Private mergers and acquisitions in Italy: overview

Q&A guide to private mergers and acquisitions law in Italy.

The Q&A gives a high level overview of key issues including corporate entities and acquisition methods, preliminary agreements, main documents, warranties and indemnities, acquisition financing, signing and closing, tax, employees, pensions, competition and environmental issues.

To compare answers across multiple jurisdictions, visit the Private Acquisitions Country Q&A tool.

This Q&A is part of the global guide to private mergers and acquisitions law. For a full list of jurisdictional Q&As visit www.practicallaw.com/privateacquisitions-guide.

Stefano Bianchi, and Paola Carlotti, Pavia e Ansaldo
Contents

Corporate entities and acquisition methods

1. What are the main corporate entities commonly involved in private acquisitions?

The entities typically involved in private acquisitions are:

  • Società per Azioni (SpA) (joint stock companies), where the capital is divided into shares, and the liability of the shareholders is limited by shares. Shares can be issued as certificates (and recorded in the shareholders' ledger) or in book-entry form.

  • Società a responsabilità limitata (Srl) (limited liability companies), where the capital is divided into quotas, and the liability of the members is limited by quotas. Quotas identify the fractions of the capital owned by each member, and, unlike shares, are not securities nor they can be offered to the public as financial products..

 
2. Are there any restrictions under corporate law on the transfer of shares in a private company? Are there any restrictions on acquisitions by foreign buyers?

Restrictions on share transfer

Shares of a private company are freely transferable, unless otherwise provided under the company's bye-laws and/or by shareholders' agreements. Restrictions in the bye-laws are binding on, and enforceable against, the shareholders and the company as well as third parties. Restrictions in shareholders' agreements are only binding on, and enforceable against, the shareholders.

Examples of restrictions on share transfers in company bye-laws include:

  • Pre-emption rights.

  • Prior consent of the board of directors or of the non-transferring shareholders to the transfer (subject to some legal limitations).

  • Lock up provisions which:

    • are subject to a time limit of five years when contained in the bye-laws of joint stock companies (SpAs);

    • are up to a maximum of two years, when preventing quota holders from withdrawing from limited liability companies (Srls).

  • Tag-along and drag-along rights: under case law, an obligation on dragged minority shareholders to sell their shares to a third-party buyer, along with the dragging majority shareholder, is only valid if the sale price of the dragged shares is at least the fair market value.

  • Redemption clauses.

If the above restrictions are in shareholders' agreements relating to a private SpA or an Srl controlling a private SpA, they are subject to a time limit of five years.

Foreign ownership restrictions

There are generally no restrictions on foreign acquisitions or investments.

The government is, however, entitled, in limited and exceptional circumstances, to exercise powers (golden share) to veto or restrict acquisitions by foreign investors (that is, non-EU and non-EEA individuals and entities) of interests in the corporate capital of Italian companies in certain strategic sectors, such as:

  • Defence.

  • National security.

  • Energy.

  • Transport.

  • Communications.

Such acquisitions must be notified in advance to the government, which can exercise its golden share powers after a review of the transaction.

Under general principles of law, the purchase by a non-EEA person of an interest in a company exercising any strategic security activity or holding any strategic asset is only permitted if reciprocity conditions are met.

EU legislation also imposes restrictions on the acquisition by non-EU persons of controlling interests in companies engaged in specific industries (for example, airline carriers (Regulation (EC) No. 1008/2008 on common rules for the operation of air services in the Community)..

 
3. What are the most common ways to acquire a private company? What are the main advantages and disadvantages of a share purchase (as opposed to an asset purchase)?

Share purchases: advantages/asset purchases: disadvantages

One general advantage of share purchases is that the sale can be completed more quickly, as ownership of the target company, together with its assets, liabilities and obligations, is transferred to the buyer by simple corporate formalities without the need for prior consultation with trade unions (see Question 31).

Another advantage is a preferable tax regime (see Questions 25 to 30).

Sellers may prefer share deals since in asset deals they usually:

  • Remain jointly and severally liable with buyers for liabilities existing at the closing date (see Question 6).

  • Are bound by a five-year, non-competition obligation.

Buyers may prefer share deals because a transfer of a going concern in an asset deal may prejudice the stability of important agreements, since the other contracting parties can terminate the transferred agreements for just cause, within three months of the transfer.

Share purchases: disadvantages/asset purchases: advantages

Asset deals allow buyers to "cherry pick" and purchase only a well-defined set of assets and contractual relationships, without being exposed to contingent liabilities not related to the assets and relationships.

Sellers who own a business with many branches each having market autonomy may want to sell some branches to focus on their core business. In this case, the non-core branches can be sold as separate going concerns.

 
4. Are sales of companies by auction common? Briefly outline the procedure and regulations that apply.

Auctions have become increasingly common, especially when sellers are private equity players.

Auction processes are aimed at enabling sellers to best evaluate and select offers submitted by bidders invited to a "beauty contest" arranged by their financial advisers.

