Italian Company Law PDF

Italian and European company law Companies are the typical organizational structures provided by the legal system for the exercise of business activity in associated form. Article 2082, Civil Code: «An entrepreneur is one who professionally carries on an organized economic activity for the purpose of producing or exchanging goods or services.>>> -Organization: this means that there can be no enterprise activity without planning and coordination of the series of acts in which the enterprise develops and without the coordinated use of productive factors (capital and labor). A business activity can be said to be conducted economically when it is carried out in such a way that costs revenues. Distinctions provided by the Civil Code about the business activities: depending on the object of the business activity: commercial entrepreneur and agricultural entrepreneur; depending on the size of the business: small entrepreneur and medium-sized entrepreneur; depending on the person carrying out it the business activity: individual entrepreneur and enterprise carried on using a collective form Art. 2135 c.c. Agricultural entrepreneur: «An agricultural entrepreneur is one who engages in any of the following activities: cultivation of land, sylviculture, animal breeding and related activities.” Transformation, manipulation, conservation, commerce, exploitation of products obtained, in prevalence, from an essentially agricultural activity Supply of goods and services by using in prevalence instruments or resources usually employed in agricultural activity subjective connection objective connection Art. 2195 c.c. Commercial entrepreneur: «The following are required to be registered in the business register who engage in: 1) an industrial activity directed to the production of goods or services; 2) an intermediary activity in the movement of goods; 3) an activity of transportation by land, water or air; 4) a banking or insurance business; Art. 2083 c.c. Small entrepreneurs: «Small entrepreneurs are the direct cultivators of the fund, the artisans, small traders and those engaged in a professional activity organized mainly with his own labor and family members mbers' labor.>> Art. 2086 c.c. «The entrepreneur, whether operating in corporate or collective form, has the duty to establish an organizational, administrative and accounting structure appropriate to the nature and size of the enterprise, also in function of the timely detection of the enterprise's crisis and of the loss of business continuity, as well as to take action without delay for the adoption and implementation of one of the instruments provided for by the law for overcoming the crisis and recovery of the business continuity.>>> "Special commercial entrepreneur statute" A) Legal publicity and business register The ordinary section includes: partnerships and corporations cooperative corporations consortiums with external activity and consortium companies companies incorporated abroad with administrative or secondary oﬃces on Italian territory European economic interest groups public entities whose exclusive or main purpose is a commercial activity individual (non-small) business entrepreneurs A special section includes agricultural enterprise (natural persons and legal persons) small entrepreneur and/or direct farmer simple company artisan entreprise (annotation). B) Accounting records Art. 2214 c.c.: «An entrepreneur engaged in a commercial activity must keep a journal and an inventory book. He must also keep other accounting records as required by the nature and size of the business C) Statuatory agency Factor: a person in charge of the management of a commercial enterprise Attorneys in fact: even though they are not in charge of the management, they have the power to perform all acts pertaining to the enterprise Clerks: employees who, due to the tasks they are entrusted with, are granted a limited power to represent the enterprise D) Insolvency Law The commercial entrepreneur who demonstrate the joint possession of certain requirement is not subject to bankruptcy Business: Art. 2555 c.c.: a business is a set of assets organized by an entrepreneur for the purpose of carrying out the entrepreneurial activity». Distinctive signs (art. 2563 et seq. c.c.): Business name (ditta): distinguishes the person of the entrepreneur in the exercise of the business activity. Banner (insegna): identifies the places where the business activities are carried out. Trademark (marchio): identifies and distinguishes the goods or services produced. Under Italian Company Law there are two main categories of legal entities which may be incorporated: partnerships and companies (also called limited liability companies). Categories of legal entity: Partnerships (società di persone): simple partnership (società semplice) general partnership (società in nome collettivos.n.c.) limited partnership (società in accomandita semplice - s.a.s) Companies (società di capitali): companies limited by share SPA (società per azioni - s.p.a.) limited liability companies SRL (società a responsabilità limitata - s.r.l.) partnership limited by shares SAPA (società in accomandita per azioni - s.a.p.a.) Italian Company Law provides another kind of company named cooperative company, which mainly can be distinguished from the other companies for their purpose: companies follow the profit purpose, cooperative companies follow the mutualistic purpose. Article 2247 (Partnership/company agreement) «Through a partnership/company agreement, two or more people contribute goods or services in order to carry out an economic activity for the purpose of sharing the relative profits». This rule applies to both partnerships and companies (with the exception of the first part for the s.p.a. and the s.r.l.) Common features between partnership and companies: 1. Joint exercise of a business activity (based on the concept of entrepreneur, art. 2082 c.c.). With regards to this characteristic the form of simple partnership can be used only for the joint exercise of non-business enterprise (i.e., agricultural enterprise). The other forms of legal entities can be used both for agricultural and commercial activities. 2. Contributions granted by members, contributions are the performance that members obligate themselves to make, in order to join the partnership/company and may be allocated in the form of goods and services (cash, goods, receivables...). 