Shareholders' rights in private and public companies in Italy: overview

A Q&A guide to shareholders' rights in private and public companies law in Italy.

The Q&A gives an overview of types of limited companies and shares, general shareholders' rights, general meeting of shareholders (calling a general meeting; voting; shareholders' rights relating to general meetings), shareholders' rights against directors, shareholders' rights against the company's auditors, disclosure of information to shareholders, shareholders' agreements, dividends, financing and share interests, share transfers and exit, material transactions, insolvency and corporate groups.

Alessandro Varrenti and Olga Masinovska, CBA Studio Legale e Tributario
Contents

Types of limited companies and shares

1. What are the main types of companies with limited liability and shareholders? Which is the most common? Which type do foreign investors most commonly use?

The main types of companies in Italian corporate law are:

  • Limited liability company (Srl).

  • Joint stock company (SpA).

  • Limited partnership (SapA).

In Srls and SpAs, the liability of stockholders is limited to the amount of their contribution to the company.

In SapAs, there are two kinds of partners:

  • Limited, who enjoy limited liability status.

  • General, who are responsible for the management of the company and who are unlimitedly and jointly liable for the company's obligations.

Statistics indicate that Srls are the most commonly used type of companies, as a sign of reflection of the Italian economy, which is rather fragmented and principally features small and medium enterprises.

SpAs are usually used in relation to bigger enterprises, when larger capital and more flexibility in the circulation of shares are required. The governance structure of SpAs is more complex and, as such, it offers a better protection to minority shareholders (for example, the presence of a board of statutory auditors, see Question 6). Foreign investors traditionally seem to favour the use of SpAs, except for the initial phase of an acquisition, where an Srl type of vehicle is most often used. This Q&A will not address limited partnerships, because of the rather scarce use of this form of company.

 
2. What are the minimum share capital requirements for companies?

The minimum share capital requirements for companies are as follows:

  • EUR1 for an Srl (Article 2463, Civil Code). If the capital of an Srl is lower than EUR10,000, the contributions in money must be fully paid-up at the time of incorporation.

  • EUR50,000 for an SpA (Article 2327, Civil Code).

 
3. Briefly set out the main types of shares typically issued by a company and the main rights they provide. Set out the other main financial instruments (for example, bonds) and participation instruments that can be issued by a company.

The general rule is that all shares must have the same value and grant the same rights to the shareholders (ordinary shares). However, if permitted by the bye-laws, special classes of shares can be issued to grant additional administrative or patrimonial rights (Article 2348(2), Civil Code), such as:

  • Privileged shares, which may grant privileged rights with respect to, for example, dividend distributions or the liquidation of the company's assets.

  • Shares with limited or non-voting rights.

  • Shares in favour of employees (stock options).

  • Enjoyment shares (usually without voting rights), which are issued in the case of reduction of the corporate capital and are attributed to the shareholders whose shares were reimbursed on the reduction of the capital to mitigate the possible damages of having repaid the ordinary shares at nominal value.

  • Performance shares, whose holders, in addition to a monetary contribution, must perform certain activities in favour of the company. These shares must be registered and cannot be transferred without the directors' consent.

  • Tracking shares, which grant patrimonial rights depending on the company's economic results in certain business areas.

  • Redeemable shares, which can be repurchased by the company or other shareholders.

  • Saving shares (without voting rights), which can be issued only by publicly listed companies.

As regards other equity instruments, the Civil Code expressly covers the issuance of convertible bonds (Article 2420bis, Civil Code) and of the participation securities (Article 2346(6), Civil Code).

The participation securities are issued to shareholders or third parties in exchange for the provision of work or services. They incorporate patrimonial rights which are generally connected to the economic results of the company, as well as some administrative rights (except for the voting right in the general meeting (GM), which is excluded) as determined by the bye-laws. In addition, practice has given rise to other kinds of instruments, such as reverse convertible bonds, where the issuer has the option to convert the bonds.

No shares are issued by an Srl, where the corporate capital is represented by quotas. Holders of the quotas are further referred to as quotaholders.

 
4. What is the minimum number of shareholders in a company?

SpA and Srl companies can have only one shareholder and still enjoy limited liability, either at the time of the company's incorporation or at any time afterwards. In such case, the company is subject to certain specific disclosure obligations. However, the benefit of limited liability is prejudiced if (Articles 2325(2) and 2462(2), Civil Code):

  • The company becomes insolvent.

  • The contributions were not made in compliance with the law, or the disclosure obligations are not in compliance with the law.

In these cases, the sole shareholder is liable without limitation for the company's obligations, which arose during the time when the company's stock was owned by only one person.

   

General shareholders' rights

5. What are the general rights of all shareholders? How can shareholders' rights be varied (for example, additional rights attaching to a class of shares, or limitations on shareholders' rights)? Are such variations generally provided in the company's bye-laws and shareholders' agreements?

Generally speaking, the rights afforded to shareholders are:

  • Patrimonial rights, such as:

    • the right to receive dividends;

    • the right to be attributed a proportional part of the company's assets at the time when the company is wound up;

    • pre-emptive rights in the case of an issue of new stock (and, for SpAs, also in the case of an issue of convertible bonds); and

    • the right to withdraw from the company.

  • Administrative rights, such as:

    • the right to participate and vote in general meetings and to challenge its resolutions; and

    • information rights regarding the conduct of the company.

SpAs can issue various classes of shares different from the ordinary ones, to incorporate different types of rights (see Question 3).

In Srls, quotaholders' rights are proportional to the quota owned. In principle, quotas are attributed to quotaholders in proportion to the value of their contributions, although the bye-laws can establish different attribution criteria (Article 2468, Civil Code).

The company's bye-laws and shareholders' agreements can limit, modify, suppress or waive certain rights, and can establish some specific rights in favour of certain shareholders, subject to mandatory legal provisions. In some cases, the extent to which the rights may be limited or modified is set out by the law (for example, limitations to the transferability of the stock) (see Question 36).

