, the consent of all the partner-directors is required in order to carry out business transactions;  in majority-based companies, the majority of the directors is sufficient and it is calculated on the basis of the profits attributed to each partners.

Both separate management and joint management may be entrusted to all the partners, or only to some of them. Finally, the management of the company may be entrusted to only one of the partners. And finally, informal partnerships and general partnerships can be managed by third parties who are not partners. If a company, whether it is a stock company or a partnership, is a member of a partnership, it can legitimately be appointed manager of the latter.  In this case the manager is the stock company or a shareholder of the latter, and not a person appointed by the latter.  

There are many options to choose from and the notary public, thanks to his competence, will be in a position to help you draw up a management model that best suits your needs and those of your enterprise.

While the director is the person who has the power of managing the company, that is, the power of deciding on the business transactions (internal impact), the representative is the person who has the power of expressing the corporate will outside the company, in other words, the representative acts in the name and on behalf of the company (external impact).

a) Unless otherwise provided for in the partnership contract, each director shall represent the company, jointly or severally, depending on the type of company. 

This implies that:
- if the management is separate, each director may decide and stipulate deeds in the name of the company by himself (separate signature);
- if joint management has been chosen, then all the directors must participate in making deeds (joint signature).

b) However it must be pointed out that the partners can decide to regulate the power of representation differently from how they go about the management of the company.

For example:
- legal representation of the company may be reserved only to certain partner-directors;
- it may be established that for given deeds, joint signature is required, even if the separate management model is adopted;
- Separate signatures may be envisaged for transactions that do not exceed given amounts or, in general, for deeds that are part of routine business,  while joint signature is required for transactions where higher amounts are involved or for-non listed transactions, or for exceptional transactions (or for business transactions which are included among the activities envisaged as part of the social purpose of the company).      

Seek the professional advice of your notary public.

Throughout the life of the company the partners may modify the partnership contract but this requires a unanimous vote, unless otherwise agreed and except for the case in which the company were to be turned into a  stock company, for mergers and spin offs, in which cases (unless otherwise decided in the shareholders’ agreement on which you should be advised by your notary) a simple majority is required by law.  The majority is established on the basis of the share of profits attributed to each shareholder. The partner who does not agree on the amendment has the right of withdrawing from the company.

Changes in the company membership (for example transferring one’s share to another person or inheritance of a share as a result of the death of the original shareholder) and changes in the corporate purpose are considered to be amendments to the partnership agreement.

Transferring the shares held may be agreed upon beforehand by including a clause in the Memorandum of Association stating that shares may be sold and that members who die can be succeeded by their heirs.
 

Conclusion of the partnership for an individual partner:  causes and liquidation of the capital share

Members may withdraw from the company.  Causes of withdrawal are:  death of the member, voluntary withdrawal and exclusion.

One or more partners may withdraw from the company, without this entailing the winding up of the company.

Death of a Partner

The relationship between a partner and the company ends automatically when the partner dies. Within six months from his death, the surviving partners have the duty of returning the share held by the dead partner to his heirs. The surviving partners are not obliged to accept that the heirs of the deceased member should succeed him by taking his place in the company.

The surviving partners have two options they can choose from. They may either decide:
- to wind up the company in advance;
- to carry on the company with the deceased partner’s heirs, in which case, however, consent by all surviving partners and by the heirs is mandatory.

However the partners may introduce specific clauses in the partnership contract hence pre-determining what will happen in case of death.  Among the most common clauses mention can be made of:
- a consolidation clause, which establishes that the deceased partner’s quota will be purchased by the other partners, and the heirs will receive the value of the share by way of settlement;
- a clause of continuation with the heirs (all or some of them), whereby the partners agree in advance on transferring the quota to the heirs, thereby precluding recourse to the other two alternatives (purchase of the capital share or dissolution of the company).

The clauses of continuation may, in turn, be distinguished into three groups:
- the clause is binding only on the surviving partners, while the heirs are free to choose whether to join the company or to request settlement of the quota they are entitled to (clause of optional continuation);
- the clause sets forth the obligation for the heirs to join the company, with the consequence that they will be obliged to pay compensation to the surviving partners if they choose not to join (clause of compulsory continuation);
- the clause envisages that the heirs will automatically join the company (clause of succession).  In other words, as heirs of the deceased they automatically become partners of the company

These types of clauses are not all considered valid by case law, since they may be in contrast with the provisions of the law, for example entering into agreements on successions is illegal:  in order to avoid problems in inheritance matters seek the professional advice of a notary public who will draw up an unambiguous clause that reflects your intentions.

If for any reason a partner no longer wishes to belong to the company, he may exercise the right of withdrawal.

In particular, if the company was set up for an indefinite period of time or for the lifetime of one of the partners, each partner may withdraw freely.

Otherwise, if the company is for a definite period of time, withdrawal is admitted by law only in the case of a just cause.

The partnership contract may in any case envisage other circumstances in which a partner may withdraw, specifying how such right is to be exercised.

Exclusion

The individual partnership may be resolved following the exclusion of a partner from the company.

In some cases this occurs by law (e.g. in cases of bankruptcy), while in other cases the exclusion is decided by the other partners, when circumstances envisaged by the law or by the  partnership contract occur. Your Notary public will describe such cases to you.

In all the cases examined thus far in which the relationship of a single partner ends as a result of death, withdrawal or exclusion, the latter or his heirs are entitled only to a sum of money representing the value of his/her capital share.

Hence the partner cannot claim any of the assets he had conveyed to the company, even if they are still on the balance sheet of the company, nor can he/she claim return of the assets that had been given to the company for it to use for as long as the it existed, unless otherwise agreed.

The value of the share to be liquidated is determined on the basis of the financial situation of the company as at the date when the relationship terminates.

Conclusion of the partnership for an individual partner:  causes and payment of his/her capital share

Individual partners can withdraw from the company. The causes of withdrawal are:  the death of the partner, voluntary withdrawal and exclusion.

The withdrawal of one or more partners for one of the above-mentioned causes does not entail the winding up of the company.


General partnerships

How to set up a general partnership (s.n.c.)

In this case too a partnership contract must be concluded (explicitly called by the law as “Memorandum of Association”). The contract must be drawn up in the form of a public deed or of an authenticated private contract.

Activities which can be carried out in this form.  Liability of the partnership and the social security liability of the partners

If the parties wish to set up an general partnership, they must respect the specific rules laid down in this regard by the Civil Code, bearing in mind, in any case that, for many aspects, the law refers the reader to the provisions regulating informal partnerships, which consequently apply equally to general partnerships.

So that, in the light the foregoing, the present file foresees multiple referrals to the subjects already dealt with and developed with regard to the informal partnership.

The general partnership (commonly abbreviated to s. n .c.) is a type of company which may be utilised both for carrying out a commercial activity, and for carrying out a non-commercial activity (see informal partnership to the related paragraph).

 

In this form of company all the partners are liable jointly and unlimitedly for the corporate obligations. Any agreement to the contrary is without effect on third parties.

The aforesaid characteristic is proper of the general partnership alone and does not apply to the other two types of partnership (in fact, in the informal partnership the liability of the partners not representing the company may be excluded, while on the contrary in the limited partnership it is essential that only certain of the partners are liable jointly and unlimitedly for the corporate obligations).

In case the company has incurred a debt: against which assets can the creditor stake his/her claim? The assets of the company or the assets of the individual partners?

In the case of an general partnership, first and foremost the company with its assets is liable for payment of the company’s debts, and to a lesser extent the individual partners may be unlimitedly and jointly liable with their personal assets.  In the general partnership too, as in the informal partnership, the partners accordingly enjoy the benefit of prior excussion of the social worth, which however operates automatically.