3.Profit sharing Broadly speaking, contributions must be economically estimable. This rule is fully applicable only to the partnership. For companies, instead, there are specific rules for the type of contribution members can make and for its evaluation. Contributions are the risk capital of the partnerships and companies, and they go to form the partnership/company's share capital. The share capital is a number that expresses the contributions in cash and remains the same throughout the course of the partnership/company. To modify this number a decision of the members of the company is necessary, because the evaluation of the contributions expressed in the share capital is contained in the instrument of incorporation. of sharing the relative profits». This rule applies to both partnerships and companies (with the exception of the first part for the s.p.a. and the s.r.l.) Common features between partnership and companies: The share capital has two important functions: A. it indicates the value that the partners have agreed to bind in the business activity, which cannot be divided among them, and is an asset guarantee for creditors; b. it has an organizing function because it is used to determine whether there are profits or losses and based on the amount of the contribution made by each person the extent of the rights to which they are entitled is determined. Share capital must be kept separate from the assets of the company, which consist of all the companies' activities and liabilities. Main diﬀerence between partnerships and corporations: only companies have the legal personality, partnerships don't. On the other hand, with partnerships their members have an unlimited and joint liability for partnership debts Unlimited liability means that partners are liable with all their personal assets for the debts of the whole partnership, limited liability on the contrary means that partners are liable only for their respective share. Joint and several liability of partners refers to the situation in which two or more parties are obligated to the same performance. Art. 2252. (Amendments to the partnership agreement). The partnership agreement can be amended. only with the consent of all the partners, unless otherwise agreed. Art. 2296 (Publication) states that only for the purpose of the registration in the Business register and so for the regularity of the general partnership, the instrument of incorporation must be drawn up with the form of the public deed or of a written private deed certified by the notary Art. 2295. (Instrument of incorporation). The instrument of incorporation of the general partnership must contain: 1) the last name and first name, domicile, citizenship; 2) the name of the partnership; 3) the partners who have the administration and representation of the partnership: 4) the headquarters of the partnership; 5) corporate purpose; 6) the contributions of each partner, the value attributed to them and the method of valuation; 7) the services to which the work partners are obligated: 8) the rules according to which profits are to be distributed and the share of each partner in profits and losses; 9) the term of the partnership. 2. Contributions and liabilities With the partnership incorporation each partner assumes the obligation to make the contributions determined in the partnership agreement. As said, the determination of the contribution of the partners in the instrument of incorporation is not necessary to have a valid incorporation of the partnership. If nothing is provided in this regard in the instrument of incorporation, as stated in Art. 2253. (Contributions): the partner is obligated to execute the contributions determined in the partnership agreement. If the contributions are not determined, it is presumed that the partners are obliged to contribute, in equal parts among themselves, what is necessary for the achievement of the partnership object. Unlike companies, no restriction is provided for the assets which can be conferred as contribution. So, with partnerships any assets (goods or services) that can be economically valued and that are useful for the achievement of the corporate purpose can be conferred. The Italian Civil Code provides some specific rules for some types of contributions: contribution of assets in kind, contributions of receivables, contributions of work. Contributions go to form the initial asset (patrimonio) of the partnership. Partners cannot use the goods that in the partnership asset for purposes diﬀerent from the corporate purpose (art. 2256 c.c.). The violation of this prohibition may result in compensation for damages and exclusion of the partner from the partnership. Also, this prohibition can be derogated with the consent of all the other partners. A regulation of the partnership asset lacks in the Civil Code for the simple partnership. For the general partnership, instead, there are few rules. The law states that the instrument of incorporation indicates the contributions made by the partners, the value attributed to them and the method of valuation there are only two rules provided to grant the integrity of the partnership capital: Art. 2303 of the Civil Code forbids the distribution among the partners of profit that were not really achieved: amounts that do not correspond to a surplus of net asset (patrimonio netto) over the nominal capital. The same rule states also that if there is a loss in the partnership capital, no distribution of profits may take place until the capital is replaced or reduced accordingly. Art. 2306 forbids directors to reimburse partners the contributions already done or to release partners from the contributions they still have to make in the absence of a resolution to reduce the share capital. This operation involves a real reduction of the net asset and could undermine the interests of the partnership's creditors. So, they have the right to claim against the reduction resolution. 3. Partners' participation in profits and losses Art. 2262. (Profits). Unless otherwise agreed, each partner is entitled to receive his share of profits after the approval of the accounts. So all the members have the right to participate in profits and losses of the partnership. They are free to determine each partner's due portion and the division could not necessarily be made proportionally to the contributions. Art. 2265. (Leonine pact). Any agreement leading to one or more partners being fully excluded from profit sharing or from participation in losses shall be deemed null and void. it would be indeed unreasonable to exclude a partner from profits or losses. In any case this would not cause the entire agreement to be declared null and void, but only the Leonine pact. As art. 2263. (Allocation of gains and losses) states, the legal criteria for allocating gains and losses are the following: 1. Partners' shares in gains and losses are presumed to be proportional to contributions. 2. If the value of the contributions is not determined by the agreement, they shall be presumed equal 3. The share due to the contributing partner, if not determined by the contract, shall be determined by the court according to equity. 