 
6. Briefly set out the rights of minority shareholders and the shareholding required to exercise such rights.

Minority shareholders in SpAs, enjoy the following rights:

  • Shareholders who own at least 10% of the corporate capital have the right to request that the general meeting (GM) is convened and to set out the meeting's agenda (Article 2367, Civil Code).

  • Shareholders who represent at least one-third of the overall corporate capital at any general meeting have the right to request that the meeting is postponed for a maximum of five days if they are not sufficiently informed about the agenda of the meeting (Article 2374, Civil Code).

  • Shareholders who represent at least 5% of voting shares in respect to a resolution of the general meeting can challenge such a resolution (the threshold is 0.1% in the case of open companies, as defined in the resolution 11971/99 of the Stock Exchange Commission (Consob)) (Article 2377, Civil Code).

  • Shareholders who own at least 10% of the overall corporate capital (or 5% in the case of open companies) have the right to file a complaint with the court to report any "grounded suspicions" about serious irregularities in the management of the company (Article 2409, Civil Code).

  • Any shareholder has the right to file complaints with the board of statutory auditors (BSA) concerning the management of the company. In such case, the BSA gives notice to the general meeting in its yearly report. However, if the complaint is brought up by the shareholders who represent at least 5% of the corporate capital (or 2% in the case of open companies) (these thresholds can be lower if the bye-laws so provide) the BSA investigates the matters brought to its attention, and report its findings and conclusions to the GM (Article 2408, Civil Code). Any shareholder has the right to challenge any board resolution that is in breach of his or her rights (Article 2388, Civil Code).

  • Shareholders who represent at least 20% of the corporate capital can sue directors for their liability (Article 2393-bis, Civil Code). This threshold can be changed by the company's bye-laws, but it cannot exceed one-third. In open companies, the threshold is 2.5% (or less, if it is so provided in the bye-laws).

  • Shareholders who represent at least 20% of the corporate capital (or 5% in the case of open companies) can veto any waiver and/or settlement of the company's liability action against directors (Article 2393(6), Civil Code).

The principal rights of minority quotaholders in Srl companies are the following:

  • Quotaholders who own at least one-third of the corporate capital have the right to submit specific matters to the approval of the GM, even if they would not usually fall within the GM's competence (Article 2479(1), Civil Code).

  • Quotaholders who own at least one-third of the corporate capital have the right to cause a resolution to be adopted by the GM, rather than by means of written consultation or written consent (Article 2479(4), Civil Code).

  • Any quotaholder (as long as they are not a director at the same time) has the right to be informed about the conduct of the company's business and to inspect the corporate books and any documents "concerning the management of the company" (Article 2476(2), Civil Code).

  • Any quotaholder has the right to sue the company's directors for their liability and demand their provisional revocation (Article 2476 (3), Civil Code). The liability action can only be waived or settled by the stockholders who represent at least two-thirds of the capital, provided that such a waiver or settlement is not vetoed by as many quoteholders as those who represent 10% of the entire capital of the company (Article 2476(5), Civil Code).

  • Where the company has an auditor or a BSA, the provisions concerning SpAs also apply.

 
7. How influential are institutional investors and other shareholder groups in monitoring the company's actions (for example, corporate governance compliance)? List any such groups with significant influence in this area.

Institutional investors and other shareholders' groups directly influence corporate governance by means of their voting rights in the general meeting and their representatives in the management and corporate bodies. Specific corporate governance rules are normally contained in the bye-laws and shareholders' agreements.

Institutional investors can indirectly influence corporate governance and good practice by their membership in certain business associations, such as Assonime, whose purpose is to promote an appropriate legal and institutional framework for the entrepreneurial activities of SpAs in Italy and in the EU.

 

General meeting of shareholders

Calling a general meeting

8. Does a company have to hold an annual shareholders' meeting? If so, when? What issues must be discussed and approved? Which decisions must be approved by the shareholders in a general meeting?

Companies must hold the annual shareholders' meeting to approve of the financial statement. The meeting must be held within:

  • 120 days of the end of each financial year.

  • The extended term of a maximum of 180 days, if the companies prepare a consolidated financial statement or in the case of particular needs relating to the structure and the corporate purpose of the company (Articles 2364 and 2478bis, Civil Code).

In SpAs, general meetings are ordinary or extraordinary. The following matters are reserved to the competence of ordinary GMs in companies which do not have a supervisory board (Article 2364, Civil Code):

  • Approval of the yearly financial statement.

  • Appointment and revocation of directors, board of statutory auditors (BSA) members and the person in charge of accountancy control, if any.

  • Determination of the directors' and BSA members' remuneration.

  • Decision on the liability of directors and members of the BSA.

  • Decision on other matters reserved to its competence by the law or the bye-laws.

  • Approval of the GM's internal rules, if any.

Where the company has a supervisory board, the ordinary GM appoints and revokes its members and determines their remuneration (if not provided for in the bye-laws), resolves upon their liability, as well as upon the distribution of profits. It also appoints the accountancy auditor (Article 2364-bis, Civil Code).

The matters resolved at the extraordinary general meeting include (Articles 2365 and 2349(2), Civil Code):

  • Modifications to the deed of incorporation and the bye-laws.

  • Appointment, replacement and revocation of liquidators and determination of their powers.

  • Issuance of shares or other financial instruments in favour of employees of the company or of controlled companies.

In Srls, there is no formal distinction between an ordinary and extraordinary GM. However, certain resolutions are adopted by a larger majority of votes than others.

In Srls the following decisions are reserved to the quotaholders' competence, although not all of them necessarily require that a formal general meeting is held:

  • Approval of the financial statement and profit distributions.

  • Appointment of directors and an auditor or BSA members, if any.