Commonly, in the first round of the process, bidders are invited to submit non-binding offers based on limited and preliminary information received by sellers.

The selected bidders admitted to the second round are then allowed to conduct full due diligence investigations, and requested to submit their binding offers by providing comments on a draft auction agreement prepared by the sellers.

Distressed acquisitions, that is, those conducted in bankruptcy or pre-bankruptcy proceedings, are made by competitive auction procedures supervised by the competent courts..

 

Preliminary agreements

5. What preliminary agreements are commonly made between the buyer and the seller before contract?

Letters of intent

Buyers and sellers usually sign a letter of intent at an early stage of the sale process to summarise the status of their negotiations and identify, either in outline or in detail, the main contractual terms and conditions of the intended transaction, which will be subsequently reflected in the final agreement.

Although they vary from case to case, some standard provisions included in letters of intent are:

  • Structure of the transaction.

  • Purchase price.

  • Assumptions and conditions precedent.

  • Timetable of the due diligence and negotiations.

  • Standstill clause.

  • Exclusivity.

  • Confidentiality.

  • Non-solicitation.

  • Governing law and arbitration/jurisdiction clauses.

Letters of intent are usually non-binding, with the limited exceptions of clauses that create binding obligations (for example, standstill, non-solicitation, exclusivity and arbitration/jurisdiction clauses).

Exclusivity agreements

The buyer may be granted the right to negotiate exclusively for a period of time with the seller, who will be prevented from engaging in discussions or sharing information on the target company with any third party.

In case of breach of exclusivity, the buyer can seek compensation for damages from the seller as well as from a third party buyer, if it is established that he was aware of the exclusivity undertakings.

Non-disclosure agreements

Non-disclosure agreements (NDAs), which do not require any particular formality to be enforceable, impose on the parties obligations to treat as confidential information exchanged during negotiations, including the existence of the negotiations.

Specific exclusions typically limit the confidentiality obligations, for example, clauses stating that:

  • Access to confidential information is permitted to group companies, advisers or providers of finance of a receiving party, often subject to undertakings by these third parties of matching non-disclosure obligations.

  • There is no breach if the disclosed information is proven to be publicly available at the time of the disclosure.

  • Disclosure is permitted if made in compliance with statutory provisions or orders of public authorities.

In case of breach of confidentiality, the non-defaulting party can seek to recover damages from the party in default.

As damages in connection with NDAs and exclusivity can be difficult to prove and to quantify, non-disclosure agreements sometimes contain a penalty clause which:

  • Removes the need for proof of damages.

  • Pre-determines the amount of damages.

  • Bars any challenge or review of the amount (unless it is considered disproportionately burdensome).

 

Asset sales

6. Are any assets or liabilities automatically transferred in an asset sale that cannot be excluded from the purchase?

When a business is transferred as a going concern, the parties can select which assets and liabilities are to be excluded from the purchase, except for the employment relationships (see Question 32).

By law, the buyer becomes liable (jointly with the seller, except that the seller is discharged by the creditors) on completion of the purchase for all debts related to the transferred business incurred before the transfer, provided that they are recorded in the seller's accounts.

However, the buyer is always liable (jointly with the seller) for debts to transferred employees, even if they are not recorded in the seller's accounts.

The buyer is also jointly liable with the seller for all pre-transfer tax liabilities including unpaid taxes and penalties due for any non-compliance with tax laws during the year of the transfer or the two years before it, and/or for any tax assessments by the tax authority in the same period (including those relating to previous non-compliance).

Before completing the transfer, the buyer can apply for a certificate from the tax authority stating whether there are any outstanding liabilities at the completion date.

If the certificate shows there are no such liabilities or the authority does not issue a certificate within 40 days of the application, the buyer is exempted from the joint liability for pre-transfer tax.

If the issued certificate shows pre-transfer tax items, the buyer's liability is limited to those items indicated.

 
7. Do creditors have to be notified or their consent obtained to the transfer in an asset sale?

In the transfer of a business or a branch of a business as a going concern, each creditor and other contracting parties of the seller do not have to be specifically notified of the transfer, nor are they entitled or required to give consent for the transfer to be valid and enforceable.

The transfer of business is effective as regards creditors and third-parties automatically on the mandatory filing and registration of the transfer deed on the Companies' Register.

 

Share sales

8. What common conditions precedent are typically included in a share sale agreement?

Conditions precedent vary depending on the transaction but often include:

  • Anti-trust clearances and/or other due prior approvals from regulatory or public authorities (see Question 34).

  • Bank financing: sellers may require the buyer and the banks to enter into a term sheet or other preliminary contractual document binding on the parties, to be attached to the sale purchase agreement.

  • Third party consents, for example, in relation to change of control provisions under material contracts.

  • Non-occurrence of material adverse change between signing and closing (MAC clause).

  • Execution of service and/or employment agreements between the target and some key managers and/or directors.