4. If the contract determines only the share of each partner in the gains, to the same extent shall be presumed to determine the share in losses. In the simple partnership the right of the partners to have their profits arise with the approval of the financial statement, which is drawn up by the managing partners at the end of each year, unless otherwise provided in the partnership agreement. In the general partnership the document that states profits and losses it's a real financial statement, drawing up following the rules provided for the financial statements of the companies limited by shares. The financial statement must be drawn up by the managing partners and it must be approved by the partners, with the majority determined according to the portion in the profits attributed to each of them. 4. Partners liability for partnership obligations (debts) Both in simple and general partnership, the partnership's assets are the primary guarantee for the partnership creditors. In simple partnership, the personal liability of all the partners is not a mandatory principle. The liability of the partners who don't have the power to represent the partnership may be excluded or limited with an appropriate agreement. As stated in Art. 2267 (Liability for corporate obligations), Creditors of the partnership may claim their rights toward the corporate assets. For corporate obligations also shall be liable personally, jointly and severally the partners who have acted in the name and on behalf of the partnership and, unless otherwise agreed, the other partners. The agreement must be brought to the knowledge of third parties by suitable means; failing this, the limitation of liability or exclusion of solidarity is not enforceable against those who did not have knowledge of it. In general partnership, the personal liability of all the partners is not derogable. So, a contrary agreement does not have any eﬀect against third parties and cannot be opposed to them, but it has eﬀect between the partners (Art. 2292) Limitation of liability of some partners: Simple partnership: an agreement limiting the liability of some (not all) of the partners is possible, but is enforceable against third parties only if brought to their knowledge by appropriate means. General partnership: an agreement limiting the liability of some (not all) of the partners is possible, but it has only an internal eﬀect (i.e., only among the partners) and is not enforceable against third parties. Art. 2269. (Liability of the new partner). A person who joins an already incorporated partnership is liable with the other partners for corporate obligations prior to the acquisition of the status of partner. Partners are jointly and severally liable among them, but they are liable subsidiary to the to the partnership, because to them is granted the benefit of prior enforcement of partnership assets. This benefit of prior enforcement of partnership assets works in diﬀerent ways, depending on the type of partnership. In the simple partnership (and also in the irregular general partnership), Art. 2268. (Preventive execution of partnership assets - Beneficium excussionis). A partner required to pay corporate debts can request, even if the company is in liquidation, the preventive enforcement of the corporate assets, indicating the assets which the creditor can easily satisfy himself. In this article, the prior enforcement of partnership assets works by way of exception and the partner will have to pay if he/she doesn't prove that in the partnership asset there are suﬃcient assets, easy to liquidate by the partnership creditor. In the regular general partnership, instead, Article 2304. (Liability of partners - Beneficium excussionis). Corporate creditors, even if the partnership is in liquidation, may not demand payment from individual partners, except after the execution of the company's assets. Beneficium excussionis: a legal clause entitling a surety the right to have a creditor proceed against the principal debtor first before pursuing the surety for any further payment. → Simple partnership: the beneficium excussionis doesn't work automatically. Partnership creditors can address their request to the partners, and it is the latter who must oppose the beneficium excussionis. General partnership: the beneficium excussionis works automatically. The partnership creditors first have to execute the partnership assets and only in the case these are insuﬃcient may address the request to members. 6. Partner's personal creditors Partner's personal creditors can never directly "attack" the assets of the partnership. But a partner's personal creditor is granted a form of protection. Both in the simple and in the general partnership he/she may (art. 2270, par. 1): 1) assert his/her rights to the profits due to the partner/debtor and 2) perform conservative acts on the quota due to the partner in the liquidation. In the simple partnership (and in the irregular general partnership too) (art. 2270, par. 2): If the debtor's other assets are insuﬃcient to satisfy the debtor's claims, the partner's personal creditor may also ask at any time the liquidation of his/her debtor's quota. The quota must be liquidated within three months by the request, unless the dissolution of the partnership is resolved. To the regular general partnership, the law provides with a diﬀerent rule (art. 2305): a partner's personal creditor, as long as the partnership lasts, cannot demand the liquidation of the quota of the debtor/partner. Also in the case he/she can give the proof that the other assets of the partner/ debtor are not suﬃcient to satisfy his/her credits. As art. 2307 states, this rule applies until the deadline of the general partnership stated in the instrument of incorporation. Partners can pass a resolution to approve the extension of the duration, but in this event a partner's personal creditors may object to the extension of the partnership. If the opposition is accepted, the partnership must, within three months by the decision, liquidate the quota of the debtor/partner. 7. The administration of partnership The administration of the partnership is the activity aimed to manage the partnership. The power to manage is the power to carry out all acts within the corporate purpose. Under Italian Company Law each unlimited liable partner is director of the partnership (art. 2257 (Disjunctive administration)). The instrument of incorporation may provide that the power of administration is reserved only to some partners, arising the distinction between managing partners and non-managing partners. art. 2257, par. 2: If management powers are exercised by several diﬀerent partners, then each managing-partner has the right to object to any operations proposed by another managing-partner before it is completed (veto right). This disjunctive administration oﬀers some benefits in terms of speed of the decision, but also it could be dangerous because the single managing partner could fulfill operation that can undermine the interest of the partnership without the knowledge of others Hence, the law also provides for another model of administration, which is aimed to privilege the exigence of a major ponderation: the joint management or conjunctive administration. Art. 2258. If management is entrusted to several partners jointly, then all manager-partners must give their consent for company operations to be carried out. If it is agreed that for that the management or for certain acts require the consent of the majority, the majority is determined in accordance with the last paragraph of the previous article. In the cases provided for in this article, individual managers cannot take any decision on their own, except in the case of urgency