Law Finale Spero 4 PDF

Limited liability) Companies Companies limited by shares - SPA SPAs are specific type of limited liability companies, in which: a) liability for corporate obligations is limited to the company's assets (art. 2315, par. 1, c.c.) b) participation in the company's capital is represented by shares (art. 2346, par. 1. c.c.) Main features of companies limited by shares: → Legal personality and perfect autonomy with regard to assets → Limited liability of shareholders for company obligations → Well defined corporate organization → Their capital is represented by shares Types of companies limited by shares by Article 2325 bis, c.c. → close companies limited by shares → companies that resort to the risk capital market Companies that resort to the risk capital market (so called open companies) → companies with shares that are widely held among the public → companies with shares that are listed on regulated markets (listed companies) Art. 2-bis, Regolamento emittenti Consob. (Definition of issuers of financial instruments widely distributed among the public) 1. Issuers of shares widely circulated among the public to a significant extent are Italian issuers who, at the same time: a) have shareholders other than controlling shareholders in numbers exceeding five hundred that collectively hold a percentage of share capital of at least five percent; b) exceed two of the three limits specified in Article 2435-bis, first paragraph, of the Civil 1. Incorporation Procedure: two main steps 1.drawing up the instrument of incorporation 2. registration of the instrument of incorporation in the Business register → abrogation of the approval by the judicial authority (2000) so faster procedure today the SPA only acquire legal personality once it has been registered with the companies register and comes into existence "incorporation eﬀect". Only from this moment in time may the company be considered an independent legal entity whose rights and obligations and directors. are diﬀerent from its shareholders The drawing up of the instrument of incorporation can be done in two diﬀerent ways: a) simultaneous incorporation, the instrument of incorporation is stipulated by those who take the initiative to incorporate the company, so shareholders who both sign the instrument of incorporation, subscribe to the share capital and provide their relative contribution. b) incorporation through public subscription, (Art. 2333-2336 c.c.) the instrument of incorporation is stipulated at the end of a complex process which allows the capital to be raised from the public The instrument of incorporation → agreement or unilateral act (partial disapplication of Art. 2247 c.c.) → form of the act: public deed (under penalty of invalidity) Directive (EU) 2017/1132 Article 10 Drawing up and certification of the instrument of constitution and the company statutes in due legal form.In all Member States whose laws do not provide for preventive administrative or judicial control, at the time of formation of a company, the instrument of constitution, the company statutes and any amendments to those documents shall be drawn up and certified in due legal form. 1.1 The content of the instrument of incorporation (Directive (EU) 2017/1132 Article 3: Compulsory information to be provided in the statutes or instruments of incorporation The statutes or the instrument of incorporation of a company shall always give at least the following information: a) the type and name of the company: b) the objects of the company: c) where the company has no authorized capital, the amount of the subscribed capital; d)where the company has an authorized capital, the amount thereof and also the amount of the capital subscribed at the time the company is incorporated authorized to commence business, and at the time of any change in the authorized capital e) in so far as they are not legally determined, the rules governing the number of, and the procedure for, appointing members of the bodies responsible for representing the company vis-à- vis third parties, f) the duration of the company, except where this is indefinite. Art 4: compulsory information to be provided if the statutes or instruments of incorporation or separate documents The following information at least shall appear in either the statutes or the instrument of incorporation or a separate document published in accordance with the procedure laid down in the laws of each Member State in accordance with Article 16: a) the registered oﬃce: b) nominal value of the shares subscribed and, at least once a year, the number thereof; c) the number of shares subscribed without stating the nominal value, where such shares may be issued under national law; d) the special conditions, if any, limiting the transfer of shares; e) where there are several classes of shares, the information referred to in points (b), (c) and (d) for each class and the rights attaching to the shares of each class; f) the amount of the subscribed capital paid up at the time the company is incorporated or is authorized to commence business; g) the nominal value of the shares or, where there is no nominal value, the number of shares issued for a consideration other than in cash h) the identity of the natural or legal persons or companies or firms by which or in whose name the statutes or the instrument of incorporation,have been signed; i) the total amount, or at least an estimate, of all the costs payable by the company or chargeable to it by reason of its formation j) any special advantage granted, at the time the company is formed or up to the time it receives authorisation to commence business Art. 2328, par. 2, c.c. The articles of incorporation must be drawn up by public deed and must state: 1) the surname and first name or company name, date and place of birth or the state of incorporation, the domicile or the registered oﬃce, the citizenship of the shareholders and promoters, if any, as well as the number of shares assigned to each of them; 2) the company name and the municipality where the registered oﬃce of the company and any branch oﬃces, the company name must contain the abbreviation form SPA, as well as having a name not already used by another company; 3) the activity that constitutes the company's objects, its purposes; 4)the amount of subscribed and paid-up capital; 5)the number and par value, if any, of the shares, their characteristics and the manner of issue and circulation: 6) the value attributed to receivables and assets contributed in kind; 7) the rules according to which profits to be distributed; 8) the benefits, if any, granted to the promoters or members founders; 9) the system of administration adopted, the number of directors and their powers, indicating which among them have the representation of the company; 10) the number of members of the board of auditors: 11) the total amount, at least approximately, of the expenses for the establishment charged to the company 13) the duration of the company or, if the company is incorporated for an indefinite period, the period of time, however, not exceeding one year, after which the partner may withdraw. Art. 2328, par 3, c.c. → Instrument of incorporation → Articles of association Conditions for incorporation for SPAS: 1.shareholders must subscribe the share capital in full 2. provisions relating to contributions must be complied and at least 25% of the cash contribution must be paid into the bank or, if the company is being incorporated through unilateral act, the entire amount must be paid 3. any authorization and other conditions imposed by law about the company's specific object must be duly in place. Directive (EU) 2017/1132 Article 45 Minimum capital 1. The laws of the Member States shall require that, in order for a company to be incorporated or obtain authorisation to commence business, a minimum capital shall be subscribed the amount of which shall be not less than Eur 25.000. 2. Every five years the European Parliament and the Council, acting on a proposal from the Commission in accordance with Article 50(1) and Article 50(2)(g) of the Treaty, shall examine and, if need be, revise the amount expressed in paragraph 1 in euro in the light of economic and monetary trends in the Union → Eﬀects of the stipulation of the articles of incorporation for the parties (2331, par. 4, c.c.). → The obligation to file the instrument of incorporation (art. 2330. par. 1 and 2, c.c.). → Legal check by notary (formal and substantive legality check). → Check by Business registry Oﬃce (2330, par. 38 → Registration (constitutive eﬀect, 2331, par. 3, c.c.). Directive (EU) 2017/1132 Article 14 Documents and particulars to be disclosed by companies Member States shall take the measures required to ensure compulsory disclosure by companies of at least the following documents and particulars: a) the instrument of constitution, and the statutes if they are contained in a separate instrument; b) any amendments to the instruments referred to in point (a), including any extension of the duration of the company: c) after every amendment of the instrument of constitution or of the statutes, the complete text of the instrument or statutes as amended to date; d) the appointment, termination of oﬃce and particulars of the persons who either as a body constituted pursuant to law e) at least once a year, the amount of the capital subscribed, where the instrument of constitution or the statutes mention an authorised capital, unless any increase in the capital subscribed necessitates an amendment of the statutes f) the accounting documents for each financial year which are required to be published in accordance with Council Directives g) any change of the registered oﬃce of the company: h) the winding-up of the company; i) any declaration of nullity of the company by the courts; j) the appointment of liquidators, particulars concerning them, and their respective powers, unless such powers are expressly and exclusively derived from law or from the statutes of the company; k) any termination of a liquidation and, in Member States where striking oﬀ the register entails legal consequences, the fact of any such striking oﬀ. Art. 16, par. 5 5. The documents and information referred to in Article 14 may be relied on by the company as against third parties only after they have been disclosed in accordance with paragraph 3 of this Article, the documents and information shall not be relied on as against third parties who prove that it was impossible for them to have had knowledge thereof. Third parties may always rely on any documents and information in respect of which the disclosure formalities have not yet been completed, save where nondisclosure causes such documents or information to have no eﬀect. 1.2 Registration with the company register Directive (EU) 2017/1132 Article 7 General provisions and joint and several liability 1. The coordination measures prescribed by this Section shall apply to the laws, regulations and administrative provisions of the Member States relating to the types of company listed in Annex II. [s.p.a., s.r.l., s.a.p.a] 2. If, before a company being formed has acquired legal personality, action has been carried out in its name and the company does not assume the obligations arising from such action, the persons who acted shall, without limit, be jointly and severally liable therefor, unless otherwise agreed. Under Italian Company Law, for transactions carried out before the registration: → there is unlimited liability of those who acted, usually future directors. Any liability of the company which has not yet come into existence, shall be excluded, so the company and its assets are not held liable for actions taken under its name before its registration. → liability of the company (necessary and unnecessary operations), any transactions that were not necessary for incorporation purposes shall therefore remain valid but with no eﬀect, until the company comes into existence. 