Contributed By NUNZIANTE MAGRONE
Under Italian law, business organisations can take the form of personal partnerships and corporations. The difference between these two types of business organisation is that corporations enjoy limited liability to the extent of the corporate capital, while participants in a partnership can be held personally liable for the activity carried out by the organisation. Furthermore, partnerships have a more simplified organisational structure.
The main forms of corporation under Italian law are joint stock corporations (Società per azioni ‒ SpAs) and limited liability companies (Società a responsabilità limita – Srls).
In Spas, where the corporate capital is split into shares, the main corporate bodies are:
In Srls, where the corporate capital is made up of quotas, the main corporate bodies are:
The main source of legislation regulating corporate governance is the Italian Civil Code (ICC). The Consolidated Act on Finance enacted by Legislative Decree No 58/1998, as last amended by Legislative Decree No 107/2018 (TUF), is also a primary source for listed companies. Listed companies may choose to comply (under the "comply or explain" principle) with the provisions of the Corporate Governance Code issued by the Corporate Governance Committee of the Italian stock exchange (Governance Code).
In addition to the ICC, the TUF provides for other mandatory requirements applicable to publicly listed companies. It provides for, inter alia, additional integrity and independence requirements that must be fulfilled by the individuals performing management and control roles in companies with publicly traded shares.
The Governance Code (Codice di Autodisciplina), issued by the Italian stock exchange, lays down further rules on the corporate governance of listed companies. Even though these rules are not binding, such companies must keep the market and their shareholders informed of their governance structure and degree of compliance with the same Governance Code.
As a general rule, corporate governance under Italian law is based on the principle that the management body is the centre of any decision and is responsible for setting up an adequate system of governance and controls, which must be tailored to the size and type of company and to the purpose and activities carried out.
Legislative Decree No 254/2016, which implemented EU Directive 2014/95 concerning disclosure of non-financial and diversity information by certain large undertakings and groups, provides that large companies (ie, companies that have had, during the financial year, more than 500 employees and have exceeded at least one of the following two dimensional limits: (i) total balance sheet of EUR20 million, (ii) total net revenues of EUR40 million) must present an individual declaration on non-financial information such as environmental, anti-corruption issues, human rights and board diversity.
The governance and management of the company is the responsibility of the management body.
In SpAs, the most common model of corporate governance is the traditional model (modello tradizionale), which entails that the company is managed either by a sole director (amministratore unico), or a board of directors composed of two or more directors (consiglio di amministrazione).
Alternatively, the SpA may adopt:
For listed companies, the Governance Code establishes the rule that the company must provide prior information on the reasons why and manner(s) in which it intends to adopt a non-traditional model.
In Srls, the management body might be either a sole director, two or more directors, with joint or separate powers, or a board of directors composed of two or more directors.
As a general rule and unless the by-laws provide otherwise, the management body has the power to manage the company and to carry out any act of ordinary and extraordinary management of the company, except for those matters reserved to the shareholders/quotaholders by the law or the by-laws, such as:
In exceptional cases of impossibility of the management body, the decisions can be taken by the supervisory board.
The directors have joint and several power to manage the company and to carry out any act of ordinary and/or extraordinary administration; the decisional process is not subject to specific formalities, but the majority rule is often used in case of disagreement on some decisions.
According to Article 2380-bis, paragraph 4, of the ICC, if the by-laws make no provision for the number of directors, but indicate only the maximum and minimum number, the number is determined by the shareholders’ meeting.
Either a sole director or a number of directors may be appointed in unlisted SpAs, but a board of directors must be appointed in listed companies.
The board of directors selects the chairman from among its members, unless he or she is appointed by the meeting.
According to Article 2386 of the ICC, if in the course of the fiscal year a vacancy for one or more directors occurs, the others provide for their replacement by resolution approved by the board of statutory auditors, provided that the majority is always constituted by directors appointed by the meeting. The directors so appointed remain in office until the next meeting.
If vacancies of a majority of the directors appointed by the meeting occur, those who remain in office shall call a meeting to provide for filling the vacancies.