  • Renewal and/or amendments of terms and conditions with some key suppliers or customers.

  • Completion of corporate actions aimed at reshaping the target (for example, demerger or spinoff).

 

Seller's title and liability

9. Are there any terms implied by law as to the seller's title to the shares in a share sale? Is any specific wording necessary and do buyers normally impose a higher standard than is implied by law?

A warranty implied by law as to the seller's title to the shares covers the absence of third parties' ownership rights or other claims, which may prevent or limit the exercise by the buyer of its proprietary rights over the shares (including absence of liens).

If a third party's right or claim is confirmed or upheld by a judgment, the buyer is entitled to recover from the seller the purchase price as well as damages suffered in connection with the purchase, provided that, among others, the buyer had no knowledge of the third party claim and has summoned the seller into the third party proceedings.

Representations and warranties may be used to cover in more detail the seller's full title and power of disposal of the shares, including the absence of any circumstances which may give rise to third party claims, especially through no-conflict clauses.

 
10. Can a seller and its advisers be liable for pre-contractual misrepresentation, misleading statements or similar matters?

Seller

Contracting parties have a general legal duty to act in good faith and with care when negotiating an agreement.

A seller who does not comply with this duty is liable to the buyer for pre-contractual matters, including:

  • Making untrue statements.

  • Omitting to disclose essential information.

  • Failing unjustifiably to complete the transaction after inducing a reasonable reliance through negotiations with the buyer that completion will occur.

  • Deviating from the agreed terms of a pre-contractual document without justification.

Where fraudulent misrepresentations by the seller induce the buyer to enter into a sale and purchase agreement (SPA) which it would not have concluded had it been aware of the true situation, the agreement can be avoided at the buyer's request.

Where the buyer would have still signed the agreement but on different terms and conditions, the agreement is valid but the seller is liable for the damages suffered by the buyer.

It is standard practice for SPAs to contain a sole remedy clause under which the only actionable remedy for breach of seller's representations and warranties is the indemnity provided in the agreement (see Questions 15 and 16). Such a clause will not, however, preclude tort or contractual actions based on a party's wilful misconduct. .

Advisers

Professional advisers are generally liable to their clients and not to third parties, without prejudice to the following:

  • Banks are not generally entitled to rely on due diligence reports prepared by the buyer's advisers and cannot claim damages against the latter for any misstatements they may contain, unless otherwise agreed between the bank and the advisers.

  • Sellers' advisers can be liable for damages suffered by buyers due to their dishonest representations or bad faith omissions, provided that the buyers would not have completed if the representations or omissions had not been made, or would have completed the transaction on different terms and conditions.

  • Although rare, buyers can challenge an agreement which would not have been entered into if the sellers' advisers had not wilfully given misrepresentations, tacitly or explicitly by agreement with sellers.

 

Main documents

11. What are the main documents in an acquisition and who generally prepares the first draft?

In a share deal, the main acquisition documents are the sale and purchase agreement (SPA) and its annexes, which typically include forms of:

  • Deed of transfer.

  • Escrow agreement.

  • Disclosure schedule.

  • Resignation letters from the directors and statutory auditors of the target.

  • Discharge letters to the resigning directors and statutory auditors of the target.

  • Service/employment agreements with key managers/directors of the target.

  • Waiver letters related to change of control provisions.

  • New bye-laws of the target to be adopted at closing (if needed).

In an asset deal, as well as the SPA and its annexes, the acquisition documents include:

  • List of assets, debts and liabilities, contractual relationships and other items, which are included in, or excluded from, the transferred business.

  • Form of deed of transfer of business and of specific assets.

  • Form of consultation letter to be addressed to the trade unions, as required by Italian law (see Question 31).

Both in share and asset deals, the first draft of the SPA and its annexes is commonly produced by the buyer, except when the sale is by auction (see Question 4). In auctions, the seller provides the first draft of the SPA to the bidders, which are then required to prepare and deliver to the seller their amended version.

In any case, the first draft of some annexes, for example, disclosure schedules, are generally prepared by the seller.

 

Acquisition agreements

12. What are the main substantive clauses in an acquisition agreement?

In a share deal, the acquisition agreement typically contains the following main clauses:

  • Transfer of shares and purchase price: type and amount (or the formula for its determination), post-closing adjustment mechanisms, terms and methods of payment.

  • Conditions precedent.

  • Interim period: seller's covenant to conduct the target's business as usual in a diligent manner and in good faith (possibly including detailed anti-leakage provisions).

  • Actions at closing: closing date, obligations and formalities for closing by each party.

  • Representations and warranties.

  • Indemnification obligations.

  • Non-compete covenant and other post-closing undertakings.

  • Governing law and arbitration/exclusive jurisdiction clause.

In an asset deal, the agreement incorporates similar clauses to the above, together with clauses aimed at identifying which assets and liabilities are being transferred.

 
13. Can a share purchase agreement provide for a foreign governing law? If so, are there any provisions of national law that would still automatically apply?