1.3 Nullity of Companies limited by shares. Purposes of the discipline -certainty of legal transactions -stability of corporate organization Before the Company is registered it doesn't have any legal personality, we have only a contract. It applies the provisions of Contract Law. Article 1418 c.c. (Causes of nullity of contract). A contract is void when it is contrary to mandatory rules, unless the law provides otherwise. The nullity of the contract is provided for the lack of one of the requirements indicated by Art. 1325 if the cause is unlawful, or if the motives of the case are unlawful. The contract is also void in the other cases established by the law. After the registration we have legal entity, which is separate from its shareholders, and the company itself has economic and contractual relationships with third parties If we continued to apply the causes of nullity provided by contract law, it would create a very unstable situation, and this would go against the principle of certainty of legal transactions Once the Company is registered, it can only be declared void in a limited number of cases, which must be strictly interpreted. Directive (EU) 2017/1132 Article 11 Conditions for nullity of a company The laws of the Member States may not provide for the nullity of companies otherwise than in accordance with the following provisions: a) nullity must be ordered by decision of a court of law; b) nullity may be ordered only on the grounds: 1. that no instrument of constitution was executed or that the rules of preventive control or the requisite legal formalities were not complied with; 2. that the objects of the company are unlawful or contrary to public policy: 3. that the instrument of constitution or the statutes do not state the name of the company, the amount of the individual subscriptions of capital, the total amount of the capital subscribed or the objects of the company; 4.failure to comply with provisions of national law concerning the minimum amount of capital to be paid up; 5. the incapacity of all the founder members; Apart from the grounds of nullity referred to in the first paragraph, a company shall not be subject to any cause of nonexistence, absolute nullity, relative nullity or declaration of nullity. Once the company has been registered with the companies register, it can only be declared invalid in three cases, as stated in Art. 2332, par. 1, c.c. 1.failure to draw up the instrument of incorporation as a public deed; 2.illegality of the company's object: 3. failure to provide indication in the instrument of incorporation (or in the article of association) of the company name or the contributions or the share capital amount or the company's object. Directive (EU) 2017/1132 Article 12 Consequences of nullity 1. The question whether a decision of nullity pronounced by a court of law may be relied on as against third parties shall be governed by Article 16. Where the national law entitles a third party to challenge the decision, he may do so only within six months of public notice of the decision of the court being given. 2. Nullity shall entail the winding-up of the company, as may dissolution. 3. Nullity shall not of itself aﬀect the validity of any commitments entered into by or with the company, without prejudice to the consequences of the company's being wound up. 4. The laws of each Member State may make provision for the consequences of nullity as between members of the company. 5. Holders of shares in the capital of a company shall remain obliged to pay up the capital agreed to be subscribed by them but which has not been paid up, to the extent that commitments entered into with creditors so require. Consequences of nullity under Italian Company Law: Article 2332, par. 2, 3, 4, 5, с.с. → the happening of a cause of nullity of the company is treated as a cause of dissolution of the company → the nullity of a company don't undermine the eﬀectiveness of any actions taken on behalf of the company after its registration → the cause of nullity can be eliminated 1.4 Single-member companies Italian Company Law (2003 Company Law Reform) It is possible to incorporate a single-member company limited by shares (unilateral act, 2328 c.c.), but some specific rules will apply with regard to: a) liability of the sole shareholder before the company is registered (2331, par. 2, c.c.) b) contract between the company and the sole shareholder to ensure greater transparency since there could be a risk of conflicts of interest and confusion between the company's assets and the sole partnership ones' (2362, par. 5, c.c.) c) regulations regarding contributions (2342, par. 2 and 4, c.c.) d) specific forms of disclosure (2250, par. 4 and 2362, par 1-4, c.c.) 1.5 Contributions contributions refer to the part of shareholder's equity that is permanently dedicated to business productivity, the contributions come to form the initial assets of the company. The aim of the regulation of contributions is to ensure the correct formation of share capital Main purpose of the regulations: -ensure the company actually acquires the contributions -ensure that the shareholders ascribe the correct value of their contributions, to avoid their overall value being less than the total amount of the share capital (2346, par. 5, c.c.) Directive (EU) 2017/1132 Article 46 Assets Subscribed capital may be formed only of assets capable of economic assessment. However, an undertaking to perform work or supply services may not form part of those assets. In a Company limited by shares can be contributed only cash or assets in kind or credits. It is not possible to contribute the provision of a service or work (2342, par. 5, c.c.). Unless otherwise is provided in the instrument of incorporation, contributions must be made in cash(2342, par. 1, c.c.). Company Law provides diﬀerent rules depending on whether the contribution is made in cash or in assets in kind or credits. Cash contributions imply: → Obligation to pay 25% of the cash contribution at the time of incorporation of the company → Payment of the residual contributions, by both new shareholders and transferor, for the transfer of shares not fully paid up (2356 c.c.) → Rules for non-payment contributions (2344 c.c.) Contributions of assets in kind or credits Directive (EU) 2017/1132 Article 48 Experts' report on consideration other than in cash 1. A report on any consideration other than in cash shall be drawn up before the company is incorporated or is authorized to commence business, by one or more independent experts appointed or approved by an administrative or judicial authority. Such experts may be natural persons as well as legal persons and companies or firms under the laws of each Member State. 2. The experts' report referred to in paragraph 1 shall contain at least a description of each of the assets comprising the consideration as well as of the methods of valuation used and shall state whether the values arrived at by the application of those methods correspond at least to the number and nominal value or, where there is no nominal value, to the accountable par and, where appropriate, to the premium on the shares to be issued for them. Contributions of assets in kind or credits Italian Company Law → Valuation report by an expert → Check by the directors (non-transferability of shares) → Possible non-concordance of value/remedies → Contributions without valuation-cases (art. 2343-ter, 2343-quater, c.c. art. 50 and 51 Directive) Potentially Risky Acquisitions Directive (EU) 2017/1132 Article 52 Substantial acquisitions after incorporation or authorisation to commence business 1. If, before the expiry of a time limit laid down by national law of at least two years from the time the company is incorporated or is authorized to commence business, the company acquires any asset belonging to a person or company or firm referred to in point (i) of Article 4 for a consideration of not less than one-tenth of the subscribed capital, the acquisition shall be examined and details of it published in the manner provided for in Article 49(1), (2) and (3), and it shall be submitted for the approval of a general meeting. 2. Paragraph 1 shall not apply to acquisitions eﬀected in the normal course of the company's business, to acquisitions eﬀected d at the instance or under the supervision of an n administrative or judicial authority, or to stock exchange acquisitions. Potentially Risky Acquisitions Italian Company Law Art. 2343-bis c.c → this discipline aims to prevent the company from acquiring asset, not by way of contribution and that without following the rules provided for them → Field of application time limit → Excluded operation → Liability Shareholders may be imposed to provide ancillary performance with the relative remuneration 2. Shares Shares are the quota held by shareholders in companies limited by shares (and also in s.a.p.a.). Their sum represents the share capital of the company, and the share capital is divided into shares of equal value, so each share represents the same portion of the nominal share capital. Art. 2346, par. 4: Each shareholder is granted a number of shares proportional to the portion of the share capital subscribed and for a value not exceeding that of his or her contribution. The bylaws (statute) may provide for a diﬀerent allocation of shares. Main features of share: -have the same value -grant the same right -are independent and indivisible -circulate freely on a so-called certificate-holder basis (like negotiable instruments) The nominal value of shares means the part of the share capital represented by each share and expressed as a monetary amount, in euros. Shares could also be issued without nominal value Real value. Market value, for listed shares, is the exchange price of the shares resulting from oﬃcial stock exchange listings. There is equality of rights conferred to the shareholders (2348, par. 1, c.c.), states that all shares have equal value and grants the owner a set of administrative rights, rights which regard to the assets and mixed rights. Equality can be: → Relative equality (art. 2348, par. 2, c.c.: SPA, could issue diﬀerent categories of shares that grant diﬀerent right, such as share with and without nominal value) → Objective equality (not subjective, rights may depend on the number of shares held, in fact the position and power of a person owning only one vote is very diﬀerent another who owns thousand shares) From a subjective point of view, shareholder rights may be distincted into four categories: 1.Rights independent of the number of shares held 2.Rights that compete only if one owns a given percentage of the share capital 3.Rights that compete only if one holds a shareholding for a given period 4.Rights that compete to each shareholder in proportion to the number of shares held 2.1 Ordinary shares and special categories of shares → Ordinary shares are those provided with the typical rights provided by law. → Special shares are provided with rights other than those typically provided by law. They can be created by statute or a subsequent amendment to it. The creation of special categories of shares involves a change in the internal organization of the company. In fact, if there are special categories of shares, resolutions of the general meeting that undermine the rights of a category must also be approved by the meeting of the special category concerned → Some special categories of shares are provided by law → Others special categories of shares can be issued with wide autonomy by the company with observance of certain legal limits (2348, par. 2, c.c.) → All shares belonging to the same category must grant the same rights (2348, par. 3, c.c.) Special share categories and voting rights (2351 c.c.) → one share one vote principle (derogable by statute) To this principle there are few exceptions by law par. 21 → shares without voting right → shares carrying voting rights limited to specific matters → shares granting voting right upon the occurrence of certain events (not merely potestative) → Not listed companies: shares granting multiple voting rights (not more than 3 votes) also limited to specific matters or that can be exercised upon the occurrence of certain events (not merely potestative) → Listed companies are not allowed to issue this kind of share. They could grant an increased vote (voto maggiorato, art. 127- quinquies, t.u.f.) to those who have owned the shares for a certain amount of time (but this is not a special category of shares because the benefice is attributed to the shareholder, not to the shares). Special share categories and rights which regard the assets (2350 c.c.): Each share gives the right to a proportional part