to avoid damage to the partnership 8. Administration and representation Among the responsibilities provided by the law for the managing partners there is also the power to represent the partnership. The power of representation is the power to act with third parties on behalf of the partnership, acquiring rights and assuming obligations for the partnership (art. 2266, par. 1, c.c.). The power of representation is diﬀerent from the power to manage. The power to manage involves the internal management activity, the decision-making process of the partnership operations. The power of representation, instead, involves the external management activity, that is the stage of implementation with third parties of the partnership operations. Unless otherwise provided in the instrument of incorporation, the power to represent the partnership is attributed to each managing partner, disjunctively or conjunctively, depending on the administration model adopted by the partnership. In the case of disjunctive administration, each managing partner can decide alone and stipulate acts in the name of the partnership (several signature power). Instead, in the case of conjunctive management, the decision will be taken with the consent of all the managing partners or with the majority, and all managing partners must participate in the stipulation of the act (joint signature power). The instrument of incorporation can provide a diﬀerent regulation of the power of management and of the power of representation. It can, for example, attribute the power of representation only to some managing partners, it may establish ways of exercise for representation that diﬀer from those that apply to the power of management and may limit the extent of the individual managing partners' power of representation. This issue, in the regular general partnership is solved with the legal publicity as stated in art. 2298, limitations on managing partners' power of representation, are not enforceable against third parties if they are not recorded in the Business register or if it is not proved that third parties had actual knowledge of them. In the irregular general partnership, by art. 2297, so general partnerships that lack registration shall be regulated by the provisions relating to the simple partnership. Limitations to the power of representation. cannot be opposed to third parties, unless it can be proved that they were aware of it. In simple partnership, original limitations to the power of representation are always opposable to third parties, the latter must check if partners who act on behalf of the partnership have eﬀectively the power to represent the partnership. 9. Managing partners The instrument of incorporation can attribute the administration to some partners, giving rise to the distinction between managing partners and non managing partners. The removal of the managing partner appointed in the instrument of incorporation involves an amendment to the latter, so, it must be decided by the other partners with the consent of all of them, unless otherwise provided (art. 2252 c.c.). Moreover, the removal has no eﬀect if there are not a just cause (art. 2259, par. 2, c.c.). Managing partners appointed with a separate act, instead, can be removed from their oﬃce following the rules provided for the mandate. Hence, he/she can be removed also without a just cause, except for the right to compensation for damages. Art. 2260. (Rights and obligations of directors). The rights and obligations of directors are regulated by the rules on mandate. The directors are jointly and severally liable toward the partnership for the fulfillment of the obligations imposed on them by the law and by the partnership agreement. However, the liability does not extend to those who prove that they are exempt from fault. 10. Non-managing partners When the power to manage the partnership is attributed only to some partners, the law grants other partners deep powers of information and control (art. 2261 c.c.) Each non-managing partners, indeed, has the following powers: a) The right to have information from the directors about the running of the partnership's operations. b) The right to consult the documents relating to the administration of the partnership and all the accounting records. c) The right to obtain a financial statement at the end of each year, or at the end of the partnership's running if this one ends first. 11. Partners non-competition duties Art. 2301. (Prohibition of competition). A partner may not, without the consent of the other partners, carry on his/her own behalf or on behalf of others an activity competing with that of the partnership, nor participate as an unlimited partner in another competing partnership. The violation of this prohibition implies the compensation for damages to the partnership and entitles the other partners to decide on his/her exclusion. However, the prohibition is not absolute. It can be removed by the other partners and the consent is presumed if the competitive situation existed before the incorporation of the partnership and the other partners were aware of it 12. The amendments to the instrument of incorporation. In simple partnership and general partnership, the instrument of incorporation can be amended only with the consent of all the partners, unless otherwise provided (art. 2252 c.c.). No agreement in the instrument of incorporation can be changed without the consent of all partners. Within the amendment of the instrument of incorporation also fall the changes in the composition of the partnership (i.e., the changing of partners). So, also in the event of the transfer of quota (whether by act between living persons or by cause of death) it will be necessary the consent of all the other partners. In regular general partnership and now also in simple partnership, the amendments of the instrument of incorporation are subjected to the recording in the Business register, only after the recording they can be opposed to third parties. Before the recording they cannot be opposed, unless it can be proved that third parties were aware of it. In irregular general partnership, the amendments of the instrument of incorporation must be brought to the knowledge of third parties by suitable means and cannot be opposed to those who have, without fault ignored them. Art. 2252. (Amendments to the partnership agreement). The partnership agreement can be amended only with the consent of all the partners, unless otherwise agreed. So, the power of the majority with regards to the amendments of the instrument of incorporation meet some limits, because it must be compliant with two general principles: the obligation to execute the agreement with good faith and the respect for the equal treatment of partners. 