Limited Liability Company in Italy
The società a responsabilità limitata SRL
Features and operation of a Ltd in Italy;
the simplified LLC (SRLS)
Steps to do before opening a srl in Italy
In Italy the most widespread corporate form is the srl (società a responsabilità limitata), the limited company, it is possible to establish it in a two-step process:
- signing of a contract drawn up in public form in front of a notary;
- registration in the Company Register within 10 days of the articles of incorporation.
Liability for obligations of the srl
About the obligations of a srl, only the company is liable for payment of its debts towards creditors with its assets, without involvement of the assets of each shareholder. Anyway, in case the shareholder issued any personal guarantees in favor of banks and / or suppliers, in this case the shareholder is liable for the relationship he guarantees in the event of the company's insolvency.
Single member srl
As per art. 2463 of the Italian Civil Code it is provided that the company can also be incorporated with a unilateral deed signed by a single person, it is the so called srl “unipersonale” where the shareholder is just one.
Kinds of shareholders of a srl
The law allows that a srl be set up and participated not only by individual shareholders, but also by legal persons.
Foreign shareholders of a srl in Italy
A foreign investor (individual or legal person) belonging to an European Union state member can be member of an Italian srl without any limitation.
The non-EU individual with residence permit in Italy is equal to Italian citizens and, therefore, can be member of an Italian srl.
The foreign individual without a residence permit in Italy and the non-EU companies can become members of an Italian srl only on condition of reciprocity (see note on that).
Legal seat of a srl
The legal seat (registered office) is the place where the company's administrative offices are located; the administrative offices can be located in a different place from where the production activity takes place: in fact, the headquarters are often placed in the offices of a chartered accountant for domiciliation service.
Corporate object of a srl
The corporate object provided in the statute and articles of incorporation must be determined by specifying which are the chosen activity to be performed by the srl (commercial, industrial, financial, agricultural, supply of services, etc.) and possibly the relevant product sectors; it is possible to choose a heterogeneous corporate object with multiple activities, provided that in practice it won’t be indeterminate.
Minimum capital of a srl
The minimum capital of a limited liability company amounts to € 10,000.00 and the shareholders must pay at least 25% of the subscribed capital when they open the bank account of the srl.
- in the event of the incorporation of a single-person srl, the payment of the capital must necessarily correspond to the total amount of the subscribed share capital;
- the capital can vary from € 10,000.00 to at least € 1, in this latter case at least 1/5 of the profits must be set aside in the legal reserve until, together with the capital, the sum of € 10,000 is reached;
- capital of simplified Limited see hereunder.
Kinds of goods conferred in srl capital
Usually, the srl is set up by means of cash contribution, however, the law allows for the conferment of all kinds of goods capable of an economic evaluation; in particular, it is possible to confer, for example, a company, real estate, movable goods, credits, intellectual property rights. In the case of capital contributions other than money, a sworn report released by an auditor or a by an auditing firm must be attached to the articles of incorporation.
Incorporation of a permanent srl
It is possible to set up a srl without deadline, if so, the shareholders have the right of withdrawal in any moment without any notice in advance; this situation is a menace for the integrity of the corporate structure.
Management of a srl
The law allows to manage a srl with three different systems:
- a single director;
- a board of directors (similarly to an joint stock company);
- multiple directors without them forming a college (similar to a partnership).
The appointment of the control body (single auditor or collective) or of the auditor is mandatory only if the srl company:
- is required to prepare consolidated financial statements;
- controls another company obliged to audit statutory accounts;
- for two consecutive years it has exceeded at least one of the following limits:
total assets in the balance sheet: € 2 million;
revenues from sales and services: € 2 million;
employees employed on average during the year: 10 units.
Articles of association (statuto) of a srl
The articles of association (statute) is the document that governs the relationship between shareholders and the functioning of the company; it is generally attached to the articles of incorporation (atto costitutivo).
It is advisable to not use a standard sample of srl statute, because in the incorporation phase the members must pay the utmost attention in its drafting, foreseeing in advance what could be the actual needs of the company.
In order to draft the statute, the founding shareholders have check the following points and make a choice about:
- the possibility to freely transfer the shares or if it is better to provide for limitations with clauses, such as: pre-emption, approval , tag along , bring along , drag along , lock-up etc;
- to do a provision for the case of death of shareholder, so that, it could be possible to provide for a consolidation clause to prevent the heirs of the deceased shareholder from entering the company;
- the rights of the shareholders: the shareholders have to decide if rights have to be prorated to the share of capital conferred or if it is better to provide for an exception to the principle of proportionality;
- the meeting quorums: if it is better the quorum provided by the law or if it is more appropriate to have reinforced quorums agreed by the shareholders;
- in case of increase of the company capital: if it is better to provide for the entry of third party financiers as new shareholders, or not;
- special rights in favor of any shareholder, or not;
- the provision of an arbitral clause appropriate to settle disputes between shareholders or between shareholders and companies, or not;
- if it is more appropriate to provide for voluntary causes of withdrawal or causes for exclusion of any member, or not;
- the company meeting of the shareholders: if it is better it takes place by means of audio / video conferencing, or not;
Share of a limited company in Italy
The "quota" (share) is the measure of the participation of a shareholder to the capital of a SRL limited company, it can not be the object of public offer of financial products (Article 2468).
The quota certificates are documents issued to the shareholders and have merely proof function. The limited shares are freely transmissible by agreement and by inheritance, unless otherwise provided in the deed of incorporation.