of the net profits (dividendo) and of the shareholders' equity resulting from liquidation (also this rule can be derogated). → Preferred shares: shares carrying rights of preference in the distribution of profits → Deferred shares in losses → Limit: leonine pact → Listed companies: dividend increase (art. 127-quarter. t.u.f.) Tracking shares are shares that grant economic rights linked to the performance of the company's activity in a given business sector (art. 2350, par. 2, c.c.) Savings shares (listed companies, 145 tu.f (testo unico sulla finanza)) These are special shares that represent securities and don't imply the administrative rights that come with shares 1. Italian companies with ordinary shares listed on regulated markets in Italy or other countries of the European Union may issue shares without voting rights, which granted special asset privileges. Other types of shares are: -Workers' shares (2349 c.c.), shares with profits assigned to employees free of charge -Dividend-bearing shares (2353 c.c.) -Shares carrying ancillary obligations (2345 c.c.) 2.2 Circulation of shares Shareholding can be represented by share certificates (art. 2346, par. 1, c.c.). Diﬀerent rules apply to the circulation of shares depending on whether or not certificates have been issued. In addition, diﬀerent rules apply to listed companies. If the company has not issued share certificates, to the circulation of shares will apply the rules provided for the transfer of the contract (art. 1406 et seq., c.c.) and it's eﬀective for the company from the time of recording in the shareholders' register (art. 2355, par. 1, c.c.). Share certificates are documents that represent the shareholding. More specifically, these are securities based on a contractual relationship, mentioned on the certificates they are represented by. In principle, shares may be registered (nominative, they must be in the name of a natural or legal person) or issued to the bearer (al portatore, they are not in the name of any person). As a matter of fact, however, a number of special laws reduce issuers' freedom providing that shares shall always be registered, with only a few exceptions, the most relevant of which refers to fully paid-up savings shares. If shares are issued to the bearer, they may be transferred by a simple delivery of the share certificate. In the other cases, if the company has issued the share certificates, the shareholdings can be transferred in two ways. The so-called transfert: this procedure requires the change of the holder's name both on the certificate share and on the shareholders' ledger, and only then the shareholder can exercise the rights related to the shareholding (in reality it is not widely used, because involving the company in any share-transfer is ineﬃcient exercise). The so-called girata: 1.the parties mention the transfer of the shares on the share certificate and sign it before a notary or another public oﬃcial; 2. The buyer shows the share certificate to the company which has to check the continuous series of signatures. In this case the shareholder can exercise the rights although his name has not yet been recorded in the shareholders' ledger Transfer of listed shares is performed by means of an electronic system whereby each transaction is registered in accounts opened in the name of the seller and the buyer (dematerializzazione dei titoli). Restrictions to the transfer of the share: a. legal restriction -shares paid for with contributions other than money may not be transferred before the relative valuation has been checked by the directors -shares with ancillary services may be not transferred without the approval of the board of directors b. restrictions provided by the articles of association for registered shares and when no share certificates are issued (art. 2355-bis c.c.) -Clauses forbidding transfer (maximum 5 years) -Pre-emption clauses, shareholders wishing to sell their shares must first oﬀer them to other shareholders favoring them over third parties -Acceptance clauses (not mere approval and mere approval, in the last case in case of refusal of approval there must be provided an obligation for the company to purchase the shares or a right of withdrawal of the transferor) -Redemption clauses c. restrictions contained in shareholders' agreements (so-called blocking syndicates)→ diﬀerent eﬀects of the breach: enforceability Company transactions involving own shares The subscription of own share is forbidden without exception. Eﬀects of the breach of the ban: who will pay for these shares? Subscription remain valid (to enable the company to acquire the contributions) → In the case of direct subscription at the moment of incorporation, shares must be paid up by the founding shareholders; → In the case of direct subscription at the moment of a share capital increase, shares must be paid up by the directors: → In the case of indirect subscription, the persons who have subscribed the shares in their own name but on behalf of the company will be considered subscribers for all purposes. They will be jointly and severally liable, together the founders/directors, for paying up the shares. The purchase of own share the law provides some rules to the purchase of own shares. Art. 2357 c.c: 1. Company can use only certain sums 2. The shares to be purchased must be fully paid-up 3. Resolution of the ordinary shareholders' meeting In the case of breach of these rules must be sold within one year, otherwise the company will have to cancel the shares and reduce the capital share. Rules on the exercise of certain rights in the case of own shares (which aim to prevent the control of these rights by the directors): -voting rights are frozen -dividend and pre-emption rights are split proportionally between the other shares -to dispose of these shares (for example, to sell them), directors must obtain an authorization from -the shareholders' meeting 3. Shareholders' meeting One of the main characteristics of a s.p.a. is that of the necessary presence of three distinct internal bodies, each one is invested by the law with its own specific functions and powers: shareholders' meeting: body with deliberative functions, whose powers are limited to major decisions concerning the company, excluding the management of the company, administrative body: body with the power to manage and represent the company, it is also responsible for implementing the resolutions of the shareholders' meeting: internal control body: body that has the function of controlling the administration of the company. Administration and control systems: → traditional system (made of administrative body and board of statutory auditors - default system) → two-tier system (made of supervisory body and management board) → one-tier system (made of board of directors and management control committee) The shareholders' meeting is a collective body composed of the shareholders. Its function is to form the will of the company in the matters reserved to its competence by law or by the bylaws. The shareholders' meeting decides according to the majority principle. The will expressed by the shareholders at the meeting is considered as the will of the company and binds all shareholders (even if absent, dissenting or abstaining), as long as the rules of the deliberative procedure have been followed. 3.1 Ordinary and extraordinary shareholders' meeting Depending on the matters discussed, the shareholders' meeting can be distinguished into ordinary or extraordinary (2364, 2365 c.c.). Also, depending on the system of administration and control adopted, certain competences assigned to the ordinary shareholders' meeting change. Competences of the ordinary shareholders' meeting (art. 2364 c.c.): 1) approves the financial statements; 2) appoints and removes directors; appoints the statutory auditors and the chairman of the board of statutory auditors 3) determines the remuneration of directors and statutory auditors, unless it is not provided by the bylaws; 4) decides on the liability of directors and statutory auditors: 5) decides on other matters assigned by law to the competence of the shareholders' meeting, and on any authorizations required by the bylaws for the performance of acts of the directors, without prejudice to the liability of the latter for the acts performed; 6) approves any regulations for the proceedings of the shareholders' meeting. Competences of the extraordinary shareholders' meeting (art. 2365 c.с.): 1 amendments to the bylaws; 2. appointment, replacement and powers of liquidators: 3. any other issue which the law explicitly states must fall under its responsibility. Some powers (which mainly relate to item 1) can be delegated to the administrative body (art. 2365, par. 2, c.c.) 3.2 Shareholders' general meeting and special class shareholders' meetings Depending on whether or not the company has issued special classes of shares we will have a single, general meeting of shareholders or also special class meetings. The rules of the extraordinary shareholders' meeting will apply to the latter (if the special shares are listed, the rules of the savings shareholders' meeting will apply, art. 147-bis t.u.f.). Shareholders' meeting procedure: 1. Who calls the shareholders' meeting? Usually, it is the administrative body 2. When? the cases in which the call 's mandatory: once a year, at the request of the shareholders) The call of the shareholders' meeting by the internal control body if: -the call is mandatory and the directors have failed to do so (art. 2406, par. 1, c.c.) -all the directors or the sole director fail (art. 2386 c.c.) -while carrying out its task, discovers facts of significant seriousness and there is an urgent need to take action (art. 2406, par. 2, c.c.) -In certain cases, the call of the shareholders' meeting can be ordered by the court. 3. Where? (municipality of the company headquarters) 4.How? Notice of call 5.The meeting agenda (disclosure function) 6.Plenary shareholders' meeting 7. Who can attend the shareholders' meeting? -persons entitled to vote... shareholders with voting right, persons who are not shareholders but who can exercise the vote -members of the administrative body and of the internal control body -other persons entitled to attend the meeting -attendance by means of telecommunications and exercise of voting by mail or electronically (art. 2370, par. 4, c.c.) Listed companies have the right to request the integration of the agenda and the right to submit proposals on matters already on the agenda Constitution of the shareholders' meeting and validity of resolutions: -constitutive quorum (is the portion of the share capital which must be represented at the meeting to ensure the validity of its proceedings) -deliberative quorum (is the portion of the share capital which must vote in favor of a given resolution for it to be approved) System of successive calls (first call, second call, etc.) to facilitate the adoption of resolutions, so by the second call the quorums are lowered. Some elements of regulation for meetings: -The chairman of the shareholders' meeting -The secretary -The right to request that the meeting is postponed -The minutes Representation at shareholders' meeting for not listed companies: (art. 2372 с.