13. Dissolution of the relationship between partner and partnership Each partner of a partnership discontinues to be so for case of: death, withdrawal and exclusion. When one more partners cease the relationship with the partnership this does not result in the dissolution of the partnership but requires only the necessity to define the patrimonial relationship between the actual partners and the outgoing partners or the heirs of the death partner throughout the liquidation of his/her quota. It's a decision of the actual partners if they proceed then to end or to continue the partnership. Causes of dissolution of the relationship between partner and partnership and their eﬀect: a) Death of the partner Article 2284. (Death of the partner). Unless the partnership agreement provides otherwise, in the event of the death of one of the partners, the others must liquidate the quota to the heirs, unless they prefer to dissolve the partnership, or to continue it with the heirs themselves and the latter agree to this. There are three ways: → liquidation of the quota to the heirs within 6 months → dissolution of the partnership, heirs wait the end of the liquidation procedure for the division of the partnership's assets → continuation of the partnership with the heirs, for which the consent of the partners and heirs is obviously required b) Withdrawal of the partner Art. 2285. (Withdrawal of the partner). Any partner may withdraw from the partnership when the agreement is for an indefinite period or for the lifetime of one of the partners. In this case the withdrawal must be communicated to the other partners with at least three months' notice. The right of withdrawal of a defined period agreement can be exercised when there is a just cause. In this case the will to withdraw must be communicated to the other partners too, but the withdrawal is immediately eﬀective c) Exclusion It can be distinguished into two hypotheses: in some cases, it follows automatically to some situations (exclusion by law), in other cases it is optional, i.e., it is decided by the other partners (optional exclusion). Art. 2288 (exclusion by law): a partner is excluded by law when he/she: a) is declared bankrupt, takes eﬀect from the day of the decision that states the insolvency b) against one of his/her personal creditors has obtained the liquidation of the quota under art. 2270, takes eﬀect only when the liquidation of his/her quota is eﬀectively done As art. 2286 states, the three kinds of causes for which a partner can be excluded are: 1. Causes related to breach of social obligations 2. Causes related to the loss of the legal capacity 3. Causes related to the contributions For each of these causes there needs to be an exclusion process to decide for the exclusion of a partner. Exclusion is decided by the majority of the partners. The decision must be motivated and must be communicated to the excluded partner. It takes eﬀect after thirty days from the date of notice to the excluded partner. Within this period the excluded partner can claim against this decision (opposition) before the Court, which can also suspend the execution of the decision. This procedure, of course, cannot apply when the partnership is composed of only two partners. In this event, the exclusion of the partner is decided directly by the Court by the request of the other partner. (Art. 2287. (Exclusion procedure)). When a cause of dissolution of the relationship between partner and partnership arises, partner or his/her heirs have the right to obtain the liquidation of the quota. More exactly, he/she has the right to obtain an amount of money corresponding to the value of the quota (art. 2289, par. 1, c.c.). It means that the partner cannot ask for the restitution of the goods conferred to the partnership, also if they are already existent in the partnership asset. Nor a partner who has contributed the use of a good to the partnership can ask for its restitution, unless otherwise provided in the partnership agreement. The value of the quota is determined taking into account the financial situation of the partnership on the day in which the dissolution of the relationship occurs. The financial situation of the partnership must be determined attributing to assets their actual value as well as taking into account the value of the partnership assets and of profits and losses from ongoing operations. The payment of the quota attributed to the partner must be fulfilled within six months, which runs from the day in which the dissolution of the relationship occurs. In the case of dissolution relating to the requirement of the partner's personal creditor, it must be fulfilled within three months by the request. As already seen, the ceased partner or the heir of the deceased partner continues to be personally liable for the partnership obligations that arise until the day in which the dissolution occurs.(art. 2289 (Liquidation of the quota of the leaving partner)). 14. The dissolution of the partnership The grounds of dissolution provided for the simple partnership and general partnership are the following: 1) The expiration of the term fixed in the instrument of incorporation. The continuation of the partnership is however possible. The extension of the deadline can be both express or tacit. The partnership is deemed to be tacitly extended indefinitely when, after the expiration of the term, the partners continue the business activity. 2) The achievement of the corporate purpose or by the supervening impossibility of achieving it. Causes that make impossible to achieve the corporate purpose also include obstacles to the operation of the partnership caused by the irreversible discord among the partners resulting in the absolute paralysis of the business activity. 3) The will (consent) of all partners, unless the instrument of incorporation provides that the early dissolution of the partnership can be decided by the majority. 4) The lack of the plurality of partners, if within six months this is not reconstituted. In the case there is only one remaining partner, it is not itself a cause of dissolution of the partnership. For this cause for dissolution to become operative, the situation must continue for six months. 5) Other causes provided for in the partnership agreement. 5-bis) The opening of the controlled liquidation procedure. Art. 2273. (Tacit extension). The partnership is tacitly extended indefinitely when, the partners continue to carry out the corporate operations. When a cause of dissolution occurs, the partnership enters automatically in the liquidation status and in case of a general partnership this situation must be expressly indicated in the agreement. The partnership is not immediately extinguished. First, partnership creditors must be paid, and the remaining assets (if any) must be distributed among the partners through the liquidation procedure. Art. 2274. (Powers of directors after dissolution). After the dissolution of the partnership occurred, the partners maintain the power of administration, limited to the urgent aﬀairs, until the necessary steps are taken for the liquidation. 