  • Amendment of the bye-laws.

  • Decision to carry out activities which give rise to a substantial modification of the company's purpose or the quotaholders' rights.

A GM's resolution is mandatorily required only if:

  • The bye-laws do not provide for an alternative methods of decision (that is, written consultation or written consent).

  • The decisions concern the modification of the bye-laws or the performance of activities which give rise to a substantial modification of the company's purpose or the quotaholders' rights.

  • It is required by one or more directors or the stockholders who represent at least one-third of the corporate capital.

 
9. Can a general meeting be held by telecommunication means or written/electronic approval?

In SpAs, the shareholders can participate in the general means by telecommunication means and can also vote by correspondence if it is so permitted by the bye-laws (Article 2370(4), Civil Code).

In Srls, written consultation and written consent are alternative resolution methods. However, certain decisions must be adopted by a general meeting, and the Civil Code does not expressly provide for participation in a meeting by telecommunication means or a vote by correspondence in such cases. Most scholars believe that this possibility applies in full to Srls by way of analogy, while others contend that the bye-laws of Srls can only contemplate the possibility of holding the general meeting by telecommunication means, not the possibility of voting by correspondence.

 
10. What are the notice, information, and quorum requirements for holding general meetings and passing resolutions?

General meetings are convened by a notice of call, which indicates:

  • Place of meeting.

  • Date and hour of the meeting.

  • Agenda (Article 2366(1), Civil Code), which contains the information about the matters to be discussed.

The notice of call can be brief, provided that it is clear, unambiguous and specific (for example, see Supreme Court judgment No. 23269/2005, 21232/2004).

For Spas, an ordinary general meeting is validly established if it represents:

  • At least one-half of the corporate capital in the first call (Article 2368(1), Civil Code).

  • Any portion of the corporate capital in the second and the following calls (Article 2369(3), Civil Code).

It adopts its resolutions by:

  • The absolute majority of votes in the first call (Article 2368(1), Civil Code).

  • The majority of votes represented in the meeting in the second and the following calls (Article 2369(3), Civil Code).

An extraordinary GM is validly established when it represents:

  • More than one-half of the corporate capital in the first call.

  • More than one-third in the second call (Article 2369(3), Civil Code).

It adopts its resolutions by:

  • The majority exceeding one-half of the overall corporate capital in the first call (Article 2368(2), Civil Code).

  • At least two-thirds of the corporate capital represented in the meeting in the second and the following calls (Article 2369(3), Civil Code).

The approval of at least one-third of the overall corporate capital is also required in the second call in relation to certain matters (for example, reorganisation of the company, changes in the corporate purpose) (Article 2369(5), Civil Code).

In Srls, a GM is regularly established when at least one-half of the corporate capital is attending. It normally adopts resolution by the absolute majority, save for certain matters where broader majorities are required.

For example, the resolutions concerning the amendment of the bye-laws and the transactions which give rise to a substantial modification of the corporate purpose of the company are adopted by the majority of the corporate capital. The company's bye-laws can establish different quorum requirements from those contemplated by the Code (Article 2479bis (3), Civil Code).

 

Voting

11. What are the voting requirements for passing resolutions at general meetings?

Any shareholder is entitled to participate in the general meeting, without any limitation as to the number of the shares or the entity of the quota owned, with the exception of the holders of some specific classes of shares (such as saving shares) who cannot participate in the GM.

Shareholders can participate in the GM personally or by proxy, which can be attributed to another shareholder or to a third person, if the bye-laws do not prohibit it (proxies cannot be given, among others, to board of directors and BSA members and/or to employees of the company or of its controlled companies).

For SpAs, the form and contents of the proxy must meet the following requirements (Article 2372, Civil Code):

  • A proxy must be granted in writing.

  • The name of the proxy cannot be left blank.

  • It can be revoked at any time, notwithstanding any agreement to the contrary.

By means of a shareholders' agreement, shareholders of both types of companies can group up their stock to exercise their voting rights.

 
12. Are specific shareholder approvals/resolutions required by statute for certain corporate actions? What voting requirements and majorities apply?
 

Shareholder rights relating to general meetings

13. Can a shareholder require a general meeting to be called? What level of shareholding is required to do this? Can a shareholder ask a court or government body to call or intervene in a general meeting?

In SpAs, shareholders who represent at least 10% of the corporate capital (or a lower percentage, if provided for in the bye-laws) have the right to request the general meeting to be convened. This right cannot be exercised by the shareholders where the law provides that the GM adopts a resolution based on the directors' proposal or on a project or report drawn up by the directors (Article 2367, Civil Code).

The Civil Code does not contain any specific provisions concerning the calling of a general meeting at the request of stockholders of Srls. According to the prevailing case law and to most legal scholars, the right to call a GM is attributed to the same persons who, under Article 2479(1) of the Civil Code, are entitled to submit certain matters to the stockholders' decision (that is, the directors of the company and the stockholders that represent at least one-third of the corporate capital).

One or more shareholders of an Spa can request the courts to convene the general meeting when the corporate bodies of the company do not comply with a legitimate request by the shareholders to convene the meeting. In addition, a general meeting can be convened upon a court's order when the court ascertains the existence of serious irregularities in the management of the company, following the request of the shareholders that represent at least 10% of the corporate capital of the company (5% in open companies).

No specific legal provisions allow the stockholders of an Srl to request the court to convene the GM and the prevailing case law excludes the existence of such a right.

 
14. Can a shareholder require an issue to be included and voted on at a general meeting? What level of shareholding is required to do this? Can a shareholder require information from the board about the meeting's agenda?

The administration body of an SpA supplements the agenda of a GM if requested by the shareholders representing at least 10% of the corporate capital. Accordingly and in the absence of any specific provision to this effect as regards Srls, the agenda is supplemented on request of at least one-third of the corporate capital (that is, the same majority which is requested to call the GM).