Only if the company assets are insufficient to meet his/her claims, can a creditor request payment by any one of the partners.

In practice, an s.n.c. contract is a document which may consist of the Memorandum of Association proper and of the company by-laws attached to the latter.  The former contains the expression of the will of the partners and the essential elements of the company’s organisation, while the latter lays down the rules for the running of the company.

Even if drawn up separately from the Memorandum of Association, the company by-laws constitute an integral part of the latter.

It is necessary to resort to the form of public deed or of an authenticated private contract if the s.n.c. is to be entered into the Register of Companies and, although not a condition for the existence of this type of company, registration is however a condition for its regularity.  Being in the Register of Companies discloses the partnership contract and any subsequent amendments as well as the most important events in the company’s life, so that third parties can be informed and can rely on such information. This information is backed by ‘public faith’ (notary’s word): this is why the Memorandum of Association and subsequent deeds making amendments to the latter are to be examined by the notary public in his capacity as unbiased third party empowered by the State to exercise this function.

If the Memorandum of Associationis not entered into the register of companies, the s.n.c. may still be set up;  however, failure to register the Memorandum of Association means that relations between the company and third parties will not be governed by the provisions laid down for the s.n.c., but by the provisions that govern informal partnership, which are less favourable for the partners, precisely on account of the lack of publicity relative to the existence of such an entity.

An unregistered s.n.c. is known as an irregular general partnership.

As regards the assets which may be contributed to a general partnership, please refer to informal partnerships.

Management and legal representation of the company

The rules governing general partnerships are in may respects similar to those laid down for informal partnerships (please refer to the related paragraph).

Amendments to the partnership contract in the course of the company’s existence

In general partnerships too it may happen that, in the course of the company’s existence, the partners may wish to amend the partnership deed.

Unless otherwise agreed, such changes must be adopted unanimously (except for when the company is turned into a company with share capital, or when mergers or demergers are carried out),  and must be written in a public deed or in an authenticated private contract, just like the partnership deed, since the law prescribes that also these amendments must be entered, at the request of the directors or of the notary public, into the Register of Companies for reasons of public notice or disclosure, which is a very important requirement as pointed out in the preceding paragraph.

Amendments may be subjective or objective.  Subjective changes affect the personal composition of the company. For example, the assignment of the capital share, the introduction of a new partner, the replacement of a partner, and a partner’s withdrawal from the partnership.

 

Objective changes involve the content of the partnership deed.  For example: extending the lifetime of the company, reducing or increasing the share capital, moving the registered office, (however it is deemed that Article 111-ter of the provisions implementing the Civil Code, applies to all types of companies, and hence also to partnerships that have embodied this provision in their shareholder agreements; seek the professional advice of your notary public on this issue) deciding to dissolve the company, changing the corporate purpose, varying the number of directors or of the representatives appointed in the partnership deed, revoking the director appointed in the partnership deed, modifying the criteria for the sharing out of profits, transforming the partnership into another type of company, and carrying out mergers and demergers.

Changes in the share capital – Reducing and increasing the share capital

Take the case in which the company has lost capital. What is the company allowed to do?

In this connection the law envisages that, in case of losses, the company cannot distribute profits among the partners until the capital has been reduced or replenished by the corresponding amount.

However, unlike what happens for companies with share capital, there is no obligation to reduce the capital whatever the amount of the losses incurred, even if the latter are such as to wipe out the  entire capital.
 
While, however it is true that, if the company intends to continue to distribute profits to its shareholders, there is no escaping from the alternative laid down by the law:  either the capital is used to pay for the losses, or the partners contribute the financial resources required.

Besides the reduction in capital because of operating losses, the it may also be reduced for what is termed capital in excess.

In this case the company decides to reduce the net worth of the company by choosing from two options that are available:
- it may release the partners from the obligation of making any further payments already promised but not yet effected;
- it may return to the partners the capital contributions they have already made.

Whereas, if the partners should decide to increase the share capital , how should they go about this?

The increase may result from new money coming into the company, or resources taken from the reserves of the company.

In the former case the capital increase is provided by having new partners join the company or by collecting new contributions from the existing partners.

In the latter case, the partners decide to release resources from existing capital account reserves.

In a partnership the setting up of reserves is not obligatory. However, the Memorandum of Association or the partners may unanimously decide to constitute a reserve, by setting aside profits which it decides not to distribute to the shareholders.

When financial resources are transferred from the reserve to the share capital, the each partner’s quota stock in the company rises in proportion to his/her attributed share in the profits, thus safeguarding also the position of the working partner.

Amendments to the partnership contract in the course of the company’s life

In general partnerships too it may happen that, in the course of the company’s existence, the partners may wish to amend the partnership deed.

Unless otherwise agreed, such changes must be adopted unanimously (except for transformation of the company into a company with share capital, for mergers and demergers) and must be written in a public deed or in an authenticated private contract, just like the partnership deed, since the law prescribes that also these amendments must be entered, at the request of the directors or of the notary public, in the register of companies for reasons of public notice or disclosure, which is a very important requirement as pointed out in the preceding paragraph.

Amendments may be subjective or objective.  Subjective changes affect the personal composition of the company.  For example, the assignment of the capital share, the introduction of a new partner, the replacement of a partner, and a partner’s withdrawal from the partnership.

 

Objective changes involve the content of the partnership deed.  For example:  extending the lifetime of the company, reducing or increasing the share capital, moving the registered office, (however it is deemed that Article 111-ter of the provisions implementing the Civil Code, applies to all types of companies, and hence also to partnerships that have embodied this provision in their shareholder agreements; seek the professional advice of your notary public on this issue) deciding to dissolve the company, changing the corporate purpose, varying the number of directors or of the representatives appointed in the partnership deed, revoking the director appointed in the partnership deed, modifying the criteria for the sharing out of profits, transforming the partnership into another type of company, and carrying out mergers and demergers.

In particular: changes in the share capital – Reducing and increasing the share capital

Take the case in which the company has lost capital. What is the company allowed to do?

In this connection the law envisages that, in case of losses, the company cannot distribute profits among the partners until the capital has been reduced or replenished by the corresponding amount.

However, unlike what happens for companies with share capital, there is no obligation to reduce the capital whatever the amount of the losses incurred, even if the latter are such as to wipe out the  entire capital.
 
While, however it is true that, if the company intends to continue to distribute profits to its shareholders, there is no escaping from the alternative laid down by the law:  either the capital is used to pay for the losses, or the partners contribute the financial resources required.

Besides the reduction in capital because of operating losses, the it may also be reduced for what is termed capital in excess.

In this case the company decides to reduce the net worth of the company by choosing from two options that are available:
- it may release the partners from the obligation of making any further payments already promised but not yet effected;
- it may return to the partners the capital contributions they have already made.

Whereas, if the partners should decide to increase the share capital, how should they go about this?

The increase may result from new money coming into the company, or resources taken from the reserves of the company.

In the former case the capital increase is provided by having new partners join the company or by collecting new contributions from the existing partners.

In the latter case, the partners decide to release resources from existing capital account reserves.

In a partnership the setting up of reserves is not obligatory.  However, the Memorandum of Association or the partners may unanimously decide to constitute a reserve, by setting aside profits which it decides not to distribute to the shareholders.

When financial resources are transferred from the reserve to the share capital, the each partner’s quota stock in the company rises in proportion to his/her attributed share in the profits, thus safeguarding also the position of the working partner.

Conclusion of the partnership for an individual partner:  causes and settlement of the capital share.

The rules governing the general partnership are similar from many points of view to those laid down for informal partnerships (please refer to the related paragraph).