с.) -closed companies: the by-law could exclude or restrict the representation -proxies (delega) -subjective limits, no internal member of the company can represent and be proxies at shareholders' meetings -quantitative limits, the same person can represent at shareholders meetings no more than 20 shareholders Abuse of the majority in the exercise of voting rights to the detriment of the interests of the company: Conflicts of interest between the shareholder and the company: if in a given resolution, shareholders have a personal interest (art. 2373 c.c.). A resolution passed for the sole purpose of harming single shareholders represents an abuse of majority power to the detriment of the minority, such resolution shall be canceled since it does not follow the principle of fairness and good faith. Voting syndicates are shareholders' agreements through which shareholders agree in advance on how they will vote in a meeting. Voting syndicates imply: advantages and risks; eﬀects, among the contracting parties; the voting agreement has fixed duration; rules for open s.p.a. and for listed companies (disclosure, consequences for the breach) with regard to the invalidity of the shareholders' meeting resolutions, the law distinguished: -annulability (voidable) -nullity (more serious, void) -The main diﬀerence between voidable and void resolutions is that while the first can be annulled only upon request by the damaged party and within strict time limits, the latter are considered more serious and can therefore be voided ex oﬃcio by the court or on the request of any interested party. Moreover, time limits are longer for nullity. Annulability/Voidable resolutions Art. 2377, par. 2, c.c.: Resolutions that are not passed in accordance with the law or the articles of association may be annulled. Resolutions which are not adopted in compliance with the law or the articles of association can be voided. Persons entitled to contest a voidable resolution: -absent, dissenting or abstaining shareholders, with (a certain percentage of the share capital, also jointly) voting rights that represent: → 0.1% of the share capital in the open companies → 5% of the share capital in closed companies If the shareholders don't own this percentage or don't have the right to vote, he/she can only claim compensation for the damage caused by the approval of the voidable resolution. -directors -internal control body -supervisory authorities in the case of listed companies, banks, insurance companies or financial -company (Consob, Banca d'Italia, Ivass) In certain cases, although the resolution would be invalid, the law states that it is voidable only if the violation reaches a certain severity (thus, favoring the stability of company resolutions): 1. Attendance at the meeting by persons who were not entitled to attend if this aﬀected the constitutive quorum 2. Invalidity or miscounting of votes if they were decisive in the computation of the deliberative quorum 3. Incompleteness of the minutes, making it impossible to determine the content, eﬀect and validity of the resolution When the violation covers one of these three cases but does not reach this type of severity, the resolution will not be voidable Time limit: the resolution may be contested within 90 days a) from the date of resolution b) from the date of the registration/feeling in the business register, where the resolution must be recorded or filed Eﬀects of the annulment: -The annulment is valid for all the shareholders, the company and third parties and obliges the directors to take any necessary actions. -The annulment does not aﬀect the rights acquired by third parties in good faith based on the decisions taken to implement the resolution. Sanatoria: the resolution may not be annulled if it is replaced by another resolution taken in accordance with the law or the statute or if it is revoked (also in this case without prejudice to the rights acquired by third parties). Nullity Art. 2379, par. 1, c.c.: nullity is only applicable in case of: 1. failure of the notice of call 2. failure to draw up the minutes 3 where the object of the resolution is impossible or unlawful 1. Failure of the notice of call shall not be considered a failure to call the shareholders' meeting if there are irregularities in the notice of call but this comes from a member of the company's administrative or internal control body, and it allows the meeting to take place In any case the resolution cannot be contested by those who declared their absence from shareholders' meetings. Remember, in case of the plenary shareholders' meeting we don't have a notice of call. 2. Failure to draw up the minutes, shall not be considered missing if: a) it contains the date and the object of the resolution, b) it is signed by the chairman of the meeting, or the chairman of the board of directors and the secretary or the notary In any case, the nullity for the lack of the minutes can be remedied by drawing up the minutes before the next shareholders' meeting. 3. The object of the resolution is impossible or unlawful when the resolution goes against mandatory requirements, law and order or morality. Resolutions are also void if their object is lawful, but their content is unlawful. Any interest party is entitled to contest a void resolution. The eﬀects of the annulment don't aﬀect the rights acquired by third parties in good faith based on the decisions taken to implement the resolution. Sanatoria: the resolution may not be annulled if it is replaced by another resolution taken in accordance with the law. Time limit for contesting a void resolution (nullity): 3 years, a) from the recording of the resolution in the book of shareholders' meeting or b) from the recording or the filing in the Business register (if it's provided) but in case the resolution has an unlawful object there is no time limit to contest the resolution 4. Administrative body Structure: → sole director → board of directors (this board may be structured by attributing specific duties to certain members: executive committee and managing directors) For listed companies it's compulsory to have a management board composed of several members (to ensure the presence of at least one member chosen from the minority list and at least one independent director, art. 147-ter, t.u.f.) Directors' duties In broad terms, the directors are exclusively responsible for the management of the company, and they must carry out all the operations necessary in order to achieve the company's objective. Also, directors are competent to approve all the resolutions that do not fall under the responsibility of the shareholders' meeting. Then, the law specifies many powers and duties of a precise nature of directors: -they have the general power to represent the company; -they have the power to call the shareholders' meeting, drawn up the relative agenda and they have the duty to implement the shareholders' meeting resolutions; -they are responsible for the company's bookkeeping and accounting records; -they have the duty to adopt an adequate organizational, administrative and accounting company's structure, also to prevent a situation of insolvency or to detect it timely; -they have the duty to adopt organization and management models suitable for preventing crimes from which administrative liability of the company may follow (Italian Legislative Decree No. 231/2001); -they have the duty to prevent any actions that could undermine the company's interest and to adopt any actions to avoid the relative consequences. All of these responsibilities are mandatory, and therefore cannot be taken away or avoided, neither by the bylaws nor by the shareholders' meeting. They are an expression of the principle of separation of powers among diﬀerent bodies of the companies limited by shares and serve as a counterbalance to the non-liability of shareholders. Of these duties the directors are liable civilly and, in some cases, also criminally. Relationship between shareholders' meeting and directors: -art. 2364, n.5 and art. 2380-bis, par. 1, c.c. -the management competence of the shareholders' meeting is limited, the management, competence of the directors are general -once appointed, have broad decision-making powers, powers that do not derive from appointment by the shareholders' meeting (but by the law) and that they can exercise independently -they are the only ones responsible for these powers/duties, not the shareholders -authorizations given by the shareholders' meeting to carry out certain operations Appointment of directors. → first directors, appointed in the instrument of incorporation → then, other directors are appointed by ordinary shareholders' meeting → the bylaws may provide special rules for the appointment → in listed companies, directors are appointed through the list voting mechanism → holders of participating equity instruments may be appointed by independent director → one or more directors may be appointed by the State or public authorities in the event that these entities hold shares in the company Number of directors is established by the bylaws (also stating the minimum and the maximum number).To be directors they could be shareholders or not. The Civil Code does not provide for specific requirements, but the bylaws could provide that directors must meet the requirements of good standing, professionalism, and independence. For some kind of companies, special laws require them. Causes of ineligibility (2382 с.с.): → legal incapacity → persons declared bankrupt → persons sentenced to a punishment involving the disqualification from public oﬃce or the inability to hold management oﬃce In these cases, the person cannot be appointed as director and if the cause arises after the appointment the director falls from oﬃce. Duration of the oﬃce: → three financial years, they cease at the date of the shareholders' meeting called to approve the financial statements of the last year of the term of their oﬃce → they may be reappointed, unless the instrument of incorporation provides otherwise Other reasons for termination of oﬃce: → shareholders' meeting resolution to remove a director (the ordinary shareholders' meeting may at any time remove directors, but if there is no just cause the director is entitled to compensation for damages) → resignation from oﬃce → death → the arising of a cause of ineligibility In the event that the director terminates his or her oﬃce before the natural term, the law states that the termination of the oﬃce will take eﬀect when the director will be replaced and the new director has accepted the appointment (director will remain in oﬃce until this time, prorogatio). In the case of resignation, if the majority of the other directors remain in oﬃce, resignation will take eﬀect immediately. In certain cases, the cause for termination of oﬃce is not or cannot be delayed (prorogatio cannot work), so the law establishes replacement mechanisms (art. 2386 с.с.). Remuneration (art. 2389 c.c.) → Is established by the bylaws or otherwise by the shareholders' meeting → Additional remuneration if directors have specific duties provided by the bylaws (cap to the total remuneration, listed companies: annual remuneration report) Prohibitions for directors: -they can't become shareholders/partners with unlimited liability in competitor companies -they can't carry out a competing activity -they can't be directors or general managers in competitor companies (unless the shareholders' meeting authorizes them for listed companies there is the prohibition of using insider information (insider trading oﬀense). Eﬀects of the violation lead to the remotion of the director, as well as being liable to pay for any damage caused. How the board of directors work The sole director holds meeting on his or her own and performs all the duties and the powers of the administrative body If we instead have multiple directors, thus the board of directors shall be led by an appointed chair. Resolutions are passed jointly, during specific meetings with a majority vote. Any resolution that have not been passed in compliance with the law or with the articles of the association may be contested Bodies with delegated functions (art. 2381 с.с.) -bylaws clause or shareholders' meeting resolution -Executive committee, which is a collective body -Managing director a one-person body; could be one or more, if there are more managing directors they may act separately or jointly → appointment by the board of directors →definition of delegated powers → duties that cannot be delegated → relations between delegated bodies and other members of the board of directors → diﬀerent responsibilities divided between bodies with delegated functions and the board of directors Directors' interests (2391 c.c.) A director has an interest in a given operation, on his/her own behalf or on behalf of third parties, not necessary in conflict with the company's interest, must: -inform other directors and the board of statutory auditors if the director is a managing director, refrain from deciding on the operation by appointing the collective body in charge instead -in both case, suitably motivate the reasons why the transaction benefits the company -in the case of sole director, he/she must inform the board of statutory auditors and also the shareholders' meeting as soon as possible The resolution taken in these cases, which can harm the company, could be contested: -both if the director in conflict of interest voted and his vote was determined to approve the resolution, -and if the obligations in terms of transparency, abstention and justification were not fulfilled. Contracts concluded by the sole director with a conflict of interest are voidable at the request of the company under the general rules of representation (Art. 1394 с.