Joint-stock company

What it is

The joint-stock company (S.p.A. or Società per Azioni) is certainly the prototype of limited liability companies and is the main trading company model most suitable for large investments.

The S.p.A. is set up by public deed before a notary, who records the deed and registers the company in the Companies Register for the area (the one in which the head office is located). Corporations in fact come into existence only if the company is registered by the notary with the Registrar of Companies.

For its constitution it requires a minimum capital of €50,000, of which at least 25% of the share capital (equivalent to €12,500) must be paid into the hands of the directors and that must be documented in the articles of association. For certain companies, the law requires a higher minimum capital, depending on the characteristics of the business activity (e.g. in the case of securities firms or banks or financial companies).

In the event that the company is created with only one partner, the full amount of the share capital must be paid in.

The joint-stock company can be one of two types: open, i.e. “public”, making use of the risk capital markets (listed companies with widely spread shareholdings); and closed, which do not make use of the capital markets. Statutory auditing in an S.p.A. is carried out by a statutory auditor or by an external auditing firm. In companies that are not required to prepare consolidated financial statements, this activity can be carried out by the Board of Auditors, if that is expressly provided for in the articles of association. In the case of companies that adopt the one-tier or two-tier system, the audit must always be carried out by an external party (statutory auditor or auditing company).

It is not necessary that the shareholding in the company match the initial “contributions” made by each individual: for example, shareholders can freely decide to “reward” with more shares a shareholder whose participation is considered strategic or whose active contribution is essential.

Characteristics

The two key features are the limited liability of all shareholders and the division of the capital into shares.

The company, in fact, meets its expenses and debts only with its own assets, that is to say with its capital and in general with its own resources. Shareholders are not required to pay the debts with their own personal property and are not required to lend their own money to the company. In the event of financial difficulties and therefore of “insolvency”, the company may fail, but the shareholders or the sole shareholder are not bankrupted and lose only the value of their shares and therefore the money they have invested to participate in the company.

The share capital is divided into shares. The deed of incorporation may determine the par value of each share; otherwise the shares will have no par value. The shares are freely transferable units. The issuing of the shares is normal but not essential. it is possible for them not to be physically issued. In companies listed on the stock exchange shares can no longer be represented by paper but by simple accounting records: these are defined as “accounting shares” or “dematerialised shares”.

Corporate Governance

The administration of joint-stock companies may, with the rules in force since 2004, be organised according to three distinct models: the traditional one; the single-tier system (of Anglo-Saxon derivation) and the two-tier system (of German origin).

1. In the traditional model, the S.p.A. is governed by a number of people who make up the “Board of Directors” but it can also be managed by a single director. Sometimes the directors are not shareholders, but rather experts in corporate administration and the company’s business. Signature authority for the company lies with the sole director or the Chairman of the Board of Directors. The directors are responsible for managing the company and their writ covers all acts necessary for achieving the company goals. The number of members of the Board is set in the articles of association which, however, may simply specify a minimum and a maximum number of directors; in this case, it is up to the AGM to determine the number of directors.
2. In the two-tier system, instead, the administration is entrusted to a Management Board, elected by the Supervisory Board, which in turn is elected by the shareholders’ meeting: these bodies are subject to the specific provisions of the law, and, residually, the general rules on management and control.
3. In the one-tier system, administration and control are vested in a board of directors and a committee set up within it; therefore, the rules governing the operation of the board are the same as those provided for in the traditional model, with the exception of some  requirements regarding the members of the Board. On the other hand, the system of oversight is very different from the traditional model. This model, of Anglo-Saxon type, is by far the least common in our legal system.

The Oversight Body

The Board of Auditors is the oversight body of corporations that adopt the traditional system: it has the task of controlling the management of the company and ensuring compliance with the law and the articles of association. The auditors’ task concerns not only the review of purely formal data, but also the substance of the administration, without being able to go into the quality of the directors’ management and their views of the market.

In companies that adopt the two-tier system, oversight of management and legality is performed by the Supervisory Board, which in addition also assumes some of the main responsibilities of the shareholders in general meeting (appointment of members of the management, exercise of its responsibility and approval of the accounts).

In companies that have elected the one-tier system, control is exercised by a special committee for management review elected within the board of directors, which is empowered to appoint, revoke and replace, and thus with more authority than the traditional model.

The Shareholders’ Meeting

The Shareholders’ Meeting, made up of the shareholders, does not have management duties, but must meet at least once a year to approve the accounts. The meeting is convened by the directors for making important decisions such as amendments to the articles of association or to increase the share capital and its decisions must be minuted by a notary public who, within thirty days, having verified observance of the conditions set by law, applies for registration in the Register of Companies at the Chamber of Commerce in the place where the company is headquartered. The office of the Registrar of Companies, having verified the documentation is in order, enters the resolution in the register. If the notary believes the conditions laid down by law have not been fulfilled, he so notifies the directors who may have recourse to a court to obtain registration of the resolution in the Companies Register.

Winding Up

The company is wound up prematurely by resolution of a shareholders’ meeting recorded by a notary or in the presence of one of the causes of winding up specified by the law, such as the expiry of its duration, achievement of the company’s declared goal or the impossibility of attaining it, the impossibility of making the company work or the continued inactivity of the shareholders or the reduction of capital below the legal minimum.

The effects of the winding up take effect from the date of registration with the Registrar of Companies of the statement of assessment made by the administrative body or the shareholders’ resolution in the event of voluntary dissolution.

A liquidator (usually a former director of the company or an expert in administration and accounting) must be appointed to deal with the closure of payables and receivables, and all pending accounting. The liquidator will then directly request the removal of the company from the Register of Companies (without any further notarial deed).

Reversal of the state of liquidation is allowed after removal of the cause of liquidation, to be adopted by the majority vote required for amending the memorandum and articles of association.