In SpAs, under Article 2380-bis of the ICC, the directors are exclusively entitled to manage the company and they shall act as necessary to pursue the corporate purpose.
If the by-laws or the shareholders' meeting so allows, the board of directors may delegate its functions to an executive committee composed of some of its members.
In Srls, under Article 2475 of the ICC, when the management is entrusted to various persons, those persons represent the board of directors, but the by-laws may provide that the management is entrusted to them on a joint or several basis.
The number of members of the board of directors is normally selected according to the requirements of the company concerned. In Italy, small and medium-sized companies normally have a board of directors composed of three or five members; in listed companies the average is 11 members. Companies in the financial sector have a larger number of directors.
Persons disabled from their rights, bankrupts and those who have been convicted with a sentence entailing legal sanction, even temporary, from public office or are unable to exercise managerial functions, cannot be appointed directors or management board members and, if appointed, shall forfeit their office. These are known as causes of ineligibility.
Special laws provide for numerous causes of incompatibility with the office of the director: eg, civil servants, holders of government positions, members of parliament cannot sit on a board of directors. Lawyers can sit but they cannot be assigned executive or managing powers. The causes of incompatibility, separate from the causes of ineligibility cited above, mean only that the person concerned must choose between the positions; thus, the resolution appointing them is not null and void.
In companies adopting one-tier systems, at least one third of the members of the board must hold the requirements of independence, which are:
For listed companies, the Governance Code provides that the board shall be made up of executive and non-executive directors, as well as that an adequate number of non-executive directors (in any case, not less than two) shall be independent, in the sense that they do not maintain, nor have they recently maintained, directly or indirectly, any business relationships with the listed company, or persons linked to it, of such a significance as to influence their autonomous judgement.
For listed companies, the by-laws must always provide for mechanisms appointing the board of directors that assure a balance between men and women (the "pink share"). The gender less represented must obtain at least one-third of the elected positions. The same criterion is also valid for the oversight committee in the two-tier system.
In SpAs, adopting the traditional system or the one-tier system, as well as in Srls, the shareholders’ meeting shall appoint and remove directors, using the majority principle. However, in Srls, management is usually entrusted to the quotaholders, unless otherwise provided in the company’s by-laws.
The by-laws may set specific requirements for the independence of the directors. In the case of listed companies, statutory requirements are provided for concerning the independence of directors.
As a general rule, the directors are liable for damages arising from their breach of conflict of interest rules. In such cases, statutory auditors, external auditors and abstaining and absent directors can challenge the resolutions adopted by the board with a vote of directors in conflict, to the extent that the vote in conflict was essential to reach the needed quorum, and the company suffered damage as a result of the decision.
In the case of SpAs, pursuant to Article 2391 of the ICC, the directors have the duty to disclose any interest they may have, personally or on behalf of third parties, in a specific transaction, indicating the nature, terms, origin and relevance thereof to the board of directors and to the board of statutory auditors and abstaining from taking any action in conflict (or, in case of a sole director, referring the decision to the board of statutory auditors). If such action is taken, the board of directors must expressly state the reason and the benefit to the company of the transaction.
Directors of listed companies who fail to disclose conflict of interests may incur criminal liability in accordance with Article 2629-bis of the ICC.
In the case of Srls, a court can be asked to declare contracts entered into by a director void to the extent that, in respect of such contracts: the director acted in his or her own interest or in the interest of a third party; and the third party with which the director contracted was aware of the conflict.
Under Article 2392 of the ICC, the directors must fulfil the duties imposed upon them by law and by the by-laws with the diligence required by the nature of the appointment and by their specific competencies. In fact, directors’ specific competencies can be evaluated when determining their duties, on a case-by-case basis.
The management of the company is the exclusive responsibility of the directors and their primary duty and responsibility is achieving the corporate purpose. They are jointly liable to the company for damages caused by non-compliance with such duties, except for functions vested solely in the executive committee or in one or more directors. In all cases, the directors are jointly liable if, being aware of detrimental acts, they did not do what they could have done to prevent their occurrence or to reduce their harmful consequences. Liability for acts or omissions of directors does not apply to a director who, being without fault, has had his/her dissent recorded without delay in the relevant corporate books and has immediately given written notice to the chairman of the board of statutory auditors.