Parties can choose to subject the sale and purchase agreement (SPA) to the law of a foreign jurisdiction even if the target is incorporated, existing and operating in Italy. In such a case, under the applicable conflict of law rules, Italian law still applies as the governing law of the target, for example in relation to the formalities to validly complete a share transfer as against third parties.

Irrespective of the law chosen under the agreement, overriding mandatory provisions of Italian law continue to apply, while foreign law provisions may be disapplied on public policy grounds.

SPAs relating to an Italian target are usually therefore governed by Italian law to avoid more than one law applying.

 

Warranties and indemnities

14. Are seller warranties/indemnities typically included in acquisition agreements and what main areas do they cover?

In a share deal, warranties on the assets, liabilities and operations of the target are not implied by law and it is usual for sellers to give representations and warranties tailored to the target's business activity. Their scope depends on factors including the size of the deal, type of industry and parties' negotiating position.

A standard, full set of representations and warranties (related to the target and, if any, its controlled companies) covers the following:

  • Seller's authority to conclude the transaction.

  • Absence of conflict between the sale agreement and:

    • bye-laws;

    • other agreements;

    • instruments;

    • official orders;

    • legal provisions.

  • Seller's title to the shares (see Question 9).

  • Good standing of the seller and target and absence of insolvency proceedings.

  • Company target's title to the assets, absence of liens and full marketability.

  • Target's financial statements and sometimes periodic management accounts.

  • Absence of undisclosed liabilities.

  • Existence and collectability of the accounts receivable.

  • Title over the inventory assets, full marketability and proper registration in the accounting records.

  • Fit and proper condition of the movable and immovable assets, and permits, licences and other requirements necessary for their use.

  • Intellectual property.

  • Validity and enforceability of contracts, absence of failures to perform obligations, and absence of causes of termination or amendment.

  • Absence of pending or threatened litigation.

  • Compliance with:

    • labour and social security laws (absence of claims or liabilities to the existing or former employees for example, in connection with their dismissal or their salary and professional level);

    • tax laws (absence of tax assessments, claims or liabilities);

    • environmental laws, remediation costs (absence of inspections by authorities, claims or liabilities);

    • all other applicable laws (for example, anti-bribery and privacy).

Sellers explicitly state that the given representations and warranties are true, correct, not misleading and accurate, both at signing and closing.

In an asset deal, a seller warrants to the buyer by law that the assets being transferred with the business are free from defects and fit for the use for which they are intended. This implied warranty, however, provides rather limited protection for the buyer, who has only eight days to claim the existence of a defect and a one year limitation period for any action for damages.

It is therefore common that such agreements contain representations and warranties similar to those listed above for share deals, with particular focus on the assets and liabilities to be transferred to the buyer.

 
15. What are the main limitations on warranties?

Limitations on warranties

Without prejudice to the limitations on the indemnity obligation (see Question 16), warranties may be qualified:

  • To within the knowledge (actual or reasonably expected) of, for example, directors and some key managers of the target.

  • By providing that the threat of claims or other warranted events results from written instruments.

  • By making exceptions for events that are in line with past practice or standard market practice.

  • By setting materiality thresholds, for example, with respect to warranted contracts and/or the absence of litigation.

Qualifying warranties by disclosure

Warranties may be qualified by facts disclosed by the seller under a disclosure schedule or disclosure letter, which is attached to and forms part of the sale and purchase agreement (SPA).

The SPA can require the seller to:

  • Make the disclosures in a duly, complete and accurate manner.

  • Repeat the disclosures in connection with each relevant representation and warranty (if needed).

  • Represent and warrant that all facts stated in the disclosure schedule are true, correct, not misleading and accurate, and that it has not failed to disclose any relevant facts.

As a general rule, no indemnification is owed by the seller to the buyer in connection with facts properly disclosed, unless the parties agree otherwise (for example, in connection with pending litigation).

In such cases, specific rules may apply to indemnification arising out of the disclosed facts and to the enforceability of the relevant claims (for instance, a special cap may apply instead of the general cap, and no notice of claim may be requested).

Although frequently resisted and not accepted by buyers, warranties may also be qualified by:

  • Facts disclosed during the due diligence or generally.

  • Facts of which the buyer has knowledge.

When accepting such ''anti-sandbagging'' clauses, buyers can ask to qualify their knowledge to include only actual and not constructive knowledge, imposing on sellers the related burden of proof.

On the other hand, buyers may try to negotiate ''pro-sandbagging'' clauses, which entitle them to pursue post-closing indemnification even if they are aware of the breach of representations and warranties before closing.

 
16. What are the remedies for breach of a warranty? What are the time limits for bringing claims under warranties?

Remedies

The sale and purchase agreement (SPA) typically establishes an obligation on the seller to keep the buyer indemnified from:

  • Damages, losses and liabilities suffered by both the target and/or the buyer due to a breach of warranties including:

    • contingent liabilities;

    • deficiencies in the target's assets, attorney's and judicial costs, whether or not foreseeable and/or resulting in a decrease of value of the shares and sometimes excluding loss of profits.