15. The liquidation procedure and the extinction of the partnership Art. 2275. (Liquidators). If the partnership agreement does not provide for the liquidation of the partnership assets and the partners do not agree to determine it, the liquidation is done by one or more liquidators, appointed with the consent of all the partners or, in case of disagreement, by the president of the court. Liquidators may be removed by the will of all partners and in any case by the court for just cause upon the request of one or more partners. With the acceptance of the appointment, liquidators take the place of directors, then as stated in Art. 2277. (Inventory). The directors shall hand over to the liquidators the partnership assets and documents and submit to them the account of the management for the period following the last account. The liquidators must take delivery of the partnership assets and documents, and draw up, together with the directors, the inventory showing the assets and liabilities of the partnership assets. The inventory must be signed by the directors and the liquidators. Liquidators come into action, and their main role consists in the definition of all the operations relating to the business activity: conversion of assets into cash, payment of partnership creditors, distribution of any remaining assets among partners. Art. 2278. (Powers of liquidators). The liquidators may fulfill all the acts necessary for the liquidation and, if the partners have not provided otherwise, they may also sell the partnership assets in bloc and make transactions and compromises. They also represent the partnership in court. Art. 2280. par. 2 (Payment of partnership debts). If the available funds are insuﬃcient to pay the partnership debts, the liquidators may demand from the partners the payments still due on the respective quotas and, if necessary, the sums required, within the limits of ftheir t respective liability and in proportion to each one's participation in the losses. In the same proportion, the debt of the insolvent partner shall be divided among the other partners. The law provides two limitations for the liquidators: 1) Art. 2079: They cannot engage in new operations. If they breach this provision they will be personally, jointly and severally liable for those operations toward third parties 2) Art. 2280 par. 1: They cannot distribute the corporate assets, even partially, among the partners, until the partnership creditors are paid or the sums necessary to pay them are set apart Overall, liquidators' duties and liabilities are governed by the rules provided by directors (art. 2276). Once all the partnership debts are paid, the liquidation procedure goes to the end with the distribution of any remaining assets converted in money among partners, if the latter haven't stated that the distribution shall be done through the handover of the assets in kind. Art. 2282. (Allocation of assets). Having extinguished the partnership debts, the remaining assets are allocated to the repayment of contributions. Any surplus shall be distributed among the partners in proportion to each one's participation in the profits. There is not any specific rule for the end of the liquidation procedure in the simple partnership. In the general partnership, instead, liquidators must draw up the final financial statements and the distribution plan (art. 2311 c.c.). The first is substantially the report of the liquidator's management activity. The second is a division proposal among the partners of the remaining asset. With the approval of the financial statements, liquidators are free from their responsibility towards the partners and the liquidation procedure ends. In the irregular general partnership, the end of the liquidation procedure determines the extinction of the partnership, whether the rules are met and so the partnership creditors have been paid. Failing this, the partnership must be considered already existent, also because it lacks a formal act that states its end. Art. 2312. (Cancellation of the partnership). Having approved the final liquidation financial statements, the liquidators shall apply for the cancellation of the partnership from the Business register. From the cancellation of the partnership, partnership creditors who have not been satisfied may assert their claims against the partners who remain personally liable for the partnership's organization. Limited partnership Limited partnership is a partnership that can be distinguished to the general partnership for the presence of two categories of partners (Article 2313. (Notion)): a) general partners, who are personally, jointly and unlimitedly liable for the corporate obligations, b) limited partners who are liable limited to the quota conferred. More exactly, they are only obliged towards the partnership to fulfill the contributions promised. Diﬀerent is also the position of these two categories of partners in relation to the partnership administration. That is an exclusive responsibility of the general partners. Limited partners, instead, are excluded from the management of the business activities. The limited partnership discipline is designed on that of the general partnership (art. 2315 c.c.), of course with some adaptations required by the presence of two categories of partners, each one with diﬀerent powers and diﬀerent liabilities for partnership obligations. The partnership is also very diﬀerent from the limited partnership by shares: in the latter there are two categories of partners too, but that is a company (società di capitali), and its discipline is designed on the discipline of the company limited by shares. The limited partnership is the sole type of partnership that consents to the common exercise of a business activity with a limitation of the risk. For this reason, it is a type of partnership that could easily be abused. Hence the need to prevent abnormal use of this type of partnership, with the provision of strict limits on limited partners and serious penalties for their violation. This, as will be seen, is the reason for the rules provided for the formation of the partnership name and the prohibition of administration on limited partners. 1. Incorporation and partnership name Art. 2316. (Instrument of incorporation). The instrument of incorporation shall specify the general partners and the limited partners. The instrument of incorporation of the limited partnership is subject to the inscription in the Business register too, but the failure to register regis only results in the partnership's irregularity, with the application of the discipline exposed later. A diﬀerence between the general partnership and the limited partnership regards the partnership name (art. 2314 c.c.). The business name of the limited partnership must be composed with the name of at least one of the general partners and with the indication of the partnership type (s.a.s.). The names of the limited partners cannot be included in the partnership business name. This is to prevent those who come into contact with the partnership from also mistakenly relying on the personal liability of such partners. Indeed, the limited partner, who allows his/her name to be included in the business name, is liable towards third parties unlimitedly, jointly and severally with the limited partners for partnership obligations. It means that the limited partner lose the benefit of the limited liability, and that is for all the partnership obligations and towards all the partnership creditors. But it will not become a general partner and so it will not have the right to manage the partnership. 