Dissolution of general partnerships is determined by the causes already mentioned and described with reference to informal partnership,  to which the reader is explicitly referred.

However, other specific causes of dissolution of the s.n.c. are the latter’s bankruptcy, and a provision by a government authority laying down the compulsory administrative winding up of the partnership.

The rules governing general partnerships are similar in many respect to those laid down for informal partnerships (please refer to the related paragraph).


Revocation of the state of liquidation

The rules governing general partnerships are similar from many points of view to those laid down for informal partnerships (please refer to the related paragraph).

Following approval of the final settlement accounts, the liquidators must draw up a request to cancel the company from the Register of Companies, submit the cancellation request to the Office of the Register of Companies c/o the Chamber of Commerce of the province where the company is based. As a result of cancellation the company ceases to exist.

Limited partnerships (s.a.s.)

Activities which can be carried out by this type of company - Liability of the  partnership and social security liabilities of the partners

If the parties wish to join forces by setting up a partnership, they can do this also by setting up a limited partnership (hereafter referred to as an s.a.s.).

In general, the s.a.s. is governed by rules that govern the general partnership (for which in turn, reference is made to the rules laid down for informal partnerships), except for the specific provisions which will be examined below.

Such a partnership is characterised by the presence of two categories of partners:
- unlimited partners, exclusively responsible for the administration and running of the company. These have unlimited and joint liability for carrying out the corporate duties and, accordingly, are in a similar situation to that of the partners in general partnerships (s.n.c.); 
- limited partners (silent partners), who are liable for the social security liabilities proportionately to their quota, providing they do not interfere with the administration of the partnership.

The s.a.s. is a type of partnership which may be utilised for carrying out both commercial and  non-commercial activities (please refer to the section on informal partnerships).

As for the system of liability of the partnership and of the partners for the social security liabilities, the reader is referred back to the section on general partnerships (s.n.c.), pointing out that in limited partnerships the limited partners do not have any liability, providing they have not interfered in the administration.

How to set up an s.a.s.

The rules described for the s.n.c. also apply to the establishment of an s.a.s.

The Memorandum of Association must comply with the same requirements, in form and content, as those laid down for the s.n.c.

An additional requirement is that the unlimited partners and the limited partners be distinctly indicated.

The Memorandum of Association of the s.a.s. are to be entered in the Register of Companies. If this is not done the partnership is irregular and the provisions that shall apply are less favourable for the partners as already described in the paragraph on general partnerships (s.n.c.). Registration ensures disclosure and the protection of third parties who have nothing to do with the company, as pointed out for the s.n.c..

Limited (Silent) partners have limited liability so long as they do not participate in company transactions.

As to the assets that can be contributed to the limited partnership, the same conditions apply as in the case of informal and general partnerships.

Whether the limited partner can be a working member i san issue that you will have to discuss with your Notare Public.

Upon signing the agreement which establishes the company, the parties become partners, a condition which carries with it powers, rights and duties which are expressly envisaged by the law. Limited and unlimited partners have different powers, rights and duties.

The unlimited partners

By law all unlimited partners are directors of the s.a.s..

However, the Memorandum of Association may entrust the management to one or some of the unlimited partners, excluding the other unlimited partners from the management.

Unlimited partners who are directors are governed by the same rules as those laid down for s.n.c. directors.

Their liability is identical to that of the partners in an s.n.c., and is accordingly unlimited and joint, with the benefit that the corporate assets are used to pay for the company’s debts.

Limited partners are excluded, in principle, from managing the company.

However, they may negotiate or conclude individual deals on behalf of the company, providing they have received a specific proxy or authorisation empowering them to do so.

Each limited partner is responsible for social security liabilities in a degree that is proportionate to the contribution they made to the company. Accordingly he/she does not assume any other risks, except that of losing the value of the capital he/she has contributed.

However he/she loses the benefit of limitation of such liability when he/she infringes the rule of not interfering with the management of the company and when he/she allows his/her name to be included in the registered business name of the company.

What is meant by the limited partner not being allowed to interfere?

Generally the limited partner does not have any autonomous decision-making power in running the company. 

Therefore, in general, he/she cannot carry out internal administration activities, nor acts of representation, under pain of losing his/her limited liability and of no longer being sheltered from bankruptcy.

The limited partner may however represent the company on the basis of a special proxy for an individual transaction or may carry out given acts under the direction of the unlimited partners.  Issuing a general proxy or giving an administrative assignment to a limited partner is a clear infringement of the above rule of not interfering.

Administration and legal representation of the company

The rules applying to limited partnerships are in many ways similar to those that govern informal  partnerships (please refer to the related paragraph)

However in limited partnerships, only the unlimited partners can be directors and legal representatives of the company.

The rules applying to limited partnerships are similar from many points of view to those laid down for informal partnerships.  Please refer to the Fact Sheet .

However it is underlined that death of a limited partner does not imply conclusion of the business relationship, since upon the death of the partner his/her share is transmitted, unless otherwise agreed in the Memorandum of Association.

Amendments in the partnership contract during the lifetime of the company

The rules applying to limited partnerships are similar in many respects to those that apply to informal partnerships (please refer to the related paragraph).

In addition, as regards subjective changes arising from the transfer of a partner’s capital share, a distinction needs to be made between the unlimited partner’s share and that of the limited partner.

If one of the unlimited partners decides to transfer his/her capital share he may undoubtedly do so through a conveyance deed; however, unless otherwise agreed in the Memorandum of Association, the consent of all the other  partners will be required, both limited and unlimited partners.  In order to transfer a partner’s capital share upon his/her death, also the heirs must given their consent (please refer to informal partnerships  and to general partnerships).

In the case of a limited partner wanting to transfer his/her capital share, he may undoubtedly do so through a conveyance deed; however, unless otherwise agreed in the Memorandum of Association, the consent of the other  partners will be required (both limited and unlimited partners) accounting for the majority of the share capital. Transferring the share capital following the death of the partner does not require the consent of the other partners.

Clauses may however be introduced that envisage different conditions; also in this case seek the professional advice of your Notary Public, which is especially important for the impact that such clauses may have on succession issues.

Withdrawal of  a member: causes and liquidation of the capital share

In general the rules for limited partnerships (s.a.s.) are the same as those laid down for informal partnerships (please refer to the related paragraph).

However, the death of a limited partner does not end the partnership because, as said above, in case of death, the partner’s shares are transferred to the heirs, unless otherwise provided for in the Memorandum of Association.

Causes that determine the winding up of an s.a.s.

In general, the winding up and liquidation of an s.a.s. is governed by the rules set forth for general partnerships, to which the reader is referred (please refer to the related paragraph).

However, besides the causes of dissolution that are the same for an s.n.c., there is another cause that is exclusive of the s.a.s., namely when there is only one category of partners left.

In fact, it is envisaged that the s.a.s. is to be dissolved when only limited partners or only unlimited partners remain unless, within the time limit of six months, arrangements are made to replace the type of partners that are missing.

During this six-month period, envisaged to reconstitute the category of missing partners, the company continues its trading activities normally if limited partners are the type that is missing.  Whereas in the opposite case, where only limited partners are available they must appoint a provisional director (who may even be a limited partner), whose powers are limited by law to carrying out the acts of ordinary administration.

It is pointed out that for any issues or problems not explicitly dealt with here, reference must be made to general partnerships and also to informal partnerships, since the rules laid down for informal partnerships also apply to general partnerships.

Companies limited by shares

General

In early 2003 the Italian legislator issued a law decree (n° 6 of 17 January 2003) which thoroughly reformed companies limited by shares.  The declared aim was to simplify, where appropriate, and enrich, wherever possible, the rules governing such companies, with a view to increasing their competitiveness on both domestic and international markets. 