с.). Legitimation to contest the resolution and time limit: 90 days from the date of the resolution, by the board of statutory auditors, the absent and dissenting directors, and also by the directors who voted in favor if the director with a conflict of interest failed to comply with the disclosure requirements. Company may act against the director to claim compensation for the damages arising from his/her actions or omission. Powers of representation (art. 2384 c.c.) The power of representation concerns the external activity of the company: it is the power to act towards third parties in the name of the company. It is diﬀerent from the power to manage the company, which concerns the internal activity, that is, the decision-making phase of the company's operations. -If there is a board of directors the bylaws or the appointment resolution must name the directors with the powers of representation. -If there are several directors with the powers of representation, it is necessary to establish if they act separately or jointly. Directive (EU) 2017/1132 Article 9 Acts of the organs of a company and its representation 1. Acts done by the organs of the company shall be binding upon it even if those acts are not within the objects of the company, unless such acts exceed the powers that the law confers or allows to be conferred on those organs. However, Member States may provide that the company shall not be bound where such acts are outside the objects of the company, if it proves that the third party knew that the act was outside those objects or could not in view of the circumstances have been unaware of it. Disclosure of the statutes shall not of itself be suﬃcient proof thereof. 2. The limits on the powers of the organs of the company, arising under the statutes or from a decision of the competent organs, may not be relied on as against third parties, even if they have been disclosed. 3. If national law provides that authority to represent a company may, in derogation from the legal rules governing the subject, be conferred by the statutes on a single person or on several persons acting jointly, that law may provide that such a provision in the statutes may be relied on as against third parties on condition that it relates to the general power of representation; the question whether such a provision in the statutes can be relied on as against third parties shall be governed by Article 16. The power of representation of the directors is general, meaning it is not limited to matters within the corporate purpose. directors have the power to represent the company as part of legal proceedings. If directors perform acts outside the corporate purpose (ultra vires acts), they validly bind the company to third parties (they will be exposed to removal for just cause and, if a damage to the company occurs, to the company's action for liability). Limitations on the power of representation → Maximum protection of third parties' reliance → Lack of power of representation due to an invalidity of the appointment resolution is not enforceable against third parties, except upon the proof that the third parties had knowledge of it → Limitations on the power of representation provided for in the bylaws or the resolution of appointment are not enforceable against third parties, except upon the proof that the third parties acted intentionally to the detriment of the company → Legal limits on the power of representation can be enforced against third parties Directors' liability: 1.liability towards the company 2. liability towards the company's creditors 3.liability towards individual shareholders and third parties 1. Liability towards the company (Art. 2392, 2393, 2393-bis c.c.) Directors can be held liable for damages caused to the company if they don't fulfill the obligations imposed to them by the law or by the bylaws, with professional diligence Limitation: directors are not liable for negative economic performance resulting from the company's activities, the so-called business judgment rule applies (rule drafted by the U.S. courts; under this standard, a court will uphold the decisions of a director as long as they are made (1) in good faith, (2) with the care that a reasonably prudent person would use, and (3) with the reasonable belief that the director is acting in the best interests of the corporation). -Several directors are jointly and severally liable for damages caused by failure to fulfill their duties (art. 2392, par. 1, c.c.) -Directors appointed to carry out specific duties (art. 2381, par. 3, art. 2392, par. 2, c.c.) -Fault-based liability (art. 2392, par. 3, c.c.) Liability action against the directors must be approved by: → the ordinary shareholders' meeting → the board of statutory audits, passed with the majority vote of two thirds of its members → the insolvency practitioner, only in case of insolvency a company may renounce the liability action or reach a settlement agreement with the directors in question through a shareholders meeting resolution. In order for such resolution to be valid a qualified minority must not vote against it (art. 2393-bis c.c., 1/5 of the share capital, 1/40 of the share capital for open companies limited by shares). otherwise the renouncement and settlement agreement shall not be valid. There is a prescription, so a time limit of 5 years after the termination of oﬃce by directors. 2. Liability action taken by the company's creditors (art. 2394 с.с.) Directors can be held liable to the company's creditors if they fail to fulfill their obligations to keep the company's assets intact. So, creditors can take a liability action only if the company's assets are insuﬃcient to pay them. In fact, no damages to creditors are recognised while the company's assets are still suﬃcient. Creditors may bring a liability action if the company's assets are insuﬃcient to its debt to them. ex (art. 2394 c.c.) there is a prescription, so a time limit of 5 years from the day on which the insuﬃciency of the company's assets becomes apparent or from the day on which creditors could reasonably have had knowledge of it. Interference between liability action taken oh behalf of the company and this liability action 3. Liability action taken by individual shareholders and third parties (art. 2395 с.с.) Directors may be held liable to individual shareholders and third parties for damages caused to them directly (damage should not only reflect the damage caused to the company), as a result of intentional or negligent actions. Two requisites must be met in order for individual shareholders or third parties to claim compensation for damages from directors: 1) the directors must have acted unlawfully while performing his/her duties; 2) there must be direct damage to the individual shareholder's or third party's assets. The prescription, so the time limit is 5 years from the time when the act that prejudiced the shareholder or third party was performed. This last liability is very diﬀerent from the first and the second, because it is not a contractual liability (i.e., it does not arise from the breach of pre-existing obligations). In this case, the burden of proof is much heavier and more diﬃcult. 5. Board of statutory auditors The main role of the board of statutory auditors, yet not the only one, is to supervise the activities of the company and, mainly, the activities of the directors. Its main limitation is that it is a body that is appointed by the majority which appoints the directors themselves. Many of the rules concerning the board of statutory auditors are designed to ensure the independence of its members. Composition (art. 2397 c.c.): -for not listed companies: three or five acting members and two alternate members (shareholders or not) -for listed companies: at least three acting members and two alternate members Professionalism requirements: at least one acting member and one alternate member must be chosen from the Register of statutory auditors. The other members must be chosen from professional registers. Listed companies limited by shares The members chosen from the Register of Auditors must practice the audit profession by a certain period of time. The other statutory auditors shall be chosen from among those who have gained experience of at least three years in the performance of: a) administrative or supervisory activities or duties management tasks in corporations that have a share capital of not less than two million euros, or b) professional activities or tenured university teaching in legal, economic, financial and technical- scientific subjects, closely related to the activity of the enterprise, or c) managerial functions in public bodies or public administrations operating in the credit, financial and insurance or otherwise in sectors closely related to that of activity of the enterprise. A person can't hold the oﬃce of statutory auditor if she/he has performed functions of administration, management or control in enterprises: a) subject to bankruptcy, compulsory administrative liquidation or equivalent procedures; b) operating in the credit, financial, securities and insurance undergoing administration procedures extraordinary administration. Also, can't be appointed who has been sentenced for certain crimes (honorability requirements). Reasons for ineligibility (independence) - also valid for listed companies: -Company directors' spouses, relatives and relative-in-law up to the fourth degree (also in relation to directors of companies belonging to the same group). -Persons linked to the company or to companies belonging to the same group roup by an employment relationship (in a broad meaning) which may compromise their independent position -Other reasons provided in the bylaws. -Open and listed companies: limits on the accumulation of appointments. Appointment of statutory auditors: → first statutory auditors appointed by instrument of incorporation → then the others, by ordinary shareholders' meeting resolution. In listed companies, directors are appointed through the list voting mechanism and at least one acting statutory auditor must be chosen from the minority list, also, the composition of the board of auditors must respect a gender balance). Holders of participating equity instruments → State or public authorities (in the event that these entities hold shares in the company) →Publicity of appointment and termination of oﬃce (2400, par. 3, c.c.) Duration of the oﬃce: → three financial years (they remain in oﬃce until the new statutory auditors are appointed) → they may be reappointed Remuneration: To ensure the independence of statutory auditors, their compensation must be predetermined by the resolution of appointment and must remain unchanged throughout their oﬃce (art. 2402 с.с.). Reasons for termination of oﬃce before term expiration -Removal -Withdrawal -Disqualification (a cause of ineligibility arises; the requirements of professionalism no longer met; art. 2404, par. 2 and art. 2405 с.с.) -Death Replacement mechanism: if one of the statutory auditors ceases to hold oﬃce, he/she will be replaced by one of the alternate statutory auditors (in order of age, by the eldest), who will remain in oﬃce until the next shareholders' meeting (art. 2401 c.c.) Duties and powers of the board of statutory auditors Article 2403 c.c.: «The board of statutory auditors oversees compliance with the law and with the bylaws The function of the board of statutory auditors is to ensure that in the performance of the company's activities, the law and the bylaws are complied with: → First, supervision relates to the administration of the company as a whole and it is extended to all the company's activities. → In particular, the board of statutory auditors supervises the suitability of the organizational, administrative and accounting structure adopted by the company and its actual implementation. → The supervision is carried out with respect to the directors, but it is also extended to the activities of the shareholders' meeting (hence the power-duty of the statutory auditors to attend the meetings of the shareholders, and to appeal their resolutions). Supervision of administration → global and synthetic control (which can become analytical if the circumstances require it) → control of formal and substantive legality (not of merit) Powers/duties → Information and disclosure obligations of directors to the board of statutory auditors (see e.g. article 2381, par. 5, c.c.) → Power to request information from the directors (at. 2403-bis, par. 2, c.c.). → Inspection and control acts. → They must attend board of directors, shareholders' and executive committee meetings. → Power to call the shareholders' meeting whether it detects serious facts during its activity and there is a need to take action (art. 2406, par. 2, с.