2. Limited partners and partnership administration The regulation of the limited partnership is designed on that of the general partnership, but there are significant diﬀerences relating to the administration. The administration of limited partnerships can be fulfilled only by the general partners, who have the same powers and duties as the partners of the general partnership (art. 2318). Art. 2320. par. 1 (Limited partners). Limited partners may not perform acts of administration or transact or conclude business in the name of the partnership, except by virtue of special power of attorney for individual business. The limited partner precluded both the participation to the partnership internal administration and the possibility to act on behalf of the partnership with third parties (power of representation). More exactly relating to the internal administration of the partnership, the limited partner is lacking in any autonomous decision-making power for the business activity: he/she cannot decide alone any operation and he/she cannot participate in the decisions of the managing partners or condition their actions too. For the limited partners it is forbidden to act on behalf of the partnership like a general representative. Limited partner who breaches the prohibition of interference will be liable towards third parties unlimitedly, jointly and severally for all the partnership obligations (present, past and future). Limited partners who breach the prohibition of interference will be also exposed to the penalty of exclusion from the partnership, with a decision taken by the majority of the other partners (general and limited partners). To the limited partners, however, are attributed by the law, or can be attributed with the partnership agreement, some rights and powers of an administrative nature (in a broad sense). First, limited partners have the right to contribute with the general partners to the appointment and the removal of the managing partners when the instrument of incorporation provides for their appointment with a separate act. Indeed, it is necessary the consent of all the general partners and the consent of the limited partners. who represent the majority of the capital subscribed by them (art. 2319). Regarding the participation in the business activities, the general prohibition of interference in the administration of the partnership is partially tempered by the legislative recognition that limited partners: a) may transact or conclude business in the name of the partnership, but only under a special power of attorney for some given business; b) may perform their work (manual or intellectual) in the partnership, under the direction of the managing partners and thus never in an autonomous or in an independent position; c) if the instrument of incorporation provided, give authorizations and opinions for certain operations, as well as carry out acts of inspection and control, always within the limits imposed by the general prohibition of interference in the administration. With specific regard to the powers of control of the limited partners, they have the right to have the annual communication of the financial statements and to control its accuracy, consulting the books and the other documents of the partnership (art. 2320, par. 3, c.c.). 3. The transfer of quotas The diﬀerent position of the general partners and of the limited partners is reflected in the rules provided for the transfer of their quota. Regarding the transfer of the general partners quota, it applies the rules provided for the general partnership. Unless otherwise provided in the instrument of incorporation, the transfer of the general partners quota, whether by act between living persons or by cause of death, requires the consent of all the other partners (both general and limited partners). For the transfer due the cause of death, it will be necessary the consent of the heirs too. Diﬀerent is the rule provided for the transfer of the limited partners quota (art. 2322). Their quota is freely transferable due cause of death, hence, without the consent of the remaining partners. Regarding the transfer between living persons, instead, it's required the consent of the partners (both general and limited partners) who represent the majority of the partnership capital, unless otherwise is provided in the instrument of incorporation. The relevance of the consent of the other partners is so mitigated (because provided by the majority and not the unanimity) with respect to the transfer of the limited partners quota. 4. The dissolution of the partnership The presence of two categories of partners, which characterized the limited partnership, must remain throughout the duration of the partnership. Indeed, this type of partnership dissolves, in addition to the causes provided for the general partnership, when only limited partners or general partners remain, unless within the period of six months the ceased partner has been replaced (art. 2323). Moreover, if all the general partners cease, the limited partners shall appoint a temporary director. His/her powers are by law limited to the carrying out ordinary administration acts. The term temporary director does not assume the status of a general partner; hence he/she is not unlimited liable for the partnership obligations. To the liquidation procedure and the extinction of the limited partnership will apply the rules provided for the general partnership. However, once the limited partnership has been canceled from the Business register, partnership creditors who have not been paid can claim for his/her credit against the limited partners only to the extent of what they received as liquidation quota, since they are not partners with unlimited liability (art. 2324 c.c.) The partnership is dissolved: 1) by the expiration of the term; 2) by the achievement of the corporate purpose or by the supervening impossibility of achieving it 3) by the consent of all members; 4) when the plurality of members ceases to exist, if within six months this is not reconstituted; 5) for other causes provided for in the partnership agreement. 5-bis) for the opening of the controlled liquidation procedure. 