Many changes were made and the following results have been achieved:  a better, though still not complete, co-ordination between the rules governing listed and non-listed companies (with explicit references also to the joint-stock companies with floating shares held mainly by the public at large); improvements in the instruments that protect minority interests;  and some power has been granted to private individuals (in particular to limited liability companies) so that they can take care of their interests in a way that had hitherto been impossible.

As a result of such changes and of the emphasis on the autonomy of the individual, the Memorandum of Association and the Company By-laws have taken on an extremely important role in the current and future life of the company:  these two documents regulate the formation of the company and the way its business is carried out.  As a consequence it is essential that the shareholders’ agreements be drawn up carefully so that they may allow to seize the many opportunities granted by the law and avoid inappropriate or illicit actions. A fundamental role is played by the notary public, called upon to establish the company, and who will draw up these documents and suggest solutions that are not only licit but also the best suited  to the concrete needs of the parties and in their best interest.  A Memorandum of Association and By-laws that are properly drafted will ensure that the company is based on sound and lasting rules thus avoiding contrasts and conflicts between partners and corporate bodies.

Memorandum of Association and By-laws that are well drawn up ultimately reduces costs and ensures that the business of the company will unfold in the best of ways .

Accompanied by a (not very clear) provision that regulated the transitional phase, the new law finally entered into force on 1 January 2004.

Companies with share capital may be of three types:  joint-stock companies (s.p.a.), limited liability companies (s.r.l.) and limited partnerships with share capital (s.a.p.a.).

These companies are organisations of persons and means for carrying out a productive activity in common, and they are endowed with assets that make them fully autonomous. This means that the company alone answers for social security liabilities with its assets.

Hence the liability of the partners is limited to the capital he/she has contributed, there is no personal liability, not even contingent liability, for the social security liabilities (with the exception of the unlimited partners of limited partnerships with share capital who, on the other hand, answer unlimitedly and jointly for the social security liabilities, and with the exception of the single partner of a proprietorship).

In order to offset this benefit of limited liability, the legislator has envisaged that the partner of companies with share capital shall not have direct powers of administration and control of the company, but they can only contribute to the latter by voting at the Shareholders’ Meeting for the appointment of the directors and statutory auditors:  in order to confirm this principle, the unlimited partners of an s.a.p.a. (who have unlimited liability) are assigned the capacity of directors by law by the legislator.  Partners can, however, be appointed directors, and hence take on the relevant responsibilities.

In fact, companies with share capital have a corporate structure, that is, they are based on the necessary presence of three bodies:  the Shareholders’ Meeting, that decides on issues of great importance for the corporate body, the directors, who run the company and implement the corporate purpose of the company, and the statutory auditors, a body that controls and monitors the activity of the directors (the foregoing holds for what the law considers to be the traditional management and control system:  there is a chapter on the other two systems, the so-called two-tier and the monistic system that do not apply to the limited liability company).  As regards the need for an auditor or for an auditing firm to control the accounting work of the company (leaving aside the issue according to which it is unlikely that they can be called a “body” that controls the company), please refer to the rules that govern the various types of companies with share capital.

The weight of a partner in the Shareholders’ Meeting (and of the partners of limited liability companies in decisions not taken at the shareholders’ meeting) is determined by the capital share he has underwritten, since decisions are taken on the basis of the majority principle. The rules that govern the Shareholders’ Meeting are designed to protect the need to take well-pondered decisions,  to ensure that decisions are adopted rapidly and to protect absent or disagreeing shareholders. 

The rules that govern decision-making in limited liability companies, that can be included in the Memorandum of Association on the advice of your notary public to avoid problems of legitimacy, are designed to ensure that decisions can be taken rapidly, but when drafting this clause one must not overlook the need to ensure that well-pondered decisions can be taken (with stakeholders being informed prior to the meeting), and the need to protect the absent or disagreeing partners. In order to make sure that the clauses in the by-laws of a limited liability company on issues that require unanimity are consistent with the law and that also the clauses that establish different quorums (higher or lower) than those envisaged in Articles 2479, para. 6, and article 2479-bis, paragraph 3 of the Civil Code are drafted in accordance with the law, seek the professional advice of an expert.

The partner’s investment is then represented by shares (in the s.p.a. and in the s.a.p.a.) or quotas (in the s.r.l.), which determine the extent of the partner’s rights of participation and are destined to be circulated and thus, to varying degrees, they can easily be traaded.

The reform has expanded the cases in which (with some differences for the s.p.a. and the s.r.l.) the partner can exercise the right to withdraw and obtain reimbursement of his shares or of his quota in accordance with the provisions of the law. The provisions also indicate how to determine the liquidation value to be paid to the partner who leaves the company. The notary public will give advice on the limits set on the autonomy of the individual in determining the criteria to be adopted in calculating the liquidation, in order to avoid going against the law. The Memorandum of Association of an s.r.l. can envisage circumstances whereby a partner can be excluded.

The choice of one or the other type of company must be verified in the light of the concrete requirements of the enterprise, of the expected turnover,  the scope of the corporate purpose and the running costs.

Seek the advice of your notary public, who will explain in detail the differences in the rules applying to the s.p.a., the s.r.l. and the s.a.p.a., so as to choose the type of company that best suits your business.

Joint-stock company

From the historic and regulatory point of view, the joint-stock company is the prototype of the company with share capital whose body of rules apply to the limited partnerships with share capital (s.a.p.a.), with which it is compatible, and in some respects they are very close to the rules that govern the limited liability company, which however makes little reference to the rules on joint-stock companies, which consequently do not directly apply. The joint-stock company (s.p.a.) differs from these two types of company because of two specific elements, namely the limited liability of all the partners, which distinguishes it from the s.a.p.a. in which the members of the administrative body (unlimited partners) are liable jointly and unlimitedly for social security liabilities that came into being during the period in which they were in office, and the division of capital into shares, that distinguishes it from the limited liability company (s.r.l.), in which the quotas cannot be represented by shares.

In order to ensure better harmonisation with the law of the financial markets, the legislation currently in force makes a difference between the so-called open companies, that have recourse to the venture capital market (listed companies and companies with floating shares) and closed companies, that do not have recourse to venture capital. There is a major difference in the auditing of the accounting system:
- in closed companies the accounts can be audited by the board of statutory auditors instead of an external auditor or auditing firm; this can be decided in a clause in the company’s by-laws or by the shareholders’ meeting; 
- in open companies the law envisages that the accounts must be audited by an external auditing firm.

Shares are participation quotas that can be freely transferred and are normally represented by documents that circulate under the rules that govern credit instruments:  Joint-stock companies may issue shares but this is not essential because under the law, instead of actually issuing the shares, a joint-stock company can register them in the stock ledger. As regards listed companies, under the new law the shares can no longer be represented by paper documents, but by accounting records called “registered shares” of “dematerialized shares”.

As regards shares, the legislator has increased the scope of action of private individuals. The joint-stock company can therefore issue not only the usual types of shares bust also:  shares carrying different rights, related also to the impact of losses;  shares for workers as distribution of profits;  shares carrying equity rights linked to the performance of the company in a given sector;  shares without voting rights or with voting rights limited to some issues, or subject to given circumstances, or (for non-listed companies and without floating shares) with voting rights limited to a maximum amount or to tranches;  enjoyment shares; redeemable shares. The joint-stock company may also issue, on given occasions, financial instruments endowed with specific equity or administrative rights.