с.). → Power to promote the liability action against the directors and to promote the judicial review under Article 2409 of the Civil Code. Other functions in addition to control Substitute activity - Statutory auditors have specific initiative powers-duties to replace the shareholders' meeting and directors to ensure compliance with the legality of corporate activities: -they have to call the shareholders' meeting and must carry out the publications required by law in case of omission by the directors; -they must apply to the court for an order to reduce the share capital when it is required by the law and the shareholders' meeting, or the directors, fail to do so. The board of statutory auditors has to express his opinion in certain cases: on the determination of the remuneration of directors holding special oﬃces; in unlisted companies, on the share price in the event of exclusion or limitation of the pre-emption rights; in listed companies on the appointment and removal of the auditing firm. It can sometimes take active administration functions, for instance in the event that all directors cease to hold their oﬃce, they are responsible for the administration of the company (limited to acts of ordinary administration). Accounting audit functions After the reforms of 1974 (for listed companies) and 2003 (for all companies limited by shares) the board of statutory auditors is no longer entrusted with the statutory audit function (which is exercised by an external auditor or an auditing firm), but the board of statutory auditors it is still required to supervise the adequacy of the administrative and accounting system and his consent is necessary for the inclusion of certain items in the balance sheet as assets. Also, it has the power to make certain proposals to the shareholders' meeting on the financial statements and their approval. Exception: The bylaws may provide that the statutory audit shall also be carried out by the board of statutory auditors (in this case, all members of the board of statutory auditors must be chosen in the Register of statutory auditors). This option is not allowed for companies limited by shares that: a) are required to drawn up the consolidated financial statements; b) are classified as "public interest entities", and to companies that control, are controlled or are under common control with the same; c) are controlled by a public entity. Functioning of the board of statutory auditors (art. 2404 c.c.) → the chair of the board of statutory audits is appointed by the shareholders' meeting and in listed companies limited by shares it represents the minority → appoints meetings → quorum → draw minutes for every meeting → use of employees and auxiliaries to carry out specific inspections Reporting issues to the board of statutory auditors (art. 2408 c.c.) The supervisory activity of the board of statutory auditors can be solicited by shareholders, which in the company limited by shares lack individual powers of control. → Complaint that comes from a shareholder or shareholders holding less than 5% of the share capital (2% in open companies limited by shares): the board of auditors must take the complaint into account in the report to the shareholders' meeting but is not obliged to investigate. → Complaint that comes from a shareholder or shareholders holding more than 5% of the share capital (2% in open companies limited by shares): the board of statutory auditors must immediately investigate and submit its findings and any recommendations to the shareholders' meeting and, in the cases provided for in Article 2406 of the Civil Code, it must call the shareholders' meeting). Liability (art. 2407 c.c.) towards the company and the company's creditors, statutory auditors must fulfill their obligations with professional diligence (statutory auditors must perform the duties imposed by law and bylaws to them with the professionalism and the diligence required by the oﬃce). There is exclusive liability of statutory auditors for the truthfulness of their certifications, and must keep facts and documents found as strictly confidential Statutory auditors are normally held jointly and severally liable with the directors for damages or negligence while carrying their supervisory activities. External Audit of Accounts Italian Legislative Decree n. 39/2010 Article 2409-bis of the Civil Code External audit of accounts is the activity by which a professional and qualified person (natural or legal person, filed in the Register of statutory auditors) audits the annual and consolidated financial statements of the company. The appointment is done by instrument of incorporation, shareholders' meeting resolution based on a proposal made by the internal control body. The external auditor must be completely independent from the company undergoing the audit. The remuneration is fixed with the appointment. The duration is of 3 financial years) → the removal of external auditors can be done for just cause, having consulted the internal control body. Auditor's main function is to ensure that: → the accounts are properly kept → the financial statements reflect a proper recognition of operating events → there is conformity of the financial statements with the regulations → the true representation of the financial situation situation and economic performance The activity is aimed to express an opinion on the financial statements, which may diﬀer based on 4 models) 1. opinion expressed "without notes to report" 2.opinion expressed "with findings to report 3.negative opinion 4.declaration that is impossible to express an opinion The opinion expressed does not bind the approval of the financial statements by the shareholders' meeting, which may approve them even if the opinion is not positive. The positive judgment has eﬀects for the contestation of the resolution that approves the financial statements (for the appeal for causes of nullity 5% of the share capital will be necessary). To external auditors is then assigned certain advisory functions in connection with particular operations. (e.g., determination of the value of shares in case of shareholder withdrawal, in the case of mergers and divisions drafts a report on the fairness of the exchange ratio, on the merger project following indebtedness) To carry out their function, the law provides external auditors with certain powers: → has the right to obtain documents and news relevant to the review from directors → may independently conduct investigations, audits and examination of acts and documents of the company → it exchanges relevant information with the board of statutory auditors in the case of consolidated financial statements, the statutory auditor's powers are extended to all companies that are part of the same group Duties and liabilities The auditors must perform their duties with the diligence required by their role (professional diligence). They shall be liable towards the company that conferred the oﬃce, shareholders and third parties (for the last two only for direct damages), jointly and severally with the directors, for damages arising from the failure to perform their duties. 6. Joint control over management Art. 2409 of the Civil Code provides for an external control by the judicial authority that is aimed at restoring the legality of administration and is carried out when there is a well-founded suspicion that directors, in violation of their duties, have committed serious irregularities in management. It is required that these irregularities may cause damage to the company or its subsidiaries. The court must assess whether these serious irregularities exist and must remove their eﬀects by appropriate measures. The legal action to the judicial authority can be reported by: a) shareholders b) board of statutory auditors or by other internal control bodies c) in the open companies limited by shares also by the public prosecutor (pubblico ministero) d) in listed companies by the Consob if it suspect that the internal control body has committed serious breaches in fulfilling their obligations Legal proceedings First stage involves investigations aimed to assess the presence of a violation and identifying measures to eliminate them. The court must hear the directors and the statutory auditors and, if appropriate, appoint an advisor to inspect the management of the company. The shareholders' meeting can avoid the inspection and obtain that the court suspens the proceedings if a resolution is approved that replaces the directors and the statutory auditors with subjects of appropriate professionalism. The latter will act to ascertain whether the violations exist, and if, and eliminate them. If this is insuﬃcient, the court may order appropriate measures and convene the shareholders' meeting to take the necessary resolutions. In most serious cases, the court may remove the directors and, if necessary, the statutory auditors, and appoint a special administrator. 7. Alternative administration and control systems Administration and control systems: → two-tier system, made of supervisory board and management board → traditional system, made of administrative body and board of statutory auditors, default system → one-tier system, made of board of directors and management control committee If the company wants to adopt one of the tier methods it must indicate its choice in the bylaws. Two-Tier System The management board carries out the functions of the board of directors. The functions of the supervisory board are peculiar, because it is given both the typical functions of the internal control body (supervisory activities) and some functions that, in the traditional system, are under the responsibility of the shareholders' meeting (guide management activities). The statutory audit shall be entrusted, without exception, to an external statutory auditor or to an audit firm. Supervisory board -appointment of first members by the instrument of incorporation, then by the ordinary shareholder's meeting -requirement of professionalism, respectability and independence requirements from the company -duration of 3 financial years -removal of members by the shareholders meeting can be done even without just case -publicity of appointment and termination of oﬃce in the Business register Function: → supervision activities → it appoints and removes the members of the management board; determines their compensation unless the bylaws attribute this power to the shareholders' meeting → it approves the financial statements and the consolidated financial statement; the shareholders' meeting maintains the competence to approve the distribution of profits. Also, the bylaws may provide that the financial statements be approved by the shareholders' meeting if the supervisory board fails to approve them or when a request is made by at least one-third of the members of the management board or of the supervisory board → it can decide to promote the liability action against the members of the management board, competence that it is also maintained by the shareholders' meeting ← if it is provided by the bylaws, the supervisory board may also pass the resolutions on strategic transactions and on the company's business plans and financial plans drawn up by the management board (liability) Functioning: → the chair of the supervisory board is appointed by the shareholders' meeting → meeting → resolutions are passed with quorum (), majority of votes → resolution validity → liability joint and several together