 
15. Do shareholders have a right to resolve in a general meeting on matters which are not on the agenda?

The only time a shareholder is allowed to bring up for discussion an issue that is not included in the agenda is in the total general meeting (GM).

In SpAs, a total GM is validly constituted when it is attended by the entire corporate capital and by the majority of the board and supervisory board members (Article 2366(4) , Civil Code).

In Srls, the entire corporate capital must attend and all directors and BSA members must be represented in, or informed about, the total GM (Article 2479-bis(5), Civil Code).

In both cases, however, no resolution can be adopted by the GM if any of the participants should object to that resolution.

 
16. Can a shareholder challenge a resolution adopted by a general meeting? Is a certain shareholding level required to do this? What is the time limit and procedure to challenge a general meeting resolution?

As regards SpAs, general meeting (GM) resolutions which were not adopted in compliance with the law or the bye-laws can be challenged by the shareholders (who were either absent or in dissent) who own at least 5% (0.1% in open companies) of the corporate capital, within 90 days from the date on which they were adopted or filed with the Companies' Register (Article 2377, Civil Code). Resolutions falling under the cases of nullity contemplated in Article 2379 of the Civil Code can be challenged by any interested person (even if not a shareholder), within three years from the date when they are recorded in the company's book or are filed with the Companies' Register. No time limit applies if the resolution modifies the corporate purpose by rendering it unlawful or impossible (Article 2379, Civil Code).

In Srls, quotaholders' decisions which were not adopted in compliance with the law or the bye-laws, or were adopted with a decisive vote of a quotaholder who is in a conflict of interest situation, can be challenged by any dissenting quotaholder, within 90 days from the date on which they were recorded in the company's books. The decisions concerning unlawful or impossible matters and those which were adopted in a complete absence of information to the quotaholders can be challenged by any interested person within three years from the date when they were recorded in the company's books (Article 2479-ter, Civil Code).

In respect to both types of companies, the claim is submitted by means of a writ of summons to the court of the place where the company has its registered office. Simultaneously on filing the law suit, the claimant has the right to demand that a temporary restraining order is issued to suspend the enforceability of the resolution that is being challenged.

 

Shareholders' rights against directors

17. What is the procedure to appoint and remove a director?

In both types of companies, the initial directors are appointed in the bye-laws (Article 2328, the Civil Code). Afterwards, they are appointed by the GM (in Srls they can also be appointed by written consultation or written consent).

In SpAs, directors can be revoked by the GM at any time and for any reason, save for their right to claim damages when the revocation is made without just cause.

In respect to Srls, there are no specific legal provisions concerning the revocation and replacement of directors. Therefore, it is advisable to insert in the bye-laws specific provisions governing these aspects.

 
18. Can shareholders challenge a resolution of the board of directors? Is there a minimum shareholding required to do this?

SpA shareholders who represent at least 5% of the corporate capital (0.1% in open companies) have the right to challenge resolutions of the board of directors, but only when such resolutions are in breach of their rights (Article 2388, Civil Code).

Quotaholders of Srl companies cannot challenge board of directors' resolutions.

 
19. Briefly set out the main directors' duties to the company and its shareholders. What is the potential liability of directors to the shareholders? Can their liability be limited or excluded? On what grounds can shareholders bring legal action against the directors?

The company's directors have the duty to:

  • Manage the company and carry out any activities which are necessary for the pursuit of its corporate purpose (Article 2380bis(1), Civil Code).

  • Represent the company in compliance with the provisions of the bye-laws and of the resolution by which they were appointed (Article 2384(1), Civil Code).

All the directors must perform their duties in compliance with:

  • The laws and the bye-laws.

  • The level of diligence requested by the nature of their office and by their specific competence (Article 2392(1), Civil Code).

Directors of SpAs are liable towards the company for any damages suffered as a consequence of their breach of (Article 2392, Civil Code):

  • The fiduciary duty.

  • Conflict of interest rules.

  • The obligation to act in an informed manner.

  • Obligations and prohibitions provided for by applicable laws or the bye-laws.

In these cases, the liability action can be exercised following a resolution of the ordinary general meeting (GM) or exercised directly by the shareholders that represent at least 20% of the corporate capital (2.5% in open companies). The action is subject to a statute of limitations period of five years from the termination of the interested director from his office. When the action is resolved upon by the GM by the favourable vote of at least 5% of the corporate capital, the directors are revoked from their office (Article 2393, Civil Code).

The directors of Srls are liable to the company for damages arising from a breach of their duties under applicable law or provided by the bye-laws. A liability action can be exercised by each quotaholder who can demand that the court revokes provisionally by way of urgency the directors in the case of serious irregularities. The quotaholders who intentionally approved or authorised the directors' actions are jointly liable with the directors (Article 2476, Civil Code).

In both types of companies, any shareholder (or third party) who suffered loss as a direct result of the directors' negligence or misconduct can sue the directors for the repayment of damages.

A director dissenting from a decision of the board can exclude his liability for such a decision if he records his dissent in the book of board of directors' resolutions and informs the chairman of the board of statutory auditors (Article 2392(3), Civil Code). In certain cases, the directors' liability towards the company can be excluded by a resolution of the GM, provided, however, that the directors are not preventively released from their liability for willful misconduct or gross negligence.

 
20. Are directors subject to specific rules when they have a conflict of interest relating to the company? Are there restrictions on particular transactions between a company and its directors? Do shareholders have specific rights to bring an action against directors if they breach these rules?

The directors of SpAs who are in a situation of conflict of interest in respect to certain transactions to be carried out by the company must inform the board and the board of statutory auditors (BSA). In such a case, the advantages of the transaction for the company must be clearly outlined in the relevant resolution of the board of directors (Article 2391, Civil Code).

As regards Srls, the agreements concluded on behalf of the company by the directors who are in a situation of conflict of interest can be invalidated on a request of the company, if the other contractual party was or should have been aware of the conflict.