The minimum starting capital of a joint-stock company must not be less than a hundred-and-twenty thousand euros (except for higher amounts required for some companies depending on their nature, size and impact that their business has on the market).  The shareholder’s stock need not correspond to the assets contributed to the company:  the shareholders may freely decide to “reward” another shareholder whom they deem to be of strategic importance or whose contribution was of fundamental importance.

In general for the joint-stock company, there are no other requirements considering the activity to be carried out (corporate purpose), other than a share capital of at least a hundred-and-twenty thousand euros, and that in the case of sole-proprietorships, a quarter of the contribution or the entire contribution must be paid up.

In the past it was normal practice to establish a joint-stock company with standardized by-laws,  and with separate shareholders’ agreements and contracts for implementing the business plans. This must now change because the shareholders’ agreements can last five years at the most and, if the shareholders agree on a longer time horizon, the partner have the right of withdrawing simply by sending a notice. Partners who intend to establish sound agreements that are bound to last in time, have the sound option of having a notary public draw up the company’s by-laws tailored to their specific needs.

Seek the professional advice of your notary for any further details and to evaluate the limitations envisaged by the law on the establishment of a joint-stock company and on its corporate purposes so as to decide whether it is conducive to your type of business.

 

A joint-stock company must be set up through a public deed which must clearly indicate who the parties to the contract are. Such parties may be individuals but also legal entities (as for instance other joint-stock companies, partnerships, cooperatives or other bodies).

The Memorandum of Association must indicate the Municipality in which the company has its registered office, which is where it operates, and the name of the company which must contain the wording “"società per azioni" or "s.p.a.".

The Memorandum of Association must also indicate the corporate purpose that may consist in a commercial or agricultural activity carried out for making a profit, thus clearly ruling out that the company is not a charitable or cultural organization, nor an entity for the mere enjoyment of assets, in which cases the activity would come under the rules that govern associations and communities of interests.

The corporate purpose that is expressed in the Memorandum of Association of the joint-stock company must be clearly stated. Moreover, a joint-stock company must have an initial share capital whose minimum amount is established by law, namely a hundred-and-twenty thousand euros.  The law envisages that for some companies the minimum share capital must be higher depending on the type of activity carried out (for instance in the case of stock-brokers, banks or lending institutions).

Another requirement for the Memorandum of Association is that it must indicate who the first directors must be, as well as the representatives of the company.

The Memorandum of Association can indicate a fixed or variable number of directors, in which case the Shareholders’ Meeting will have to decide how many members there should be on the Board of Directors, in accordance with the needs of the company.

The law requires that the duration of joint-stock companies be indicated. This time-frame can be extended before the expiry date by a decision taken at an extraordinary Shareholders’ Meeting;  the company may also have an indeterminate duration, in which case all the shareholders can exercise the right of withdrawal.
 

The initial share capital is made up of the contributions made by the shareholders, as a rule, should be made in money, unless otherwise agreed in the Memorandum of Association. The corresponding shares must be fully released at the time of underwriting.  

Unlike partnerships and limited liability companies, shareholders cannot contribute to a joint-stock company by putting in their work or their services.

Once the Memorandum of Association and the By-laws have been drawn up, the notary public must fulfil some obligations that are extremely important in order for the company to come into existence. Indeed a company with share capital comes into being only when the company is disclosed through a public notice and is registered with the Registry of Companies. The notary public will have to file the Memorandum of Association and all the other documents so that they may be registered.


The Shareholders’ Meeting

The functioning of the company with share capital, in its traditional model, is based on the necessary simultaneous presence of three bodies:  the shareholders’ meeting, the board of directors and the board of statutory auditors, each of which has its own distinct sphere of competence. Accounts are audited by an auditor or by an audit firm, except for closed companies where this is decided in the By-laws.

The shareholders’ meeting, which is a sovereign body since it is empowered to decide on the most important management issues, may deliberate at its ordinary or extraordinary sessions, with different constitutive and deliberative quorums and different procedures of reporting, depending on the specific subject being dealt with.

In fact, the ordinary meeting has competences of a general nature plus some specific competences.  Instead, the competences of the extraordinary meeting are laid down in Article 2365 of the Civil Code which clearly lists the issues (amendments to the Memorandum of Association, issuing bonds, appointment and powers of the liquidators) ;  the list of issues set forth in article 2364 of the Civil Code for the ordinary meeting is merely indicative since it has to be supplemented by other provisions.  There is also the possibility that some competences of the extraordinary meeting are attributed, as put forth in the by-laws, (exclusively or not) to the Board of Directors or the monitoring board or the management board: seek the advice of your notary on this.

Finally, the Memorandum of Association can no longer empower the ordinary meeting to deliberate on given management activities, because it can only envisage that the meeting gives prior authorization to the directors to carry out management activities; the company can be managed only by the directors and hence they are wholly and entirely responsible for such management.

However, as mentioned, the legislation in force as of January 2004 envisages the adoption of other management and control models. The two-tier model,  which is not compulsory but can be freely chosen, has a considerable impact on the powers of the shareholders’ meeting.  Indeed, the latter elects a supervisory board, which takes on some of the more important functions that are usually performed by the meeting:  election of the business managers (the management board ), shouldering the relevant responsibility, and approval of the company’s accounts.  The notary public will advise you as to whether you should adopt this form.

 

On the basis of the provisions in force as of 1 January 2004, the administration of joint-stock companies may be organised according to three separate models:  the traditional model, the monistic model (of Anglo-Saxon origin) and the two-tier model (of German origin).

In the traditional model, the directors have the task of running the company, and are accordingly provided with the power of being pro-active i.e. promoting the decision-making activity of the meeting (power of initiative), of implementing the decisions of the shareholders (executive power), of deciding on the acts of management of the corporate enterprise (power of management in the strict sense) and of expressing the corporate will outside of the company, acting in the name and on behalf of the company (power of representation).

The management competence attributed to the directors is of a general nature and comprises all actions to be carried out in order to achieve the corporate purposes, which are not explicitly reserved to the competence of the other bodies by the law.

One or more persons may constitute the administrative body:  in both cases the administrative body is unitary and, if there are several directors, they belong to a collegial body (board of directors) which chooses a chairman from among its members, if the latter has not already been appointed by the meeting or in the Memorandum of Association. The number of members of the board of directors is laid down in the Memorandum of Association, which however may merely indicate a minimum and a maximum number. 

In this case, unless otherwise agreed in the by-laws, it is up to the ordinary shareholders’ meeting to determine in practice how many directors it wants to appoint and whether it wants the company to have a sole director or several directors.

A peculiar figure is the chairman of the board of directors, who has the typical functions of chairing the board and thus of leading the board meetings; he convenes the board meetings, checks that the secretary has drawn up the minutes of the meetings and that the board decisions are entered into the company book and performs all the other duties established by the law.  At times the Chairman has management competences, in such case he has both the role of chairman and that of managing director.

So much for the traditional system.  In the two-tier system, instead, management competencies are entrusted to a management board, elected by the supervisory board, which in turn is elected by the shareholders’ meeting. There are specific provisions envisaged by the law that apply to these bodies, and where no specific legislation is provided, then the general provisions on management and control shall apply. For the monistic system, the rules governing management activities have not undergone major changes:  the control system has instead been heavily affected.

 

The board of statutory auditors is the audit body of the joint-stock companies that adopt the traditional system:  it has the task of monitoring the company’s compliance with the law and the Memorandum of Association and has a supervisory function with regard to the actions of management. 

The Board of Auditors only exceptionally exercise accountancy control  and they do so only in closed companies, that is, companies which do not have recourse to the venture capital market, and only if envisaged in the by-laws.  In all other cases, this function is fulfilled by a certified public accountant or an audit firms.