with the management board for their actions Management board almost all the rules provided for the board of directors in the traditional system will apply: -composition of at least two members, -appointment first by the instrument of incorporation then by supervisory board and removal - duration of the oﬃce - replacement mechanisms for directors do not apply - delegation of functions Corporate liability action against management directors is specifically regulated in some respects (art.2409-decies c.c.): → the action may be taken by the supervisory board → removal of management directors → supervisory board has the power to renounce liability action or to reach a settlement agreement One-Tier System This system is characterized by the absence of the board of statutory auditors. The administration is exercised by the board of directors and the control by a management control committee, which is established within the first and performs the functions of the board of statutory auditors. The statutory audit shall be entrusted, without exception, to an external statutory auditor or an audit firm. Board of directors -the rules provided for the board of directors in the traditional system will apply as they are compatible -the members of the internal committee that performs the functions of the board of statutory auditors (management control committee) are appointed among the members of the board of directors -at least one third of the members of the board of directors must meet the independence requirements established for statutory auditors (in listed companies s. art. 147-ter tuf) -in listed companies an independent director must be elected by the minority throughout the list voting mechanism Management control committee: functions Its role corresponds to that of the board of statutory auditors, it supervises compliance with the law and the bylaws, supervises the adequacy of the company's organizational, administrative and accounting system. Complaints may be submitted to it by shareholders under Article 2408 of the Civil Code, and it may submit the complaint to the court under Article 2409 of the Civil Code. MCC shall perform such other duties as may be entrusted to it by the board of directors. MCC shall attend shareholders' meetings and meetings of the board of directors. For listed companies, information flows between committee, board of directors, external auditor are regulated more specifically. Functioning → the chair → meeting → quorum → convocation at the request of a member Appointment The board of directors determines the number of members; for open companies limited by shares it cannot be less than three members. Unless otherwise provided in the bylaws, the members of the committee must be chosen from among the members of the board of directors who meet the requirements of independence (and the requirements of honorability and professionalism that may be established in the bylaws). At least one member must be chosen from among those who are registered in the Registry of statutory auditors. In listed company members of MCC have to meet the professional and honorability requirements provided for the statutory auditors of the listed company (and the chairman of the committee must be appointed among the members chosen by the minority) Removal Although the law does not specify it, it is believed that the board of directors can remove committee members, even without just cause (they will maintain the position of director, which can be removed only by the shareholders' meeting). Yet the shareholders' meeting has the power to remove directors, which will then also lose their committee member status. Replacement In all cases in which a member of the MCC ceases to hold oﬃce, he/she will be replaced by the board of directors from among members with the requirements provided by the law. If there are no eligible directors, the board of directors shall appoint new directors (Article 2386 c.c. applies). 8. Financial statements types of documents: 1. Balance sheet 2. Income statement 3. Explanatory notes 4. Cash-flow statement 5. Reports of directors, statutory auditors, auditors Functions and principles: -Clear, true and accurate (art. 2423) -In accordance with accounting standards (art. 2423-bis) -Rules on structure/content and valuation criteria Actions to declare void or invalid: -Limits (art. 2434-bis), a stipulated financial statement not conform to the law is considered null Reserves and dividends The shareholders meeting that approves the financial statements also approves how to distribute profits to shareholders. However, not all profits may be distributed among shareholders in the form of dividends, in fact, 5% of annual profits that have not gone towards covering previous losses are deducted from profits to create a reserve, these deductions are made until it reaches 20% of the share capital. dividends are profit sharing calculated based on the net profits of the year having deducted the amount to be paid to the legal reserve. 9. The amendments to the bylaws These amendments refer to all changes to the objective content of the bylaws or the instrument of incorporation. Amendments of the subjective content of these documents not considered amendments, in particular, those involving the persons of directors, statutory auditors, and shareholders. From a formal point of view, amendments are the removal or the modification of clauses contained in the bylaws and the introduction of new clauses. The following rules will apply only in the case of change to the objective content. Procedure (art. 2346 c.c.) 1. a resolution is passed by the extraordinary shareholders' meeting (Art. 2365 c.c.) 2. a notary carries out the necessary checks, with an eventual judicial control if needed the 3. resolution is recorded in the Business register 1.resolution passed by the extraordinary shareholders' meeting In some cases, the bylaws may give to the administrative body the competence for amendment (art. 2365, par. 2, c.c.), and the same rules of procedure will apply. In non-listed companies, higher deliberative quorums for the second call of the shareholders' meeting are required for some amendments (art. 2369, par. 5, c.c.) 2. notary carries out necessary checks (art. 2346, par. 1, c.c.) The minutes are drawn up by a notary (the amendments of the bylaws are subject to the same form provided for the drawing up of these documents: public deed). Then the notary checks for legal control, so if the legal requirements have been met. 3. recording in the Business register The notary asks for the registration of the resolution within 30 days. The Business register Oﬃce verifies the correct formality. If during the checks, the notary finds that the conditions required by law not met, he shall promptly notify the directors. Directors have two options: call a shareholders' meeting to take appropriate action or apply to the court to see if the conditions required by law are met (art. 2346, par. 3, c.c.). If the directors do not provide the resolution will have no eﬀect. The resolution passed to make changes to the articles association shall not take eﬀect until it has been recorded in the Business register. In order to allow the current content of the bylaws to be known, an updated copy of the bylaws must be filed in addition to the resolution of amendment The right of withdrawal represents each shareholder's right to withdraw from the company and obtain payment for the value of their share Grounds of withdrawal may be: 1.mandatory 2.subject to derogation as per the bylaws 3. Provided for by the bylaws there is the right of withdrawal from unlisted companies with indefinite duration (art. 2437, par. 3, c.c.) there is the right of withdrawal in listed companies, lead to delisting (art. 2437-quinquies, c.c.) 1. The mandatory grounds for withdrawal (art. 2437) can be executed by absent, dissenting or abstaining shareholders, for all or part of their shares, for resolutions with regards to: a.Changing the company's objects b.Transforming the company c.Transferring the company's headquarter abroad d.Revoking liquidation status e. Eliminating one or more grounds for withdrawal that are subject to derogation or that are provided by the bylaws f. Changing the criteria to value shares in the event of withdrawal g. Changes concerning the voting rights or the participation rights In these cases any agreement aimed at excluding the right of withdrawal or making the latter more diﬃcult is null and void (2437, par. 6, c.c.) 2. The grounds for withdrawal subjects to derogation as per the bylaws are: a. Extension of the term of the company's duration b. Introduction or removal of restrictions on the circulation of shares Terms and procedure for exercising the right of withdrawal (art. 2347-bis, c.c.) -by sending a registered letter to the company within 15 days from the recording of the resolution in the Business register —if the ground of withdrawal doesn't refer to a resolution, within 30 days from the day the shareholder becomes aware of said grounds the shares for which the right of withdrawal is being exercised may not be sold. the right of withdrawal may not be exercised, (and if it has already been exercised, it shall be invalid), if within 90 days from the withdrawal the company revokes the resolution that provided the grounds for withdrawal in the first place. Criteria to determine the value of the shares (art. 2347-ter, c.c.) -for unlisted companies limited by shares, it is the directors who define it -for listed companies limited by shares, it is calculated in a mathematical way The bylaws may provide an alternative criteria to determine the value of shares. If shareholders have an objection, submitted together with their declaration to withdraw, then the liquidation value should be calculated by a court expert. Procedure to liquidate shares (art. 2437-quater, c.c.) a. oﬀer to other shareholders a withdrawing shareholder's share b. any shareholders share not purchase by shareholders are oﬀered: -to third parties, for non-listed companies -on regulated markets, for listed companies. c. if the shares are not placed among a) and b), then they are reimbursed through purchase of the shares by the company d. otherwise we have a capital share reduction, which company's creditors may object to, or dissolution of the company The Civil Code provides specific regulations for certain amendments to the bylaws: the increase and the reduction of share capital; transformations, mergers and divisions of the companies. The amendments to the share capital Increase of the share capital can be → material (or paid increase), both company's share capital and its assets increase → nominal (or free increase), only an increase in share capital while its assets remain the same Reduction of the share capital: → material, when a company's assets are decreased at the same time, meaning that the value of the contribution corresponding to the share capital reduction amount is returned to shareholders. nominal reduction (reduction for losses), when there are no simultaneous decreases in the company's assets, it involves adjusting the nominal share capital amount to the company's shareholders' equity value, which has already decrease due to losses cases other than losses where reduction is mandatory Material (or paid) share capital increase implies: -new financial resources, so new contributions -issuance of new shares, with the condition that previous contributions have to be fully paid-up -if the bylaws permit it the capital share can be increased in one or more occasions, the so called delegated capital share increase (art. 2443 c.c.). -the term for the subscription of the new shares is of maximum 5 years -if the share capital increase is not fully subscribed then the share capital increase shall be non- divisible, meaning that any partial subscription shall not be binding for the company Directive (EU) 2017/1132 Article 68-Decision by the general meeting on the increase of capital 1. Any increase in capital shall be decided upon by the general meeting. Both that decision and the increase in the subscribed capital shall be published in the manner laid down by the laws of each Member State, in accordance with Article 16. 