Moreover, directors are liable towards company creditors for non-observance of their duties concerning the preservation of the company’s assets.
The company, the shareholders/quotaholders and third parties can enforce a breach of directors’ duties and obligations and claim damages arising out of such breaches.
In SpAs, an action for liability of the directors can be brought pursuant to a resolution of the shareholders’ meeting and may be started within five years of termination of their office. A company action may also be taken by shareholders representing at least one fifth of the capital or such different percentage indicated in the by-laws, which in any event cannot be higher than one third and, in companies having recourse to the risk capital market, may be brought by shareholders representing one twentieth of the capital. An action for liability against directors may also be brought by creditors when the company’s assets prove insufficient to satisfy of their claims. Finally, individual shareholders and third parties are entitled to compensation for damages if they are directly damaged as a result of malice, fraud or negligence of the directors. In this case, the action may be brought within five years of the act that damaged the shareholder or the third party. In companies adopting the two-tier system, an action for liability against directors may be brought by the shareholders, as explained above, or by the oversight committee.
In Srls, an action for liability against directors may be brought by any quotaholder. Further, any quotaholder or third party who has been directly damaged by wilful or negligent acts of the directors is entitled to compensation for damages.
Directors may also operate so that the company incurs criminal and administrative liability according to Legislative Decree No 231/2003 (eg, false company communications, fraudulent bankruptcy, bribery, death or personal injury in lack of adoption of measures to protect safety at workplace, environmental pollution, etc).
In addition, directors may also be considered personally criminally liable for the same crimes.
Under Article 2389 of the ICC, directors are entitled to receive a remuneration for their activities. The directors’ fee is established under the by-laws and if it is not provided therein, it may be established at the time of their appointment by the shareholders’ meeting (in the one-tier and traditional administration system under Article 2364, paragraph 1, No 3 and Article 2389 of the ICC respectively) or by the supervisory board (in the two-tier system unless otherwise indicated in the by-laws).
Should the compensation not have been established (and there is no evidence that the directors have waived it), the directors may ask the court to set an appropriate amount.
Generally speaking, the remuneration is composed of:
Remuneration may also be represented in whole or in part by profit sharing or by the attribution of the rights to subscribe shares of the future issue at a predetermined price.
The remuneration of directors vested with special appointments (for example, chairman or managing directors) in compliance with the by-laws is decided by the board of directors, after having heard the board of statutory auditors.
As regards listed companies, the remuneration of directors and key management personnel shall be established in a sufficient amount to attract, retain and motivate people with the professional skills necessary to successfully manage the listed company, as well as that shall be defined in such a way as to align their interests with pursuing the priority objective of the creation of value for the shareholders in a medium to long-term timeframe.
Referred to directors with managerial powers or performing functions related to business management, as well as with regard to key management personnel, a significant part of the remuneration shall be linked to achieving specific performance objectives, possibly including non-economic objectives, identified in advance and determined in line with the guidelines contained in the general policy. The remuneration of non-executive directors shall be proportional to the commitment required from each of them, also taking into account their possible participation in one or more committees.
There are no specific obligations to make public disclosures in relation to the remuneration, fees or benefits payable to directors and officers.
There are two main sources from which a relationship between the shareholders and the company arise: the law and the by-laws.
Within the limits set out in the ICC, the shareholders, when they enter into the deed of incorporation of a company, are allowed to regulate several important aspects of their relationship with the company in the by-laws.
The by-laws, which can be amended only by way of resolution of the extraordinary shareholders’/quotaholders’ meeting before a public notary, also establish the rules applicable to the relationship of the shareholders to each other and cover issues such as the transfer of shares/quotas, granting specific rights to certain shareholders/quotaholders, the withdrawal and exclusion from the company, etc.