Control by the board of statutory auditors is of a general nature and is extended to any administrative activity, including the activities undertaken by the individual directors, by the managing directors and the general managers. Monitoring the company’s compliance with the law and with the Memorandum of Association also encompasses the work of the shareholders’ meeting and consists in the obligation for the auditors to impugn any resolution which is not valid, and to act in place of the meeting in case of obligatory reduction of the capital due to losses, as well as in case of constituting or increasing the share capital as a result of the appraisal of assets contributed in kind.

The implications of the monitoring activity exercised by the auditors affects not only the checking of purely formal data, but also the substance of management, but not the merits of management, which would imply an invasion of the sphere of competence of the directors.

The law still attributes to the board of statutory auditors some specific book-keeping competencies, as well as a series of powers and duties which are not directly monitoring activities; they are substitutive of some of the duties of the directors or of the meeting, and are mainly functions of active administration (limited to the carrying out of acts of ordinary administration), or, tey may be consultative tasks (formulation of obligatory, preventive, non-binding opinions).

In the companies that adopt the two-tier system, it is the supervisory board that controls management and checks to see that actions do not infringe the law;  as said earlier this body also takes on some of the competencies of the ordinary meeting (appointment of the directors of the board, exercising responsibility and approval of the financial statements).

In the companies that have adopted the monistic system instead, control is exercised by an ad hoc management control committee appointed from among the board of directors which has the power of appointment, annulment and replacement.

The rules governing the auditing of accounts apply also to the companies that adopt these systems, including the rule that the auditor must come from outside the company. Hence none of the members of the supervisory board or of the management control committee can be the auditors of the company.

 

Amendments to the by-laws and other transactions during the lifetime of the company
 
Any change, even only a purely formal change, in the clauses of the by-laws of a company is considered to be an amendment to the by-laws.  As a rule this competence belongs to the extraordinary shareholders’ meeting and the relevant decision must be written in the minutes by a notary public and then registered with the Register of Companies.

The decision must be taken by a majority vote, any clause in the bylaws setting forth that unanimity is required to change the Memorandum of Association is declared to be null and void by case law.

The procedure for modifying the Memorandum of Association and the bylaws comprises three moments: certification of the will of the meeting by a Notary public, notarial (or in specific cases judicial) control for confirmation purposes, and public notice/disclosure.

In fact the law prescribes that the notary public who has recorded the resolution of the meeting, within thirty days, after verifying that the conditions laid down by the law have been fulfilled, applies to the Chamber of Commerce of the place where the company has its head office to enter the decision into the Register of Companies.

After verifying the formal regularity of the documentation, the office of the Register of Companies  records the resolution in the register.  If the notary public considers that the conditions laid down by the law have not been met, he notifies the directors, who may appeal to the court with a view to obtaining the aforesaid entry of the resolution in the register of companies.

The most important amendments to the Memorandum of Association concern transactions involving the share capital - a) increase in capital through payments, that is by issuing new shares to be offered as an option to the shareholders and, where the latter fail to underwrite the new shares within a given deadline, they are offered to third parties;  b) increase in capital without payment, in which case the required capital is taken from the reserves and special funds included in the company’s assets; c) reduction in capital due to losses or, to the will of the shareholders where there are no losses (which is now possible even when there is no capital surplus with respect to the corporate aims), - or to changes in the structure, organisation and legal status of the company (transformation, mergers and demergers).

Other transactions that can be carried out are those relative to the establishment of one or several separate funds devoted to a specific purpose. Separate funds may be of two types:  either specifically targeted to a specific purpose/deal; or destined to being invested in a specific transaction for total or partial distribution which is to be made (wholly or partially) with the revenues produced by the transaction.

Given the technical complexity of these amendments and transactions, and given the size of the consequences of such an initiative if not carefully engineered, seek the advice of your notary public who will provide all the relevant information.

Dissolution of the company

With the provisions that entered into force as of 1 January 2004, the dissolution of companies with share capital is governed by new rules.

A company may be dissolved because: its term of duration has expired,  the corporate aims have been achieved or circumstances have set in that make it impossible to achieve them, the shareholders’ meeting cannot or will not function, the share capital has dropped to values below the minimum legal requirements (but the company may decide to reconstitute the share capital or become a different type of company that is compatible with the amount of capital available to it), the meeting resolves to dissolve the company, and  for other causes envisaged in the Memorandum of Association and, finally, in rather special cases linked to the withdrawal of partners.

When such events occur, they produce typical effects on the corporate bodies, on the company and on the shareholders. Such effects become operative from the date in which the statement dissolving the company is issued by the administrative body, or from the date when the decision taken by the shareholders’ meeting to voluntarily wind up the company, is registered with the Register of Companies. The dissolution, which is immediately effective vis-à-vis the corporate bodies as soon as they are informed and vis-à-vis third parties after the members of the administrative body have fulfilled specific obligations consisting in verification and disclosure,  has the effect of placing the company in a state of liquidation. In the cases envisaged by numbers 1), 2), 3), 4) and 5) of paragraph 1 of Article 2484 of the Civil Code, the decision of the shareholders to appoint liquidators may be adopted even before the date of registration with the Register of Companies of the statement issued by the directors in which they ascertain the cause for the winding up of the company. However the decision to appoint liquidators will produce its effects only after the statement of ascertainment of the liquidation of the company and the decision to appoint the liquidators have both been registered with the Register of Companies. The liquidation procedure is compulsory for companies with share capital even in the case in which there are no assets or liabilities to be liquidated.  Directors who continue corporate activities ignoring the requirements of the law expose themselves to very serious responsibilities.

The state of liquidation can be annulled through a decision to be adopted with a majority vote in order to amend the Memorandum of Association and the bylaws. This can be done only if the causes for the dissolution of the company have ceased to exist. The advice of a professional is desirable in order for this decision to be formally correct and effective.

Seek the professional advice of your notary public who will suggest what actions be adopted in order to at dissolve the company in the correct way. This will protect you from incurring further costs and liability towards third parties.

Limited partnerships with share capital (S.a.p.a.)

Limited partnerships with share capital is a modified form of a company with share capital in which permanent directors manage the company who have unlimited liability, also contingent liability, for  social security liabilities. The provisions that are specific for this type of company are reduced to a few which concern above all the management of the company by the unlimited partners.    

The peculiar characteristic of this type of company consists in the co-existence of two different groups of shareholders: limited partners, who are not involved in the management of the company and are liable only to an extent that is proportionate to the assets they have contributed to the company;  and unlimited partners, who are regular directors and thus personally and unlimitedly liable.

According to the legislator’s initial intention, this type of company was intended for proprietorships undergoing restructuring and expansion, to enable the founder to resort to venture capital, while at the same time continuing to manage the enterprise.

However, in economic practice, limited partnerships with share capital, has never been very widely used, except perhaps between the 1980s and 1990s when an important industrial group was established in the form of an S.a.p.a., to which the shares of the holding were transferred with the precise purpose of binding the partners in the leading group to the pursuance of common strategies. And also in a few other cases limited partnerships with share capital have been used as a “family safe”. In a nutshell the S.a.p.a. guarantees that the enterprise is preserved: the unlimited partners are by law directors and the rules on the appointment of new directors  during the lifetime of the company give the directors in office the right of veto on the choice of new directors, thus ensuring that the leading group is safe from attempts of hostile takeovers by raking up shares in the marketplace.

In any case, it should be emphasized that recourse to this type of company has been limited to specific sectors, and has been used in a manner that the legislator had not foreseen, since cases where there is a need to expand the company without losing its leadership has in fact been ensured by the creation of joint-stock companies having a pre-constituted majority, that is to say, made foolproof against voting and blocking syndicates.