This is often the only actionable remedy provided in the agreement.

The buyer may be entitled to request the sellers to pay the indemnity to the target instead of to the buyer itself.

Multiple sellers can be either jointly and severally liable or severally liable. The latter is common when some sellers are managers or minority shareholders, and their liability is proportional to the purchase price for the share transfer paid to each of them.

Contractual indemnity obligations are usually subject to the following limitations:

  • De minimis.

  • Basket (either deductible or non-deductible).

  • Caps.

  • No double recovery.

  • Buyer's mitigation duty.

Time limits for claims under warranties

Under SPAs, time limits for seller's indemnity obligations related to the breach of warranties usually range from 12 to 24 months, although extended time limits may apply to warranties on:

  • Environmental matters (typically five years).

  • Tax, labour and social security matters (typically equal to the relevant limitation period.

To enforce its right to indemnity, the buyer must typically raise a claim within 30 to 90 days of knowledge of the breach.

SPAs often expressly state that a seller's duty of indemnity survives until the claim is finally resolved (by settlement or judgment/award) despite the time limits above, as long as the claim is made in time.

 

Consideration and acquisition financing

17. What forms of consideration are commonly offered in a share sale?

Forms of consideration

Consideration generally consists of cash. Parties can agree on consideration in kind, such as that represented by shares or other financial instruments.

Factors in choice of consideration

Non-cash consideration is typically chosen for tax reasons and/or industrial reasons (such as the need for integration between the parties' entities).

 
18. If a buyer listed in your jurisdiction raises cash to fund an acquisition by an issue of shares, how is the issue typically structured? What consents and regulatory approvals are likely to be required?

Structure

To raise cash for an acquisition, listed companies can increase the share capital by issuing new shares, convertible bonds or other financial instruments convertible into shares, typically offered to their shareholders. The offers are normally underwritten by a consortium of institutional underwriters.

Consents and approvals

The issue is subject to the approval by voting majority of an extraordinary shareholders' meeting'. The board of directors can approve the issue, if previously authorised to do so by a shareholders resolution.

Requirements for a prospectus

The issuer must publish a prospectus which must be filed in advance with and approved by the National Stock Exchange Commission (CONSOB) (www.consob.it/mainen/index.html?mode=gfx), unless the issue is not a public offering under applicable laws and regulations, such as those for:

  • Qualified investors only.

  • Fewer than 150 persons, other than qualified investors.

  • Financial products for which the total price is less than EUR5 million.

The information to be provided in the prospectus varies, depending on whether the shares are to be listed, without prejudice to specific exemptions provided by CONSOB regulations.

A prospectus typically contains (Regulation (EC) 809/2004 as amended (and schedules)):

  • Information necessary for investors to make an informed assessment of the issuer's:

    • assets and liabilities;

    • profits and losses;

    • financial position and prospects; and

    • financial products and related rights.

  • A summary giving key information in non-technical language.

 
19. Can a company give financial assistance to a potential buyer of shares in that company?

Restrictions

Only joint stock companies (SpAs) (and not limited liability companies (Srls)) can give financial assistance for the purchase of their own shares, subject to mandatory legal requirements which are:

  • Prior approval of an extraordinary shareholders' meeting.

  • Submission of a detailed report by the company's directors, which must be made available at least 30 days before the shareholders' meeting, setting out details of the:

    • transaction;

    • economic reasons and objectives;

    • interest of the company and associated risks;

    • price of the shares;

    • confirmation that the transaction will be at market value.

  • Total amount of funds and guarantees, not exceeding the limit represented by payable dividends plus available reserves, as shown by the latest approved financial statements.

Merger leveraged buyouts are subject to specific disclosure requirements.

Exemptions

These requirements do not apply if the transactions are aimed at the purchase of the company's shares by employees of the company, or of controlling or controlled companies.. .

 

Signing and closing

20. What documents are commonly produced and executed at signing and closing meetings in a private company share sale?

Signing

At signing, the parties execute the sale and purchase agreement (SPA) with its annexes (see Question 11).

Closing

At closing of a share or an asset deal, the parties deliver and execute the deed of transfer, together with all instruments contemplated by the SPA as annexes and/or perform the corporate formalities required to validly complete the transfer (see Question 24).

The parties can also exchange:

  • A document confirming fulfilment of the conditions precedent and, at the end of the meeting, performance of all actions contemplated by the SPA;

  • A document in which the sellers confirm that the representations and warranties (R&Ws) given under the SPA are still true, correct, not misleading and accurate;

  • Updated version of the disclosure letter (if needed).

In an asset deal:

  • Parties execute, among the other agreements and documents attached to the SPA, a notarial deed of transfer and any other documents required to validly transfer certain assets included in the transferred business (such as real estate properties and trade mark licences) in compliance with specific regulations.