2. Nevertheless, the statutes or instrument of incorporation or the general meeting, the decision of which is to be published in accordance with the rules referred to in paragraph 1, may authorize an increase in the subscribed capital up to a maximum amount which they shall fix with due regard for any maximum amount provided for by law. Where appropriate, the increase in the subscribed capital shall be decided on within the limits of the amount fixed by the company body empowered to do so. The power of such a body in this respect shall be for a maximum period of five years and may be renewed one or more times by the general meeting, each time for a period not exceeding five years. Directive (EU) 2017/1132 Article 69-Paying up shares issued for consideration Shares issued for consideration, in the course of an increase in subscribed capital, shall be paid up to at least 25% of their nominal value or, in the absence of a nominal value, of their accountable par. Where provision is made for an issue premium, it shall be paid in full. Directive (EU) 2017/1132 Article 70 - Shares issued for consideration other than in cash 1. Where shares are issued for consideration other than in cash in the course of an increase in the subscribed capital, the consideration shall be transferred in full within a period of five years from the decision to increase the subscribed capital. 2. The consideration referred to in paragraph 1 shall be the subject of a report drawn up before the increase in capital is made by one or more experts who are independent of the company and appointed or approved by an administrative or judicial authority. Such experts may be natural persons as well as legal persons and companies and firms under the laws of each Member State. The right of pre-emption (art. 2441 с.с.) → it's the shareholders right to be favored over third parties when subscribing a share capital increase against payment, following which new shares shall be issued. → this right is attributed to shareholders in proportion to the number of shares they hold → term for the exercise is 15 days to exercise their right → shares' which pre-emption rights have not been exercised have a preferential right on the unadopted shares → circumstances in which the right of pre-emption can be excluded are: cases in which the shares → have to be issued with a premium → indirect exercise of the pre-emption rights → Recording in the Business register Directive (EU) 2017/1132 Article 72 - Increase in capital by consideration in cash 1. Whenever the capital is increased by consideration in cash, the shares shall be oﬀered on a pre- emptive basis to shareholders in proportion to the capital represented by their shares, [...] 2. Any oﬀer of subscription on a pre-emptive basis and the period within which this right shall be exercised shall be published in the national gazette appointed in accordance with Article 16. However, the laws of a Member State need not provide for such publication where all of a company's shares are registered. In such case, all the company's shareholders shall be informe informed in writing. The right of pre-emption shall be exercised within a period which shall not be less than 14 days from the date of publication of the oﬀer or from the date of dispatch of the letters to the shareholders. 3. The right of pre-emption may not be restricted or withdrawn by the statutes or instrument of incorporation. This may, however, be done by decision of the general meeting. The administrative or management body shall be required to present to such a meeting a written report indicating the reasons for restriction or withdrawal of the right of pre-emption, and justifying the proposed issue price. The general meeting shall act in accordance with the rules for a quorum and a majority laid down in Article 83. Its decision shall be published in the manner laid down by the laws of each Member State, in accordance with Article 16. 4. The laws of a Member State may provide that the statutes, the instrument of incorporation or the general meeting, acting in accordance with the rules for a quorum, a majority and publication set out in paragraph 4 of this Article, may give the power to restrict or withdraw the right of pre-emption to the company body which is empowered to decide on an increase in subscribed capital within the limit of the authorized capital. This power may not be granted for a longer period than the power for which provision is made in Article 68(2). 5. The right of pre-emption is not excluded for the purposes of paragraphs 4 and 5 where, in accordance with the decision to increase the subscribed capital, shares are issued to banks or other financial institutions with a view to their being oﬀered to shareholders of the company in accordance with paragraphs 1 and 3. Directive (EU) 2017/1132 Article 84 - Derogation from certain requirements 1. Member States may derogate from the first paragraph of Article 48, the first sentence of Article 60(1)(a) and Articles 68, 69 and 72 to the extent that such derogations are necessary for the adoption or application of provisions designed to encourage the participation of employees, or other groups of persons defined by national law, in the capital of undertakings. We have the exclusion of pre-emptive right in case the new shares are oﬀered to the company's employees Nominal (or free) share capital increase (art. 2442 с.с.) Made by allocating amounts that are already part of the company's assets to the share capital amount, more specifically these amounts are taken from reserves and the available funds recorded in the financial statement Reduction of the share capital Material share capital reduction (art. 2445 c.c.) → there needs to be a notice of call for the shareholders meeting indicating the reasons and procedures for the reduction → the resolution must be recorded in the company's register → creditors can oppose the resolution if it harms their position there are two ways of execution: 1. by freeing shareholders from their obligation to make unpaid contributions, or 2. reducing the number of shares by buying own shares to be canceled on the market Directive (EU) 2017/1132 Article 73 - Decision by the general meeting on reduction in the subscribed capital Any reduction in the subscribed capital, except under a court order, shall be subject at least to a decision of the general meeting acting in accordance with the rules for a quorum and a majority laid down in Article 83 without prejudice to Articles 79 and 80. Such decisions shall be published in the manner laid down by the laws of each Member State in accordance with Article 16. The notice convening the meeting shall specify at least the purpose of the reduction and the way in which it is to be carried out. Directive (EU) 2017/1132 Article 75 - Safeguards for creditors in case of reduction in the subscribed capital 1. In the event of a reduction in the subscribed capital, at least the creditors whose claims antedate the publication of the decision on the reduction shall at least have the right to obtain security for claims which have not fallen due by the date of that publication. Member States may not set aside such a right unless the creditor has adequate safeguards, or unless such safeguards are not necessary having regard to the assets of the company. Member States shall lay down the conditions for the exercise of the right provided for in the first subparagraph. In any event, Member States shall ensure that the creditors are authorized to apply to the appropriate administrative or judicial authority for adequate safeguards provided that they can credibly demonstrate that due to the reduction in the subscribed capital the satisfaction of their claims is at stake, and that no adequate safeguards have been obtained from the company. 2. The laws of the Member States shall also stipulate at least that the reduction shall be void, or that no payment may be made for the benefit of the shareholders, until the creditors have obtained satisfaction a court has decided that their application should not be acceded to. 3. This Article shall apply where the reduction in the subscribed capital is brought about by the total or partial waiving of the payment of the balance of the shareholders' contributions. Nominal share capital reduction (due to losses) The company is not obliged to reduce the share capital until the relative loss exceeds one third of its total. A mandatory reduction is then implied if: 1. the decrease is of more than 1/3 of the share capital that does not aﬀect the legal minimum capital 2. the decrease is of more than 1/3 of the share capital aﬀecting the legal minimum capital 1. In case of decrease of more than 1/3 of the share capital that does not aﬀect the legal minimum (art.2446 c.c.): → calling of the shareholders' meeting → submit an up-to-date balance sheet, directors' report and observations of the board of statutory auditors → the shareholders' meeting may take appropriate measures If the loss has not reduced by at least 1/3 by the end of the next year, then the share capital reduction becomes mandatory Directive (EU) 2017/1132 Article 76 - Derogation from safeguards for creditors in case of reduction in the subscribed capital 1. Member States need not apply Article 75 to a reduction in the subscribed capital the purpose of which is to oﬀset losses incurred. 2. In case of decrease of more than 1/3 of the share capital aﬀecting the legal minimum capital (art. 2447 c.c.) → calling of the shareholders' meeting → shareholders meeting passes a resolution to: -reduce the share capital while increasing it to an amount that respects the legal minimum, or alternatively -the shareholders meeting passes a resolution to transform the company in another legal form, with lower level of legally required capital, such as SRL (from SPA) → if neither of the two decisions above are made the company shall be dissolved, due to capital dropping below legal minimum Directive (EU) 2017/1132 Article 77-Reduction in the subscribed capital and the minimum capital The subscribed capital may not be reduced to an amount less than the minimum capital laid down in accordance with Article 45. However, Member States may permit such a reduction if they also provide that the decision to reduce the subscribed capital may take eﬀect only when the subscribed capital is increased to an amount at least equal to the prescribed minimum. 10. Bonds Bonds are a way to raise funding for companies limited by shares. Bonds are debt securities that represent equal-value fractions of a unit operation in the form of a loan. Like shares, bonds have: → equal nominal value → grant equal rights (not administrative rights) Unlike shares: → bonds grant their holders the status of company creditor → funds raised by the company from bondholders are not provided as contributions, but go to form the so-called loan capital, and they are placed in the company's assets as loans → bondholders have the right to receive a fixed remuneration (interests), which normally doesn't depend on the financial results of the company; they also have the right to receive repayment of nominal value of the capital loaned, at the expiry date Except for these few common rules, there are many kinds of bonds: → index-linked bonds (or structured bonds) → convertible bonds → warrant bonds → subordinated bonds → participating bonds Bond issuance limits -a ratio must be respected between capital plus reserves, on one side, and bonds, on the other side —(art. 2412, par. 1): bonds may be issued for an amount that in the aggregate does not exceed twice the share capital (subscribed capital, not just paid-up capital), plus the legal reserve and the available reserves resulting from the latest approved financial statements; the statutory auditors shall certify compliance with this limit -guarantees made by the company for bonds issued by other companies are also calculated in this sum (art. 2412, par. 4, c.c.) -in addition, those financial instruments that contain an obligation to repay the capital, including conditional repayment, should be calculated The ratio between bonds issued and capital plus reserves must remain unchanged during the life of the bond, so: -the company may not pass a resolution to voluntarily reduce the share capital (i.e. material reduction) if the limit would no longer be met -mandatory reduction for l

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