According to Article 2380-bis of the ICC, board activity is characterised by autonomy and exclusivity. The shareholders cannot, therefore, interfere with the management of the business or take formal steps to require the board to pursue a particular course of action; they can only remove the directors at a shareholders’ meeting or choose not to re-elect them when their tenure expires.
In the case of SpAs, shareholders’ meetings are duly assembled with the presence of as many shareholders as represent at least half of the company’s share capital, excluding shares without voting rights. The ordinary meeting passes resolutions by an absolute majority of the attendees unless a higher majority is required by the by-laws.
Extraordinary meetings pass resolutions with the vote in favour of as many shareholders as represent more than half the share capital of the company unless a higher majority is required by the by-laws.
Extraordinary meetings of companies that have recourse to the risk capital market are duly assembled when as many shareholders as represent at least half of the capital or a higher percentage provided for in the by-laws are present and such a meeting passes resolutions with a vote in favour of at least two thirds of the share capital present at the meeting. If the shareholders present do not represent the proportion of capital required for a quorum, the meeting must be called again. At the second meeting, the ordinary shareholders’ meeting passes resolutions on the matters that should have been dealt with at the first meeting, regardless of the part of capital represented by shareholders in attendance, while an extraordinary meeting is duly assembled with the presence of shareholders representing more than one third of the share capital and passes resolutions with a vote in favour of at least two thirds of the share capital present at the meeting.
To participate in the meeting, if the shares are in registered form, the company shall record in the shareholders’ book those shareholders who have attended the meeting or who have deposited their shares. In any event, the by-laws may allow for attendance at the meeting through telecommunications or the expression of a vote by correspondence.
Under Article 2351 of the ICC, each share gives the right to vote. Other than as provided in special laws, the by-laws may provide for the creation of shares without voting rights, with voting rights limited to specific matters or with voting rights subordinated to the occurrence of certain conditions not merely dependent on the exercise of individual rights. The value of such shares cannot be higher in aggregate than one half of the capital.
Shares carrying multiple voting rights can be issued, but each multiple voting share can have up to a maximum of three voting rights.
In the case of Srls, the by-laws may provide that quotaholders adopt decisions through written consultation or on the basis of consent expressed in writing. The documents must be signed by the quotaholders and the subject matter of the resolution, as well as the consent to it, must be made clear.
Otherwise, the quotaholders’ meeting must be called, in the manner established in the by-laws, when required by the directors or by quotaholders representing at least one third of the capital.
The quotaholders’ meeting must also be called in the event of decisions regarding amendments to the by-laws, decisions to enter into transactions that cause a substantial change in the corporate purpose or a significant change in the rights of the quotaholders, and decisions regarding the reduction of capital for losses.
Generally, in the case of Srls, decisions are validly adopted with the presence of as many quotaholders as they represent at least half the capital and decisions are passed by an absolute majority of the attendees. However, decisions regarding amendments to the by-laws or decisions to enter into transactions that cause a substantial change in the corporate purpose or a considerable change in the rights of the quotaholders are adopted with the vote in favour of quotaholders representing at least half of the capital.
Further, if provided by the by-laws, quotaholders may attend the meeting by telephone or videoconference.
In SpAs, an action for liability of the directors can be brought pursuant to a resolution of the shareholders’ meeting and may be started within five years of the termination of a director’s office. A company action may also be exercised by shareholders representing at least one fifth of the capital or such different percentage indicated in the by-laws, which in any event cannot be greater than one third and, in companies having recourse to the risk capital market, may be brought by shareholders representing one twentieth of the capital.
Individual shareholders and third parties are entitled to compensation for damages if they are directly damaged as a result of malice, fraud or negligence of the directors. In this case, the action may be brought within five years of the act that damaged the shareholder or the third party.
In companies adopting the two-tier system, an action for liability against directors may be brought by the shareholders, as explained above, or by the oversight committee.
In Srls, an action for liability against directors may be brought by each quotaholder.
Specific obligations of disclosure are provided for by law in publicly traded companies in relation to shares and other financial instruments.