  • The seller delivers the certificate related to pre-transfer tax items (if issued; see Question 6) and waivers by parties entitled under Italian law to withdraw from the transferred agreements (see Question 3).

 
21. Do different types of document have different legal formalities? What are the formalities for the execution of documents by companies incorporated in your jurisdiction?

Except for deeds to validly transfer title to shares or assets, the acquisition documents are executed by the duly empowered representatives of the parties without the need for any further legal formalities.

Generally, both parties sign every copy of the sale and purchase agreement (SPA) (and initialise all its pages).

Alternatively, especially in share deals related to joint stock companies (SpAs), the execution of the SPA is made by exchange by correspondence (with a party signing and initialising only the proposal letter and the other party signing and initialising only the acceptance letter)..

 
22. What are the formalities for the execution of documents by foreign companies?

For the execution of the sale and purchase agreement (SPA) and related documents, foreign companies are generally requested to give evidence of the powers of the signatories (certification of Companies' Register, copy of board of directors' resolution or power of attorney), without specific further formalities.

For the execution of the deed of transfer or endorsement of the share certificates, the public notary requires:

  • Original document showing the powers of the signatories, duly notarised and, if necessary, apostilled: powers of attorney must contain notarial certification that the appointing person is a fully empowered representative of the foreign company.

  • Certification of the Companies' Register, with details about the company and directors and representatives.

  • Bye-laws of the company.

Legal opinions confirming the powers and capacity of the signatories acting on behalf of the foreign company and the existence, valid incorporation and good standing of the latter can be requested.

 
23. Are digital signatures binding and enforceable as evidence of execution?

Digital signatures are binding provided that they are an advanced electronic signature complying with the requirements of the implementing legislation for Directive 1999/93/EC on a Community framework for electronic signatures.

EU Regulation No. 910/2014 implemented the binding effect of the digital signature in EU member states. The domestic provisions that identify the material and technical requirements of the electronic "qualified signatures" are mainly set out in the Digital Administration Code (Legislative Decree 7 March 2005 No. 82, as periodically updated).

The Digital Administration Code also provides that digital signatures can be found to be binding at the discretion of the courts which consider the objective characteristics of quality and security.

 
24. What formalities are required to transfer title to shares in a private limited company?

In joint stock companies (SpAs) there are two ways to transfer title to shares:

  • Endorsement of share certificates by the seller in favour of the buyer before a public notary or authorised bank officer, and subsequent recording by the company of the transfer and buyer's details in the shareholder's ledger.

  • Execution by the seller and buyer of a notarial deed of transfer and subsequent recording by the company of the buyer's name in the share certificate (if existing) and of the transfer and buyer's details in the shareholder's ledger.

The first is the most common way to transfer shares.

The second one is used when the shares are in book entry form (where no certificate is given to investors) or when requested by specific legal rules (depending on the industry in which the target operates).

In limited liability companies (Srls) the transfer of title to quotas is made by executing a deed of transfer before a public notary or an authorised tax consultant, and subsequently filing the deed with the Companies' Register for the purpose of the registration. The transfer becomes effective on filing.

 

Tax

25. What transfer taxes are payable on a share sale and an asset sale? What are the applicable rates?

Share sale

Notarial deeds and private deeds with notarised signatures are subject to a fixed registration tax of EUR200 when they relate to the trading of shares.

No stamp duty is applicable.

A financial transaction tax (FTT) is levied on transfers of shares issued by Italian joint stock companies (SpAs). The FTT is due by the final buyer. The standard FTT rates are:

  • 0.20% for over-the-counter transactions.

  • 0.10% for transactions executed on regulated markets.

Asset sale

In general terms, business acquisitions are not subject to VAT.

The transfer of a business is subject to registration tax, generally paid by the buyer (although the parties can agree otherwise). However, both parties are jointly and severally liable for payment of the registration tax. The tax rate depends on the type of asset transferred:

  • Accounts receivable: 0.5%.

  • Buildings and land: 9%.

  • Agricultural land: 15%.

  • Movable and intangible assets, including goodwill, patents and trade marks: 3%.

If the assets are subject to different registration tax rates, the liabilities of the business must be allocated to the various assets in proportion to their respective values. If the purchase price is not apportioned to the various assets, the registration tax is levied at the highest rate of those applicable to the assets (generally, the rates for buildings or land). It is therefore advisable to clearly allocate the purchase price to each asset, so that there is separate taxation based on the different tax rates.

The tax basis of a business is its fair market value (not its purchase price). The fair market value is subject to assessment by the registration tax office.

 
26. What are the main transfer tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate tax liability?

Share sale

There are no registration tax exemptions and reliefs for a private share sale.

Asset sale

There are no transfer tax exemptions for asset deals.

Recently, a new anti-avoidance rule expressly prohibiting abuse of law has been enacted. The taxpayer is allowed to submit an application for a tax ruling on whether a transaction constitutes unfair tax behaviour.