In fact the entrepreneurs prefer maintaining the benefit of limited liability, even if this implies only an indirect influence on management strategies.

The 2003 reform does not appear to have had any impact on this type of company, since the letter of the previous law has undergone only very minor changes. We must also recall that the rules governing the s.a.p.a. are the same as those that apply to the s.p.a. because these two types of company are similar.  Hence in line of principle the innovations introduced to the rules governing joint-stock companies, mentioned above apply also to the s.a.p.a. insofar as they are compatible.  And also there are no doubts that the two-tier management and control system can apply also to limited partnerships with share capital, since the minimum number of unlimited partners/management directors is two. If the s.a.p.a. adopts the two-tier system, the advice of a notary public would be of critical importance , in order not to run the risk of going against the law, especially with regard to the issue of the extraordinary meeting having the power to appoint new unlimited partners/management directors (which is an exception to the general rule)

The monistic management model, instead, cannot be used for problems linked to the independence of one third of the directors, thereby meaning they must not have shares in the company.

Besides the two-tier management system, among the various innovations that apply to the extent to which there is compatibility with the s.a.p.a., mention can also be made of the provisions on shareholders’ agreements, on shares (of special interest is the issue as to whether the shares of the unlimited partner are or are not a special category of shares) and on financial instruments, on auditing and on assets and financial resources to be devoted to a specific transaction.

The provisions governing limited partnerships with share capital, as said earlier, are similar in many respects to those that govern joint-stock companies; and except for the differences indicated above, the reader can refer to the various fact sheets for the aspects indicated below.


Establishment

The Memorandum of Association must indicate the names of the unlimited partners.

For all other aspects refer to the joint-stock company (please refer to the related paragraph).


The shareholders’ meeting

In particular, it is pointed out that there are different rules as compared with the s.p.a. for the adoption of certain decisions (amendments to the Memorandum of Association, revocation and replacement of directors, appointment and revocation of the members of the supervision board). Hence the need to seek the advice of a notary public.

For all other aspects, please refer to the joint-stock companies (please refer to the related paragraph).


Administration and management of the company

It has already been said that the unlimited partners are by right members of the management body of the company (directors or management board in the ordinary and in the two-tier system respectively).

For all other aspects, please refer to the joint-stock companies (please refer to the related paragraph).


The Board of statutory auditors and the other supervisory bodies

Special rules are laid down for the appointment and revocation of auditors and of the members of the supervisory board and, for the s.a.p.a. that are listed or subject to compulsory auditing, there are special rules for assigning or revoking the assignment to an audit firm.

For all other aspects, please refer to the joint-stock companies (please refer to the related paragraph).


Amendments to the by-laws and other transactions during the lifetime of the company

Amendments to the Memorandum of Association must be approved not only by the extraordinary meeting but also by all the unlimited partners. The advice of the notary public may be useful in deciding on issues related to this mode of approval.
 

For all other aspects, please refer to the joint-stock companies (please refer to the related paragraph).


Dissolution of the company

The dissolution and liquidation of an s.a.p.a. is governed in general by the rules put forth for companies with share capital and joint-stock companies, to which the reader is referred (please refer to the related paragraph).

Besides the ordinary reasons for winding up a company with share capital, there is an additional reason which holds only for limited partnerships with share capital, i.e. the case in which all the unlimited partners step down from office and they are not replaced within a hundred-and-eighty days.

During this period, which is granted in order to reconstitute that category of partners, the board of statutory auditors or the supervisory board must appoint a provisional director (who may be a limited partner or a third party), whose powers are limited by the law to ordinary management activities and he does not take on the status of unlimited partner.

If all the unlimited partners step down from office, the company may continue to do business, but there may arise problems when a decision needs to be taken that by law can be taken only by unlimited partners, hence the need to seek the advice of a notary in order to avoid running into circumstances where the company has to be dissolved (impossible to function or for inactivity of the shareholders’ meeting).

Limited liability companies

The limited liability company is intended for smaller companies than joint-stock companies, and the equity participation in the company has a personal connotation which is absent in the s.p.a.  In fact, it has a limited number of shareholders who are not personally responsible for the social security liabilities, even if they have acted in the name and on behalf of the company.

The legislation in place as of 1 January 2004 has had a major impact on the limited liability company, which is an extremely flexible type of company, that the partners can shape to fully pursue their specific objectives.

Without prejudice to the rules that govern joint-stock companies that also apply to the limited liability company, especially with regard to establishment, amendment of the Memorandum of Association and ensuing public notice/disclosure, to which the reader is referred, there have been several major changes. For this type of company it is of crucial importance for the Memorandum of Association and the by-laws (that the legislator now calls “Company Operating Rules”) to be drawn up carefully with a view to streamlining activities and reducing management costs.  The advice of a notary public is therefore of fundamental importance.

The procedure for establishing the company is mostly similar to the setting up of a joint-stock company, to which the reader is referred; also the monitoring and auditing activities and relevant obligations to be fulfilled are similar, in particular the depositing of the Memorandum of Association and the registration with the Register of Companies;  only after registration with the Register of Companies can the limited liability company be considered to exist.

Unlike the joint-stock company, a minimum share capital of 10,000 euros is required, and unlike joint-stock companies there is great freedom in determining shareholders’ contributions, which can be made in kind – through one’s work or services – and in the form of any other type of asset that can be attributed an economic value;  it is also possible to establish the quotas of participation in the company in a way which is not proportionate to the assets conferred.  As soon as the implementing provisions have been adopted, payment in cash can be replaced by a simple guaranty. As for contributions in kind, it is no longer necessary for an expert estimator to be appointed by the Judicial Authority, but can be appointed by the parties from a list of experts that are officially registered.  An expert opinion is deemed to be necessary also in the case in which the contribution consists in work or services.  The issue of the shareholders’ financial contributions that are not assigned to the share capital is regulated in this way, at least to some extent.

The transfer of quotas can be restricted and even prohibited; but in this latter case,  each partner may withdraw from the company and obtain reimbursement of his/her quota.

Extreme flexibility likewise marks the rules governing management:  it will be possible, as in the past, to have a Sole Director or a Board of Directors (which can decide without complying with the ‘board method’ provided the bylaws envisage this and except for cases where a board decision is required by the law),  but in addition now there are also forms of joint administration (under which the directors have to act jointly) or separate (under which each director can work on his/her own); mixed forms are envisaged for some acts and/or categories of acts, and separate for remaining acts.  A partner may also be granted special administration rights ad personam, and in general special rights on the management of the company and on the distribution of profits.

As in the past, the Board of Statutory Auditors is obligatory only for limited liability companies of a certain size; the obligation is imposed on the basis of the amount of share capital and in certain circumstances it is established by the law. In such cases, unless otherwise agreed in the Memorandum of Association, the auditing of the accounts is carried out by the statutory auditors. For the cases in which it is compulsory to appoint an independent audit firm, seek the advice of your notary public.

Except for certain resolutions of particular importance, even the Meeting is no longer compulsory:  the “Operating Rules” (By-laws) may envisage alternative decision-making methods, such as consultation or written consent.

And finally, the limited liability company may issue debt securities: these are comparable to bonds (which remain the prerogative of joint-stock companies and limited partnerships with share capital).  However, unlike bonds, these securities may be underwritten only by professional investors.

This increased flexibility of the limited liability company model means that the “Operating Rules” (the by-laws), can be shaped to suit the specific requirements of the shareholders and be such as to regulate relations between them in a much more stable and legally binding way than could be done on the basis of separate agreements, the so-called shareholders’ agreements.

The ample room left by the legislator to individual autonomy in regulating this type of company is so wide that it is impossible here to exhaustively illustrate all the opportunities that are provided so as to meet the wide-ranging and varied needs of entrepreneurs.