The transfer of the shares of the SRL between the seller and buyer is immediate, whereas about the company it is determined from the moment in which the transfer deed is filed with the company register. The deposit at the company register must be filed within 30 days, by the notary or by the chartered accountant who drew up the transfer agreement.
Under Law 133/2008, as an alternative to the notary, it will also be possible to apply to chartered accountants; the transfer agreement of shares can be signed with a digital signature. The deposit at the register of companies must be carried out by the chartered accountants only enrolled at bar. Law 183/2011 stated that in the case of transfer of shares of a SRL by an agreement digitally signed, the notary's intervention is not necessary.
The seller of shares of a SRL is jointly and severally liable with the buyer, for the period of three years from the transfer, for the payments of shares not yet carried out, but the company has to request them first to the buyer and then to the seller if the request to the buyer was unsuccessful (Article 2472).
The directors of the SRL can summon the defaulting members to pay their contributions within 30 days (instead of the 15 days stated for the SpA).
The status of shareholder is characterized by rights (voting, profits, liquidation and options, etc.) and obligations (similar to those of the shareholders of the SpA).
The member of SRL ceases to be shareholder in following cases: withdrawal (Article 2473), sale of quota (Article 2469) or expropriation of the quota (Article 2471), exclusion stated by other shareholders (Article 2473bis), bankruptcy of the shareholder and compulsory sale of the quota due to delay in payment of conferment.
Costs of setting up a srl
For the setting up of a srl 8in case it provides for cash contribution), in addition to the payment of the share capital, must be budgeted also the following costs:
- registration tax: € 200,00;
- stamp duty: € 156,00;
- annual registration fee: € 120,00;
- registration fees in the Register of Companies: € 90,00;
- archive tax: from € 27,5 to € 139,4 (it depends on the value of the contribution);
- honorary fees of the notary and any other professionals involved, in addition to the VAT due by law.
Tax regime of a srl
The ordinary tax regime of the srl provides for IRES (corporate income tax), it is a tax to be borne entirely by the company (corporate income tax).
In limited cases, the srl can choose the so-called "tax regime for transparency": in this case the taxable income is attributed to the shareholders in proportion to their shares in the profits, which are required to pay the IRPEF (individual income tax).
The srl must also pay the IRAP (regional production activities tax), whose rate is different in each of 20 Italian regions.
The simplified ltd (società a responsabilità limitata semplificata, srls)
The advantage of incorporation of a simplified limited liability company, compared to ordinary limited liability company, is that the costs of setting up a notary are reduced to expenses, getting savings on taxes. The incorporation taxes are limited to the registration tax of € 200 and the annual right of the Chamber of Commerce of € 120. In case of incorporation of a single-member srls, secretarial rights are also due in favor of the Company Register, equal to € 90 and relating to the single shareholder communication.
Further skills of the srls:
- the share capital must always be fully paid in the deed of incorporation; therefore, if a srls is established with a capital of € 5.000 this amount must be fully paid, while if an ordinary srl with a capital of € 10.000 is established, this can be paid in the minimum amount of € 2.500;
- the share capital can be formed only by cash contributions, while in the ordinary srl the capital can be conferred with any active element susceptible to an economic evaluation (real estate, companies, credits, intellectual property rights, etc.);
- shareholders can only be individual, while legal persons as companies are precluded from making use of a srls;
- the srls can be managed by a single director and a board of directors, while the possibility of choosing a model of administrative body made up of several directors without them forming a college is precluded;
- the articles of association are drafted according to a standard model established by the law and this model cannot be modified in any way, the standard model precludes shareholders from regulating their corporate relationships choosing alternative clauses and also prevents effective corporate tax planning;
- the duration of the company is indefinite, so that, it is not possible to foresee a term of the company and this leads to weaken the corporate agreement since the shareholders can freely withdraw from the company ad in every moment;
- it is not possible to provide a pre-emption or approval clause and this leads to a weakening of the company structure, because each shareholder is free to sell to third parties without asking permission from other members;
- it is not possible to provide for an arbitration clause and therefore disputes between shareholders will necessarily have to be resolved using ordinary justice in court;
- it is not possible to provide for a liquidation in favor of the directors at the end of their mandate.
There is the advantage of incorporating a srls when the entrepreneur who plans to start a business alone, instead of set up an individual business (impresa individuale) which determines unlimited liability for business obligations, can choose to start a srls at low costs by benefiting from the limited liability typical of this srl; however, the costs of running a srls instead of a impresa individuale are greater.
The deed of incorporation must indicate the following items (Article 2463bis, paragraph 2 civil code):
- the surname, name, date, place of birth, domicile, citizenship of each member;
- the company name containing the indication of «simplified limited liability company», further specifying «unipersonal» if the company has only one member;
- the registered office of the company (the municipality where the registered office is located and any secondary offices);
- the amount of the share capital (at least € 1 euro and less than € 9.999);
- the activity that constitutes the corporate object;
- the participation fee of each member;
- the rules relating to the functioning of the company, indicating those concerning administration and representation;
- the persons entrusted with the administration and any person appointed to carry out the statutory audit;
- directors, as per Law 99/2013 the it is possible to appoint directors who are not quota holders;
- the place and date of subscription.
The deed of incorporation must be drawn up by notary, it may also contain further information not required by law, but inserted by the members to better adapt the operation of the company to their needs.
The ministerial decree of the Minister of Justice (D.M. 23-6-2012, No. 138) has stated the standard sample of statute to which the simplified SRL must comply with.