For both types of companies, the resolutions adopted by the board of directors with the determining vote of the director who is in a situation of conflict of interest can be challenged within 90 days by the other directors and the members of the BSA, if appointed (Articles 2391(3) and 2475ter, Civil Code). The shareholders do not have the right to challenge directly the resolutions adopted, or the transactions carried out by directors in a conflict of interest situation. However, if damages arise from such conduct, the shareholders have the right to institute a liability action against conflicted directors (see Question 18).

 
21. Does the board have to include a certain number of non-executive, supervisory or independent directors?

There is no requirement for a certain number of non-executive, supervisory or independent directors being part of the board under the Italian law.

The office of independent director is provided for and regulated by the Corporate Governance Code of the Italian Stock Exchange, which can be voluntarily adopted by listed companies (see Question 26).

 
22. Do directors' remuneration and service contracts have to be disclosed? Is shareholder approval of directors' remuneration required?

All directors are entitled to remuneration for their services (Article 2389, Civil Code), unless the resolution by which they were appointed indicates otherwise (Supreme Court judgment No. 561/1973). The directors' remuneration is normally determined, and must be approved, by the shareholders.

 

Shareholders' rights against the company's auditors

23. What is the procedure to appoint and remove the company's auditors? What restrictions and requirements apply to who can be the company's auditors?

In both types of companies, the initial members of the board of statutory auditors (BSA) (or an only auditor in Srls, if present) are appointed in the bye-laws (Article 2328, Civil Code). Afterwards, they are appointed by the general meeting (GM) (in Srls they can also be appointed by written consultation or written consent).

Auditors do not need to be appointed in Srls, except when the conditions contemplated in Article 2477 of the Civil Code exist (for example, the company is under the obligation to draft consolidated financial statement).

Members of the BSA can be revoked only for a just cause, by a resolution approved by the court. If a member of the BSA leaves their office, they are replaced by a deputy statutory auditor (two deputy statutory auditors are appointed together with the board) until the following GM, which must appoint a new member.

The auditors must satisfy certain requirements as regards their professional qualification (for example, qualified tax advisors, and so on), eligibility and compatibility, which are set out by the law.

 
24. What is the potential liability of auditors to the company and its shareholders if the audited accounts are inaccurate? Can their liability be limited or excluded?

The auditors must perform their duties with the professionalism and diligence required by the nature of their office (Article 2407(1), Civil Code).

The auditors are jointly and severally liable with the directors for the directors' actions and omissions in the cases in which the damages caused by the directors could have been avoided if the auditors had correctly exercised their surveillance duties. The auditors can also bear individual and joint liability for the breach of their specific obligations.

As regards the liability action against the auditors, the same rules set out in relation to the liability of directors of SpAs apply (Article 2407(3), Civil Code) (see Question 18).

 

Disclosure of information to shareholders

25. What information about the company do the directors have to provide and disclose to its shareholders? What information and documents are shareholders entitled to receive?

Shareholders of SpAs have the right to inspect, and obtain an extract from, the shareholders' book and the book of the GM minutes (Article 2422, Civil Code). They can also inspect the draft financial statement 15 days prior to its approval (Article 2429(3), Civil Code).

Information rights of the quotaholders of Srls are broader, because they are often personally involved in the business of the company. They have the right to:

  • Obtain information on the management of the company and inspect all the relevant documents.

  • Access most of the company's corporate books.

In the exercise of these rights, the quotaholders can be assisted by third party experts (Article 2476 (2), Civil Code). According to prevailing case law, quotaholders can obtain extracts, and even entire copies, of the documents which they have the right to access (for example, see Tribunal of Milan, 22 April 1993 and 30 March 1993). The Srls quotaholders' right to corporate information is unconditioned and, as such, it can be exercised by the quotaholder at any time, also repeatedly during one tax year. This is provided that the quotaholder acts in compliance with the general principle of good faith and correctness.

These rights pertain to any shareholder, regardless of the quantity of stock owned.

 
26. What information about the company do the directors have to disclose under securities laws (where applicable)?

Disclosure obligations applicable to the companies which issue financial instruments of various nature are regulated in Part IV, Title III, Head I, Articles 113 to 118 of the Consolidated Finance Act (Legislative Decree No. 58/1998). The purpose of this Act is to guarantee correct information on the market to the regulatory authorities and to the public.

 
27. Is there a corporate governance code in your jurisdiction? Do directors have to explain to shareholders in the company's annual report if they have not complied with it (comply or explain approach)?

Italian listed companies may adopt, on a voluntary basis, the Corporate Governance Code, which has been prepared by the Corporate Governance Committee of the Italian Stock Exchange (the last version of the Corporate Governance Code is dated July 2014). The Corporate Governance Code regulates, among others, the following matters:

  • Role and composition of the board of directors.

  • Role of independent directors.

  • Appointment and remuneration of the directors.

  • Internal control and risk management system.

  • Relations with the shareholders.

The Corporate Governance Code is based on the "comply or explain" principle, which means that the companies are not obligated to comply with some of its recommendations, but in such a case they must explain the reasons for non-compliance.

 
28. What information can shareholders request from the board about the company? On what grounds can disclosure of company information be refused? Are shareholders entitled to inspect the company's books and similar company documents?
 

Shareholders' agreements

29. Briefly set out the main provisions of a typical shareholders' agreement.

The Civil Code expressly governs shareholders' agreements in SpAs concerning (Article 2341-bis):

  • The exercise of voting rights in such companies or in companies that are subject to the parent company's direction and co-ordination.

  • Limitations to the transfer of the shares of such companies or of their controlled companies.

  • The exercise of a dominating influence on such companies.

The duration of the shareholders' agreements cannot exceed five years (three years in listed companies), although they are renewable. If the duration is undetermined, any party to it can withdraw on a six-month prior notice.