The rules apply to acquisition structures whose aim is to avoid or mitigate the registration tax burden, for example:

  • Demerger of a going concern and subsequent sale of the shares.

  • Transfer of the going concern to a new company and subsequent sale of the shares).

 
27. What corporate taxes are payable on a share sale and an asset sale? What are the applicable rates?

Share sale

The sale of shares may generate a capital gain (or loss), equal to the difference between the:

  • Sale price or indemnity received, reduced by costs directly attributable to the sale or the indemnity.

  • Asset's adjusted tax basis.

The capital gain is subject to corporate income tax and is exempt from regional tax on productive activities (IRAP). The basic corporate income tax rate is 27.5% (24% for 2017 and later tax periods).

A taxpayer can choose to:

  • Include realised capital gains in the taxable income of the fiscal year in which they are realised.

  • Spread them in equal instalments over that year and the following years, up to the fourth year (subject to certain conditions).

Asset sale

The sale of a business as a going concern implies taxation of capital gains realised by the seller in connection with the sale. The taxable base is the difference between the sale price and the net asset tax value of the going concern.

Corporate income tax is levied at 27.5% (24% for 2017 and later tax periods). The gain is exempt from IRAP.

 
28. What are the main corporate tax exemptions and reliefs in a share sale and an asset sale? Are there any common ways used to mitigate tax liability?

Share sale

If a company sells the shares of an Italian target, 95% of the gain is exempt from corporate income tax, provided that the company has both:

  • Recorded the shares as a fixed financial asset (long-term investment) in the first balance sheet of the holding period.

  • Continuously held the shares from the first day of the 12th months preceding the disposal; for this purpose, the LIFO (last in, first out) principle applies.

To qualify for the exemption, the target must carry on a real business activity (active business test) in the three fiscal years preceding the year of disposal of the shares.

When the value of its assets is mainly represented by real estate not used in business activity, the target is not deemed to be performing a business activity.

The active business test does not apply if targets are listed companies.

Asset sale

The seller can opt to tax the capital gain by five yearly equal instalments if the business has been carried on by the seller for over three years.

 
29. Are other taxes potentially payable on a share sale and an asset sale?

Transactions involving shares (or quotas) are VAT exempt.

 
30. Are companies in the same group able to surrender losses to each other for tax purposes? For example, can interest expenses incurred by a bid vehicle incorporated in your country be set off against profits of the target before tax?

In certain circumstances, companies in the same group may offset losses and interest under the domestic tax consolidation regime.

The rules governing the determination of the taxable income of the tax consolidated group can be summarised as follows:

  • The consolidating company determines the taxable base by adding all the taxable bases of the companies that are part of the consolidation as determined under the ordinary IRES rules, regardless of whether the participation actually amounts to 100%.

  • The consolidating company must make the final and periodic tax payments and may carry forward the net tax losses, if any.

  • Tax losses incurred by the consolidated companies after the exercise of the election can be consolidated with the income of other group companies, while tax losses incurred before the exercise of the election may be offset only against the income of the company that incurred the losses.

  • Excess tax credits generated by a company before entering into the consolidation may be used either by that company or by the parent company.

  • Payments made between the companies of the tax consolidation as consideration for the transfer of taxable base are not taxable/deductible (such as transfer of losses to the tax consolidation).

 

Employees

31. Are there obligations to inform or consult employees or their representatives or obtain employee consent to a share sale or asset sale?

Asset sale

In asset deals, there is a duty of consultation where the seller employs more than 15 employees.

The transferor and the transferee must notify the trade unions of the transaction in writing. The notice must be given at least 25 days before a binding transfer agreement is signed by the parties. If the parties do not give notice to the trade unions of the transfer or refuse the requested consultation, they commit the tort, of ''anti-labour union behaviour'', which makes the transfer of the employees ineffective.

The consultation is aimed at settling any disagreement relating to the employees' rights that may arise in relation to the transfer.

The transaction can be completed without the separate consent of the employees belonging to the transferred business. Trade union consent is not legally required but, in practical terms, disregarding their opinion may cause serious problems for the management of the employees involved in the transaction.

Share sale

In share deals, there is no legal obligation to inform or consult the employees or the trade unions.

 
32. What protection do employees have against dismissal in the context of a share or asset sale? Are employees automatically transferred to the buyer in a business sale?

Business sale

Specific rules apply to the transfer of employees included in the business. The employees continue to be employed by the buyer and retain all personal rights they accrued before the transfer, including:

  • Salary.

  • Holidays.

  • Accrued leave.

  • Service seniority.

  • Benefits.

The buyer must apply to the employees the collective agreements in force at the time of the transfer in the field in which the business operates, unless the agreements are replaced by other agreements which grant the employees equivalent treatment.

The business transfer is not a valid reason for dismissal.

Share sale

Share sales do not affect existing employment relationships. Dismissals of employees are subject to the rules that usually apply to termination of employment.