Under Article 120 of the TUF, parties with a shareholding in an issuer of listed shares, having Italy as their home member state, in an amount greater than 3% (5% if the issuer is an SME) must notify the company and the National Commission for Companies and the Stock Exchange (CONSOB).
Under Article 117 of CONSOB Regulation No 11971/1999, parties who hold the share capital of a listed company must notify the investee company and CONSOB when:
(a) the threshold of 3% is exceeded, if the company is not an SME;
(b) the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50%, 66.6% and 90% are reached or exceeded; and
(c) the investment falls below the thresholds indicated under letters (a) and (b) above.
Under Article 119 of CONSOB Regulation No 11971/1999, parties who, directly or through nominees, trustees or subsidiary companies, hold an investment in financial instruments, must notify the investee company and CONSOB when:
(a) the thresholds of 5%, 10%, 15%, 20%, 25%, 30%, 50% and 66.6% are reached or exceeded; and
(b) the investment in financial instruments is reduced under the thresholds set forth by letter (a) above.
Under Article 122-bis of CONSOB Regulation No 11971/1999, anyone who holds financial instruments to which the appointment of a member of the board of directors or of the board of statutory auditors is reserved, shall inform the issuer and CONSOB if either:
Within 30 days of approval by the shareholders’/quotaholders’ meeting, companies shall file the annual financial statements (along with the reports of the directors, the auditors and the external auditor) in the companies’ Registry of Companies (Registro delle imprese) kept by the territorial Chamber of Commerce.
Under Article 154-ter of the TUF, in addition to the annual financial statements, publicly listed companies shall make available to the public (at the company's headquarters, on the website and by the other means established by CONSOB) a six-month financial report containing a simplified half-year statement, interim management report and, where applicable, six-month statements from the statutory auditor or external auditor.
Italian listed companies are required to publish a “Report on corporate governance and ownership structure” every year. This annual publication includes data on ownership and control structure, corporate boards, annual general meetings and related party transactions. Listed companies must also keep their website updated in order to comply with the shareholders’ right to information. In particular, such companies must publish on their website a notice regarding the calling of any shareholders’ meetings, a report of the relevant agenda and of the relevant records and minutes.
The information publicly available on a company from the Registry of Companies includes:
In addition to the above, it is possible to obtain from the Registry of Companies a certificate of good standing of the target, as well as copies of the by-laws, deed of incorporation, minutes of shareholders’ and board of directors’ meetings approving the financial statements, and any special powers of attorney granted.
As regards listed companies, in addition to the information registered with the Registry of Companies, CONSOB also makes other information publicly available, for example:
The SpAs must appoint statutory auditors and an independent auditor (either a registered accountant or an external auditing firm) when the company is required to draft consolidated financial statements or is a listed company, a bank, an insurance company or a public interest entity (PIE). Otherwise the company has the faculty to entrust the auditing of the company’s accounts to the statutory auditors.
As regards Srls, under Article 2477 of the ICC, a controlling body or an external auditor must be appointed if the company:
The duty to appoint a controlling/auditing body ceases if none of these conditions is exceeded for three consecutive financial years.
Therefore, if the above conditions are met, the Srls will generally have the possibility to choose between an external auditing firm and the appointment of a controlling body (whose members need however to be enrolled at the Registry of Auditors) entrusted also with the auditing of the company’s accounts.
The obligation to appoint an external auditor can be included in the by-laws of the company.
The directors have the exclusive responsibility for the management of the company. According to Article 2086 of the ICC, this entails the creation of an organisational, administrative and accounting structure that is appropriate to the nature and size of the business. In companies adopting the one-tier system, a management control committee must be established within the board of directors. Unless otherwise provided in the by-laws, the board of directors shall determine the number and the appointment of the members of the committee. However, the members of the committee cannot be fewer than three in companies that have recourse to the risk capital market. The committee is formed by directors having the requirements of good repute, professional experience and independence provided for in the by-laws, who are not members of the executive committee and to whom powers or specific appointments are not delegated, and who in any event do not perform functions pertaining to the management of the company or of the companies that control it or are controlled by it. At least one member of the committee must be selected from subjects registered in the Register of Accounting Auditors.