Although the Civil Code does not contain any specific provisions concerning agreements of this type in Srl companies, there is no doubt about their legitimacy. Where an Srl controls an SpA, Article 2341-bis of the Civil Code applies (and, therefore, the quotaholders' agreements are subject to the above limits of duration). In other cases, the provisions of the Code are generally considered not applicable to Srls and, as a consequence, the quotaholders' agreements are not subject to the above time limits. However, also in the case of Srls, quotaholders have the right to withdraw from the quotaholders' agreements which have an unlimited duration.

 
30. Are there circumstances where shareholders' agreements can be enforceable against third parties?

Shareholders' agreements are validly enforceable between the parties, but not against third parties (Supreme Court judgment No. 20462/2008).

 
31. Do shareholders' agreements have to be publicly disclosed or registered?

Only agreements relating to open companies are subject to disclosure obligations. Their existence must be communicated to the company's board of directors and recalled prior to each general meeting. The communication must be recorded in the minutes of the general meeting and filed with the Companies' Register.

In the case of a breach of the disclosure obligations, the shareholders who are parties to the agreement cannot validly exercise their voting rights, and the resolutions adopted with their determining vote can be challenged (Article 2341-ter, Civil Code).

Publicly listed companies are subject to more rigorous disclosure obligations.

 

Dividends

32. How can dividends be paid to shareholders and what procedures and restrictions apply? Is it possible to exclude or limit the right of certain shareholders to dividends? Is the payment of interim dividends allowed?

Distributions of dividends are approved by the same resolution of the general meeting which approves the company's financial statement. Only profits which were actually achieved and are reported in a duly approved financial statement can be distributed. Where there are losses, dividends cannot be distributed until the capital is reintegrated or reduced accordingly (Article 2433, Civil Code).

5% of the annual net profits must be set aside in a statutory reserve fund, until the fund is filled up with an amount equal to 20% of the corporate capital (Article 2430, Civil Code).

Provisions contained in the bye-laws or other agreements under which one or more shareholders are completely excluded from sharing profit and/or losses of the company are null and void (Article 2265, Civil Code). The right of certain shareholders to dividends can be limited by issuing special classes of shares.

If permitted by the bye-laws, advances on dividends can be distributed in companies where the financial statement is audited by a registered auditing company, provided that the audit results are positive. This is subject to the quantitative limits set out in the Civil Code. Advances on dividends cannot be distributed when there are losses resulting from the last approved financial statement (Article 2433-bis, Civil Code).

 

Financing and share interests

33. Can shareholders grant security interests over their shares?

The company's stock can be validly pledged unless it is otherwise provided in the bye-laws or the shareholders' agreements. In such a case and unless otherwise provided, the voting rights are exercised by the pledgee. However, the exercise of the pre-emptive right (if any) is held by the pledgor (Article 2352, Civil Code).

 
34. Are their restrictions on financial assistance for the purchase of a company's shares?

An SpA is not allowed to grant loans or provide guarantees for the purchase or subscription of its own shares, unless certain conditions are satisfied, such as, among others (Article 2358, Civil Code):

  • The transaction is authorised by the extraordinary general meeting.

  • At least 30 days prior to the general meeting (GM), the directors file with the company's offices a report describing the transaction and certifying that it will be carried out at arm's-length.

  • The GM's resolution and the report is filed with the Companies' Register.

  • The total amount of the loans and guarantees does not exceed the dividends distributable and the reserves available resulting from the last financial statement.

The company cannot (even indirectly) accept its treasury stock as a security.

Srls cannot grant loans or provide guarantees for the purchase or subscription of their treasury stock, nor can they accept their stock as a guarantee (Article 2474, Civil Code).

 

Share transfers and exit

35. Are there any restrictions on the transfer of shares by law? Can the transfer of shares be restricted? What are the rights of shareholders in the case of an issue of new shares (pre-emption rights)?

In general, the stock of both types of companies is freely transferable, unless its transferability is limited by the law, by the bye-laws or by a shareholders' agreement, if any (in this case, the limitation is enforceable only against the parties to the agreement).

Legal limitations to the transferability of the shares apply in rather exceptional cases. The most relevant concerns the purchase of the company's own shares (see Question 34).

As regards registered and dematerialised shares of SpAs, their circulation can be subject to certain conditions or can even be excluded completely by the bye-laws (the exclusion cannot exceed five years). The provisions of the bye-laws which subject the transfer of the shares to the discretionary approval of the corporate bodies or other shareholders are valid only if they establish the obligation of the company or the other shareholders to purchase such shares or the right of the transferring shareholder to withdraw from the company (Article 2355-bis, Civil Code).

In Srls, the bye-laws can exclude the right of the stockholders to transfer the quota or subject it to the discretionary approval of the corporate bodies, other quotaholders or third parties. In these cases, as well as in the case in which the approval is subject to such conditions and limits that render the transfer of the quota following the quotaholder's death de facto impossible, quotaholders have the right to withdraw from the company. The bye-laws can provide for a term not exceeding two years during which the right of withdrawal cannot be exercised.

In the case of issue of new stock or convertible bonds, existing shareholders have the right to subscribe the newly issued stock in proportion to the shares and/or convertible bonds owned (pre-emption rights). The general meeting can limit or exclude the pre-emption rights in the interest of the company, if it is so resolved by the shareholders who represent at least one-half of the corporate capital (Article 2441, Civil Code).

Also in Srls, quotaholders have the right to subscribe newly issued stock in proportion to the quotas owned. If permitted by the bye-laws, newly-issued stock can be offered to third parties. However, in such a case the quotaholders who dissent with such a decision have the right to withdraw from the company (Article 2481-bis, Civil Code).