Transfer on a business sale

By law, all employees related to the business are automatically transferred to the buyer, on their existing terms and conditions.

 

Pensions

33. Do employees commonly participate in private pension schemes established by their employer? If an employee is transferred as part of a business acquisition, is the transferee obliged to honour existing pension rights or provide equivalent rights?

Private pension schemes

Employers rarely establish private pension schemes for their employees, given the existence of national collective labour agreements (CCNLs) for various industries (for example, commerce, metalworking, chemicals and pharmaceuticals) which provide occupational pension funds. Company based pension schemes are usually established by large companies, especially in a group of companies.

Pensions on a business transfer

Transferred employees' membership of a CCNL pension scheme continues seamlessly when the transferee applies the same CCNL as that operated by the transferor.

If the CCNLs are different, the law provides that the transferee's CCNL replaces that of the transferor, unless otherwise agreed. In this case, the transferred employees can:

  • Transfer their pension benefit into the fund of the transferee's CCNL.

  • Recover contributions paid to the transferor's CCNL fund.

  • Maintain their pension position at the transferor's CCNL fund.

The transferee can also pay contributions to the transferor's CCNL fund in favour of the transferred employees (even though the transferee has a different CCNL), subject to the fund's consent.

 

Competition/anti-trust issues

34. Outline the regulatory competition law framework that can apply to private acquisitions.

Triggering events/thresholds

The acquisition of a controlling interest in a target based in Italy, by both Italian and foreign investors, requires prior notification to the Italian Competition Authority (Autorità Garante della Concorrenza e del Mercato (ICA)) (), for acquisitions which both:

  • Involve a buyer and a target whose combined turnover in Italy exceeds EUR495 million.

  • Relate to a target with an aggregate domestic turnover exceeding EUR50 million.

Alternatively, under the ''one stop shop'' principle (that each merger is handled exclusively by one jurisdiction), the acquisition of a majority stake of a target is subject only to prior notification to the European Commission, when the companies involved and the transaction have a European dimension (EU turnover thresholds are significantly higher than domestic ones).

Notification and regulatory authorities

Notification of acquisitions that meet the turnover thresholds is mandatory.

Notification must be carried out before implementation of the transaction but after the parties have agreed on all relevant elements of it. There is no standstill obligation.

The acquiring party is responsible for filing the notification. No filing fees are required.

Failing to notify a reportable acquisition within the time limits may incur a fine of up to 1% of the turnover of the acquiring party.

After filing, the ICA must decide one of the following within 30 days of receipt of a complete notification (Phase I):

  • Inapplicability (for example, thresholds are not met/EU dimension).

  • Clearance: no further investigation is required.

  • In-depth investigation (Phase II) is necessary, when the notified acquisition appears to raise competition concerns.

If the ICA opens a Phase II investigation, it must take a final decision within an additional 45 days when it can:

  • Clear the transaction.

  • Prohibit the transaction.

  • Approve the transaction subject to the adoption of specific remedies (such as divestitures).

Substantive test

The ICA's substantive test takes into consideration, among others, the:

  • Position of the parties in the relevant market (essentially, market shares).

  • Structure of the relevant market.

  • Existence of barriers to entry the market.

  • Supply and demand trends of the relevant market.

  • Alternatives available.

 

Environment

35. Who is liable for clean-up of contaminated land? In what circumstances can a buyer inherit and a seller retain liability in an asset sale and a share sale?

The ''polluter pays'' principle applies. If actual or potential pollution is known, the party responsible for it must carry out remediation works.

In an asset deal, liability for pollution cannot be transferred from the seller to the buyer, and the buyer cannot be made responsible for carrying out any remediation works.

However, where the polluter is unknown, unavailable, extinct or bankrupt, the buyer is liable for the remediation costs, but only up to the fair value of the premises which are the subject of the remediation works. In this case, the buyer can seek damages unfairly suffered from the polluter.

In a share deal, the buyer takes over the company as a whole, and therefore assumes the legal status of polluter.

 

Contributor profiles

Stefano Bianchi, Partner

Pavia e Ansaldo

T +39 028 5581
F +39 028 5582 872
E stefano.bianchi@pavia-ansaldo.it
W www.pavia-ansaldo.it

Professional qualifications. Admitted to the Italian Bar, 1993; qualified before the Italian Supreme Court, 2006.

Areas of practice. M&A/private equity; corporate and commercial; litigation and arbitration; telecommunications and media.

Languages. Italian, English, French.

Professional associations/memberships. IBA member.

Paola Carlotti, Partner

Pavia e Ansaldo

T +39 028 5581
F +39 028 5582 872
E paola.carlotti@pavia-ansaldo.it
W ww.pavia-ansaldo.it

Professional qualifications. Admitted to the Italian Bar, 2006.

Areas of practice. M&A/private equity; corporate and commercial; insolvency and restructuring.

Languages. Italian, English.

Professional associations/memberships. IBA member.


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