5. The irregular limited partnership The limited partnership is irregular when its instrument of incorporation has not been inscribed in the Business register. Like the general partnership, the lack of the registration doesn't involve the incorporation of the partnership. Moreover, the distinction between limited partners and general partners remains in place. Indeed, also in the irregular limited partnership the limited partners remain liable limited to the quota conferred, unless they participated in the running of the business activities (art. 2317 par. 2). In the case of an irregular limited partnership, therefore, not even the issuance of a special power of attorney exempts the limited partner from unlimited liability towards third parties for all the partnership obligations. Otherwise, the irregular limited partnership will apply the same rules provided for the irregular general partnership. European Company Law Purpose of ECL: → facilitation of freedom of establishment of companies → improve transparency, legal certainty and the operations control → protection of interests of shareholders and others, the constitution and maintenance of public limited-liability companies' capital, branches disclosure, mergers and divisions, minimum rules for single-member private limited-liability companies and shareholders' rights Article 3 par. 3 The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment. It shall combat social exclusion and discrimination, and shall promote social justice and protection, equality between women and men, solidarity between generations and protection of the rights of the child. It shall promote economic, social and territorial cohesion, and solidarity among Member States. par. 4. The Union shall establish an economic and monetary union whose currency is the euro. Internal Market Treaty on the Functioning of the European Union (TFEU). Article 26, TFEU 1. The Union shall adopt measures with the aim of establishing or ensuring the functioning of the internal market, in accordance with the relevant provisions of the treaties 2. The internal market shall comprise an area without internal frontiers in which the free movement of goods, persons, services and capital is ensured in accordance with the provisions of the Treaties. Freedom of establishment and freedom to provide services The freedom of establishment and the freedom to provide services guarantee mobility of businesses and professionals within the EU. Self-employed persons and professionals or legal persons within the meaning of Article 54 TFEU who are legally operating in one Member State may: 1. carry out an economic activity in a stable and continuous way in another Member State (freedomof establishment: Article 49 TFEU): 2. oﬀer and provide their services in other Member States on a temporary basis while remaining in their country of origin (freedom to provide services: Article 56 TFEU). The right of establishment includes the right to take up and pursue activities as a self employed person, and to set up and manage undertakings, for a permanent activity of a stable and continuous nature, Article 49, TFEU 1. Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State. 2. Freedom of establishment shall include the right to take up and pursue activities as self- employed persons and to set up and manage undertakings How do we know that a corporation is subject to the law of a member state? Companies established and/or operated in any of the EU member states are regulated by the Company Law of the Member States. The application of national law to a company follows two main criteria of connection: → the incorporation theory → the real seat theory Article 54, TFEU 1.Companies or firms formed in accordance with the law of a Member State and having their registered oﬃce, central administration or principal place of business within the Union shall, for the purposes of this Chapter, be treated in the same way as natural persons who are nationals of Member States. What do we need to make the right of establishment eﬀective? Article 288, TFEU To exercise the Union's competences, the institutions shall adopt regulations, directives, decisions, recommendations and opinions. A regulation shall have general application. It shall be binding in its entirety and directly applicable in all Member States. A directive shall be binding, as to the result to be achieved, upon each Member State to which it is addressed, but shall leave to the national authorities the choice of form and methods. A decision shall be binding in its entirety. A decision which specifies those to whom it is addressed shall be binding only on them. Recommendations and opinions shall have no binding force. To enjoy the freedom of establishment and provide services granted to the TFEU we need a common legal framework on Company Law applicable throughout all the EU Member States. This does not necessarily imply the unification of the legislations of member states into a single uniform law. It is suﬃcient that national legislations share common basic principles. This goal can be achieved through approximation of laws or harmonization. (see art. 50(2), TFEU) Although in general Company law tends to be uniform throughout the world because it responds to the same needs, some legal institutes may be very diﬀerent from one state to another, because they depend on the legal traditions of each state. An eﬀective corporate governance framework creates a positive EU-wide business environment in the internal market. The objective of harmonizing company law is to promote the achievement of freedom of establishment (Title IV, Chapter 2 of the TFEU) and to implement the fundamental right laid down in Article 16 of the Charter of Fundamental Rights of the European Union, the freedom to conduct a business within the limits of Article 17 of the Charter (right to property). The purpose of EU rules in this area is to enable businesses to be e set up anywhere in the EU, enjoying the freedom of movement of persons, services and capital, to provide protection for shareholders and other parties with a particular interest in companies, to make businesses more competitive, and to encourage businesses to cooperate over borders. → There have been, since the European Community was founded in 1957, a series of Directives creating minimum standards for business across the European Union. → A central aim restated in each Directive is to reduce the barriers to freedom of establishment of businesses in the European Union through a process of harmonizing the basic laws. → When laws are harmonized, business will not be deterred by diﬀerent or more onerous laws, but at the same time harmonization provides a basic level of protection for investors in each member State. These objectives are followed through the instrument of the Directive. Uniform Company Law The EU institutions create a uniform company law that provides EU types of companies or firms, entirely or partially regulated by EU sources of law, acting by means of regulations. Also, EU institutions use the mean of regulation to establish common rules directly applicable to companies and firms established under the law of member states European model company law act: → soft law →model law that brings togheter best practices from member states legal system, from which all the member state can take inspiration → optional, non-binding adoption → the purpose is to provide a basic outline to be used as a model for national legislation and to create harmonization through a malleable tool (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 Code.) Rules apply: → to all the companies limited by shares → only to the so called close companies limited by shares. → only to the so called open companies limited by shares → only to the listed companies 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

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