 
36. Can minority shareholders alter or restrict changes to the company's share capital structure?

Minority shareholders have on principle no right to limit the capital structure of the company in the absence of, for example, veto rights concerning the sale of stock to third parties. Minority shareholders have the right to pre-empt their shares so that at any given issue of new stock their shareholding interest is not diluted (Article 2441, Civil Code). They also have the additional right to challenge frivolous or intentionally dilutive resolutions by the majority shareholders to issue new stock in the company. This latter right falls into the larger category of rights to challenge ordinary general meeting resolutions (see Question 16).

 
37. When are shareholders required to notify changes to their shareholding to a regulatory authority?

Under the Italian Anti-trust rules (Law 287/90), entities that participate in a concentration transaction must submit a prior notice of it to the Anti-trust Authority, where their yearly turnover exceeds certain thresholds. The Anti-trust Authority can start an investigation proceeding within 30 days from the receipt of the notice and, in such a case, it can order the companies in question to postpone the completion of the transaction.

The Consolidated Banking Act (Legislative Decree No. 385/1993) and the Consolidated Finance Act (Legislative Decree No. 58/1998) govern certain cases in which the purchase of the shares in banks, investment companies (and other entities) is subject to the authorisation of the Bank of Italy. The purpose of such an authorisation is to ensure that the new shareholder satisfies certain requirements set out by the law.

 
38. Can companies buy back their shares? Which limitations apply?

An SpA can purchase its treasury stock only if it is:

  • Authorised by the general meeting.

  • Within the limits of the distributable profits.

  • Of any available reserve funds reported in the last duly approved financial statement.

Only shares that are fully paid up can be repurchased by the company (Article 2357, Civil Code). As regards open companies, treasury stock can be purchased within the limits of 20% of the corporate capital. Srls cannot purchase treasury stock (Article 2474, Civil Code).

 
39. What are the main ways for a shareholder to exit from the company? Can shareholders require their shares to be repurchased by the company? Can shareholders be required to exit the company in certain circumstances? How are the shares valued in this case?

The terms and conditions of the shareholders' exit from the company are usually set out in the shareholders' agreement or in the bye-laws (drag-along and tag-along clauses, and so on).

In SpAs, shareholders who did not approve the following resolutions of the general meeting because they were absent, dissented or abstained from voting have the right to withdraw from the company by operation of law (Article 2437, Civil Code):

  • Significant change of the corporate purpose.

  • Reorganisation of the company.

  • Transfer of the company's registered office abroad.

  • Revocation of the winding-up.

  • Suppression of one or more causes of withdrawal set out in the bye-laws.

  • Suppression of the right to withdraw following the approval by the general meeting (GM) of the resolution which:

    • extends the terms of duration of the company;

    • introduces or removes restrictions to the circulation of the shares.

  • Modification of the criteria of determination of the value of the shares in the case of withdrawal.

  • Modification of voting and patrimonial rights.

  • Extension of the duration of the company.

  • Introduction or removal of restrictions to the circulation of the shares.

Bye-laws can suppress the right of withdrawal in the cases of:

  • Extension of the duration of the company.

  • Introduction or removal of restrictions to the circulation of the shares.

The right of withdrawal in the other cases cannot be excluded by the bye-laws.

The law provides for other cases in which the shareholders can withdraw from the company, such as when the duration of the company is unlimited, an arbitration clause is introduced in the bye-laws or suppressed, and so on.

The value of the shares is determined taking into account the company's assets and its prospective profits, as well as (if available) the shares' market value (Article 2437-ter, Civil Code). Shares listed on stock exchanges are valued exclusively on the basis of the average closing prices in the previous six months. The bye-laws can provide for different evaluation methods, which, however, must be fair to the withdrawing shareholder in those cases when the cause of withdrawal cannot be suppressed by the bye-laws.

Article 2437-quarter of the Civil Code governs the manner in which the shares are liquidated in the case of withdrawal. The repurchase of the shares by the company is one of the methods which can be used only if the shares are not purchased by the other shareholders or acquired by third parties.

In Srls, the right of withdrawal can be exercised, amongst others, by those quotaholders who dissent from a resolution concerning (Article 2473, Civil Code):

  • The change of the corporate purpose and type of the company.

  • A merger or de-merger project.

  • The revocation of liquidation proceedings.

  • The transfer of the registered office abroad.

  • The exclusion of one or more cases of withdrawal set out in the bye-laws.

  • Transactions which give rise to a substantial amendment of special rights granted to the quoteholders in respect to the management of the company and profit distribution.

Quotaholders also have the right to withdraw from companies which have an unlimited duration, as well as in other cases set out by applicable laws.

The value of the quota is determined in proportion to the company's assets, to be appraised based on their market value. Where there is disagreement, the quota is valued by an expert appointed by the court.

The shareholders can be excluded from the company if they are in default of the payment of their contribution to the corporate capital (Articles 2344 and 2466, Civil Code). Other cases of exclusion from the company can apply to the quotaholders of Srls if provided for in the bye-laws (Article 2473-bis, Civil Code).

 

Material transactions

40. What rights do shareholders have in the case of material transactions, such as a sale of all or substantially all of the company's assets, and a company reorganisation such as a merger or demerger?

There are no specific provisions safeguarding shareholders in the case of a sale of the company's assets. However, where the consequence of such transaction is a substantial change in the company's corporate purpose, the dissenting shareholders have the right to withdraw from the company (Article 2437, Civil Code).

In the case of a merger or de-merger, the shareholders have the following rights (Articles 2501 and following, Civil Code):

  • To challenge the resolution of a merger or de-merger.

  • To be attributed the stock of the new company which results from the merger, in proportion to the entity of their previous stock. They may also obtain a monetary adjustment which cannot exceed 10% of the par value of the shares of SpAs (in the case of a merger, the limit of 10% is not applicable to limited liability companies).

In addition, quotaholders of Srls have the right to withdraw from the company in the case of a merger or de-merger (Article 2473, Civil Code).