Your notary public, who is an expert in this field, will give you the advice you need, bearing in mind that the discipline of the limited liability company is autonomous and contains references to the rules that govern joint-stock companies, on which there is debate especially as to whether they can be applied to limited liability companies, especially where the “Operating Rules” have a personal connotation.


Co-operative societies and consortiums


Co-operative societies

Co-operatives are associations of persons which are protected in the Italian Constitution:  in fact Article 45 of the Italian Constitution states: “the Constitution recognises the social function of co-operative societies that are based on the values of solidarity and that do not pursue goals of private profit”.

In co-operatives predominant importance is ascribed to the social function, which consists in implementing a democratic decentralisation of the power of organisation and management of production while, at the same time, ensuring that the results of production are equitably shared by all the members.

Legislation in support of cooperatives has been developed on the basis of Article 45 of the Constitution (Basevi Law Decree c.p.s. n° 1577 of 14.12.1947;  refer to the reform introduced by Act n° 59 of 31.1.1992).

In general, co-operatives are based on solidarity and equity and do not pursue the goal profit-making as do joint-stock companies. The solidarity consists in managing services to be used by the members, who are the preferred but not exclusive recipients of the goods and services at the disposal of the co-operative at conditions that are more favourable than those of the market since there are no intermediaries in the production and distribution cycle.

The members of a cooperative must belong to a given category and must share identity and interests.They are the recipients of the so-called mutual advantage that is characterized by two essential elements: the members enjoy the goods or services offered by the cooperative and they enjoy economic benefits in the form of lower prices or higher salaries; there may also be an exchange in the sense that the members offer their work in return for the services or goods of the co-operative.

In fact, a twofold order of relations is established between co-operative society and member:  the societal relationship, which consists in participating in the organisation in common, and various multiple so-called mutual relationships, or exchange and labour relations, separate from the societal relationship.

It follows that the partners are the recipients not only of a delimited percentage of profits, but also of rebates, consisting of sums of money periodically distributed by the co-operative in proportion not to the capital invested, but to the amount of services exchanged between the member and the co-operative over a certain period of time.

The running of a commercial enterprise is not irreconcilable with the mutual aim of the co-operative society, which can therefore operate also with third parties, thus carrying out a profit-making commercial activity, independently from the mutual purpose pursued on the basis of its by-laws.

In fact the mutual aim, may be present in different degrees, consisting either of pure mutuality, characterised by the absolute absence of any profit-making purpose,  or partial mutuality, whereby the enterprise can operate, not only with its members, but also with third parties and make profits.

However mutual purpose is in any case ensured because the by-laws envisage a limit on the proportion of profits that can be distributed, they prohibit the distribution of reserves and establish the obligation of assigning at least thirty per cent of the net annual profits to the legal reserve, whatever the amount of money in the legal reserve.

The principle of the so-called “open door” applies to cooperative societies as far as capital is concerned, unlike the case of joint-stock companies; this means that a minimum share capital is not required and members can join or leave without the need to amend the by-laws. With regard to the general meetings in line of principle, and with some limited exceptions, most cooperatives are governed on a strict "one member, one vote", basis irrespective of the quota of capital held by each member.

The recent company reform act has introduced a number of  changes for cooperatives. One change worth mentioning is the division into two basic types of entities: cooperative societies that are primarily based on mutuality and those in which the mutual feature is not a strong one. There are differences both in the regulations that govern these entities and in the fulfilments they are obliged to comply with. The fulfilments are more burdensome for the more markedly mutual cooperatives, but on the other hand, the benefits they enjoy are a great many, with the tax benefits topping the list.

Moreover, the distinction between cooperatives with limited and unlimited liability no longer exists.  All cooperatives envisage limited liability for their members and the provisions of the Civil Code for cooperatives and special legislation apply to them, and where specific circumstances are not provided for in these latter forms of legislation, then the provisions that governs joint-stock companies will apply.  And where given legal requirements are present, the members can choose to be regulated by the provisions set out for limited liability companies (this is compulsory where the society has less than nine members; there must however be at least three members who are to be individuals and not legal entities).  The major innovation is that that in the absence of specific rules, the provisions that govern joint-stock companies ultimately apply, albeit taking into account the differences in type of company.  This obviously raises problems that only a highly qualified professional can solve.

New rules have been introduced also with regard to participation, members who provide funding, withdrawal and exclusion, general meetings and representation, management and audits, rebates, financial statements and reserves, transformation, dissolution and conveyance, and in many other areas.

Seek the advice of a notary public who will help you make your way through the peculiar and difficult body of rules governing co-operatives, deriving from a combination of the provisions of the Civil Code, of the Constitution and of special legislation, and who will be pleased to explain the conditions for obtaining any the available special tax exemptions.

Consortiums

Consortiums are formed between entrepreneurs who decide to set up a common enterprise for regulating and carrying different phases of their respective businesses.

The consortiums too are of a mutual character, since the consortium’s activity is carried out in the interest of its member enterprises. “Regulating” given steps of the members’ enterprises is a typical function of internal consortiums, and may be non-competitive in nature, while the “carrying out” of given steps in the respective enterprises is a typical and exclusive function of consortiums having an external activity.

Participation in the consortium is restricted to entrepreneurs, whether they be individuals or legal entities irrespective of the object, dimensions and legal structure of the enterprise, hence anyone who is not an entrepreneur cannot become a member of a consortium, except for cases that are envisaged by law as exceptions.

The business steps of the enterprises are any transaction (from the purchase of raw materials up to the finished product) into which the entrepreneurial activity can be broken down in the abstract, without the identity of each enterprise being undermined within the overall organisation.

In consortiums having an external activity, the organisation’s activities will necessarily involve third parties, and will require in general, the creation of an office which is responsible for the legal relationships that come into being.

The consortium that carries out an external activity is not legal entity, but is an autonomous centre of legal relations and takes on responsibility - guaranteed by the consortium’s fund - for the contracts entered into in its name;  it is also liable for the non-contractual risks, related to the entrepreneurial activity it carries out.

Seek the advice of your notary public, who will provide adequate advice and indicate the restrictions and favourable conditions envisaged in the law for consortiums of entrepreneurs.

The aim of the consortium may also be achieved in the form of commercial companies (general partnerships, limited partnerships, and limited liability companies).

The Consortium Company

The consortium company is a particular form of consortium which operates under the same rules as those that govern the consortium that carries out external activities, set up for carrying out activities jointly with third parties. So this type of entity is organised like a company but it also has the function of a consortium.

There are also mixed consortium companies, where some members are not  entrepreneurs but their presence in the enterprise is deemed instrumental for achieving the purposes of the consortium (for example “supporting” partners, i.e. associations of entrepreneurs).

Ask your notary public to what extent the clauses in the by-laws on the production and distribution of profits among the members of the consortium are compatible with the purposes of the consortium, so that you can set up a company that is conducive to your needs.

By explicit provision of the law, transfers of enterprises and firm leases may be made only through a notarial deed; this measure was introduced in the early 1990 to counter money laundering, which was often accomplished through financial transactions carried out by firms over which, at that time, there was no form of control.

Such deeds meet business needs, however it would be a mistake to underestimate the services that a notary public can play in such contexts. Above all, in reconciling all the interests at stake, an activity in which the notary public, an unbiased and independent party, has often proved to be particularly effective. 

Moreover, the special legal training of a notary public makes him/her particularly suited for providing assistance on the specificities of contractual clauses that need to meet specific requirements, and for informing the parties about the implications which a transaction may have on their financial positions, for example for inheritance purposes.