 
41. What rights do shareholders have if the company is converted into another type of company (consider if applicable, a European Company (SE))?

In the case of the conversion of an SpA or an Srl into one of the types of companies without limited liability (personal companies), the relevant general meeting resolution must be:

  • Adopted with the majorities necessary for the amendment of the bye-laws.

  • Approved by all the shareholders who become unlimitedly liable (such an unlimited liability also applies to the company's obligations which arose prior to its conversion).

The conversion of a personal company into an SpA or an Srl must be approved by the majority of the quotaholders. Dissenting or absent quotaholders have the right to withdraw.

The conversion of an Srl into an SpA, or vice versa (homogeneous conversion) is resolved on by the general meeting.

In any case, each shareholder has the right to be attributed stock in the new company in proportion to their shares or quotas.

 

Insolvency

42. What rights do shareholders have if the company is insolvent?

If the situation of insolvency is such to cause the company to be subject to one of the bankruptcy procedures under the provisions of Bankruptcy Law (Royal Decree 267/42), the applicable legal provisions focus mainly on the protection of the interest of the company's creditors and, in certain cases, on the prosecution of the business activity of the company (the settlement with creditors' procedure). The shareholders' right to the reimbursement of the shareholders' loans is subject to the satisfaction of all other creditors (secured and unsecured). In the case in which the bankruptcy procedure ends up with the liquidation of the company, the shareholders have also the right to the reimbursement of their contributions to the corporate capital, provided that all other creditors have been fully satisfied.

 
43. Can shareholders put the company into liquidation? What is the procedure to do this?

The general meeting (in SpAs, the extraordinary general meeting) can resolve on the winding-up of the company. According to case law, a resolution of winding-up which was fraudulently adopted in pursuit of interests other than those of the company, or with the purpose of damaging minority shareholders, can be challenged by such shareholders and declared null and void by the court for abuse or excess of power (Supreme Court No. 4923/1995, 3535/1990).

In the case of winding-up, the general meeting (in SpAs, the extraordinary general meeting) can appoint liquidators, revoke them for just cause and resolve on the manner in which the winding-up must take place. When the winding-up procedure is completed, the liquidators draw up the final financial statement, which must be approved by all shareholders (Article 2487, Civil Code). Each shareholder has the right to challenge such a financial statement before the court, within 90 days from its deposit with the Companies' Register. Shareholders have the right to be attributed the proceeds resulting from the sale of the company's assets. If the bye-laws or a resolution of the GM provide so, the shareholders' stakes can be liquidated in kind.

A winding-up procedure can be revoked at any time by the GM (in SpA companies by the extraordinary GM), subject to the prior elimination of the cause of winding-up. The revocation is effective on expiration of 60 days from the date of filing the resolution with the Companies' Register (Article 2487-ter, the Civil Code).

 

Corporate groups

44. Is the concept of a corporate group recognised under specific legislation?

Italian law does not recognise the concept of group as such. However, Articles 2497 and following of the Civil Code contain some specific rules concerning the liability and publicity requirements of the companies which exercise direction and co-ordination activity over their subsidiaries.

 
45. Does a controlling company have any duties and liability to the shareholders of the company it controls? What are the rights of company shareholders if the controlling company carries out actions that are prejudicial to the shareholders?

The company that exercises direction and co-ordination activity over another company is liable to the shareholders of the latter for the prejudice to its profitability and value of the stock, when the controlling company acts in its own or in third parties' interest, in breach of the principles of correct corporate and entrepreneurial governance. Shareholders of the controlled company have the right to bring a legal action for such damages against the controlling company and other subjects who contributed to cause the damage (such as, for example, directors and managers), as well as against those who intentionally benefited from the prejudicial event (Article 2497, Civil Code).

 
46. What are the limitations on owning reciprocal share interests in companies?

A subsidiary company can purchase the stock of its parent (controlling) company only within the limits of the distributable profits and available reserves reported in the last duly approved financial statement. In no case can the par value of such stock exceed 10% of the corporate capital of the controlling company (taking into account also the stock owned by the same controlling company and by its subsidiaries). A controlled company cannot exercise voting rights in the general meeting of its parent (controlling) company (Article 2359-bis, Civil Code).

A controlled company cannot subscribe the stock of the controlling company (Article 2359-quinques, Civil Code). The reciprocal subscription of shares between companies is also forbidden (Article 2360, Civil Code).

 

Online resources

Italian Stock Exchange

W www.borsaitaliana.it/comitato-corporate-governance/codice/ 2014cleaneng.en.pdf.

Description. The website of the Italian Stock Exchange provides an unofficial English translation of the Corporate Governance. No English version is available.

Altalex

W www.altalex.com

Description. The website provides an updated versions of the Italian Civil Code and the Italian Bankruptcy Law in the Italian language. No English version is available.

Normattiva

W www.normattiva.it

Description. A useful database of the Italian legislation. No English version is available.


Contributor profiles

Alessandro Varrenti

CBA Studio Legale e Tributario

T +39 02 778061
F +39 02 76021816
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Professional qualifications. Admitted to the Rome Bar in 1981; admitted to practice before the Supreme Court in 2001

Areas of practice. Mergers & acquisitions; private equity; joint ventures; real estate finance; project finance.

Languages. English, French, Spanish

Professional associations/memberships. International Bar Association; New York City Bar Association. Former member of the Executive Committee of Associazione degli Studi Legali Associati (ASLA) (association of law firms organised as a partnership in Italy).

Olga Masinovska

CBA Studio Legale e Tributario

T +39 0689262900
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E olga.masinovska@cbalex.com
W www.cbalex.com

Professional qualifications. Admitted to the Rome Bar in 2008

Areas of practice. Mergers & acquisitions; private equity; joint ventures; real estate finance; project finance.

Languages. English, Czech, Russian


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