Italy has the following types of “capital” companies (corporations) – ie, those that afford limited liability to their shareholders, as opposed to “persons’ companies” (partnerships, or società di persone):

• the società a responsabilità limitata, or Srl (limited liability company);
• the società per azioni, or SpA (usually translated as joint stock company); and
• the società in accomandita per azioni, or SapA (limited partnership).

The first two are true limited liability companies contemplated by the Italian legal system, whilst the last is somewhat hybrid in nature, insofar as it ensures the limitation of liability only for some of its partners (soci accomandanti).

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

SapAs have two kinds of partners:

• limited partners, who enjoy limited liability status (soci accomandanti); and
• general partners, who are responsible for the management of the company and are unlimitedly and jointly liable for the company's undertakings (soci accomandatari).

Foreign investors traditionally seem to favour the use of SpAs in connection with the conduct of their business once it is fully established, except for the initial phase of the acquisition of an Italian target, in which case an Srl type of vehicle is most often used. There are no nationality restrictions or other similar requirements for those investing in these companies. There is currently an exception due to the sanctions applying to investors of Russian nationality.

Shares pertain to, and can only be issued by, SpA companies, to the exclusion of the other main type of Italian limited liability company, the Srl. The corporate capital of an Srl company is represented by the sum of the various percentage interests owned by the stockholders that total 100%. These interests are called quote (portions) and are not represented by a written instrument.

The general rule is that all shares must have the same value and grant the same rights to shareholders (ordinary shares). However, if the by-laws so permit, special classes of shares can be issued by an SpA company to grant rights to the shareholders that differ from those pertaining to shares of common stock. These rights can be of an administrative nature (eg, voting) or an economic nature (eg, preferred) (Article 2348(2) of the Civil Code).

Following the extension to Srl companies of the rights that would be typical of SpA companies only, by means of special laws (Law Decree No 179 of 18 October 2012; Law Decree No 3 of 25 January 2015; Law Decree No 50 of 24 April 2017; and Legislative Decree No 30 of 10 March 2023), it is now also possible to issue special classes of quote in Srl companies. This article will concentrate on the types of shares in SpAs other than those of common stock, which can be summarised as follows:

• azioni privilegiate – preferred shares that may grant certain privileged rights with respect to, for example, the distribution of dividends or the liquidation of the company's assets;
• azioni a voto limitato con esclusione del diritto di voto o a voto multiplo – shares that have limited, non-voting or multiple voting rights;
• azioni ai prestatori di lavoro – shares issued in favour of employees (stock options);
• azioni di godimento (literally, enjoyment shares, usually without voting rights) – these are attributed to the existing shareholders in a reduction of the company’s capital and are issued in substitution of the ordinary shares that are cancelled as a result of the reduction of the company’s capital;
• azioni con prestazioni accessorie (shares that entail the performance of certain ancillary services by their owners, in addition to their payment) – these can only be registered shares and, due to their personalised nature, cannot be transferred without the directors' consent;
• azioni correlate – tracking shares whose economic rights (yield) depend on the company's performance in a certain specific business carried out by the company;
• azioni proprie – redeemable shares, which can be repurchased by the company or other shareholders;
• azioni di risparmio – saving shares (without voting rights), which can be issued only by public (listed) companies;
• azioni a voto plurimo – multiple voting shares (up to three votes each); and
• azioni a voto maggiorato (loyalty shares) – higher voting shares (two each) that can be given to those shareholders in listed companies who have kept their interest in the company intact for the last 24 months.

As regards other equity instruments, the Civil Code expressly covers the issuance of participation financial instruments (Article 2346(6)) and other hybrid instruments, such as convertible bonds (Article 2420 bis). The new rules applicable to Srl companies apply to small and medium enterprises (SMEs), which represent the vast majority of Srls, meaning that such types of companies can now issue convertible bonds to seek private forms of financing more easily.

Despite their somewhat limited use, participation securities are usually issued to third parties in exchange for the provision of work or services. They incorporate economic rights that are generally connected to the financial results achieved by the company, as well as some administrative rights (except for the voting right in the general meeting) in accordance with the by-laws.

Bonds can be issued by SpA companies as an additional and parallel form of financing, subject to certain conditions and limitations. In SpAs, their total amount cannot exceed twice the sum of the total value of the company’s capital and of its reserve funds, although it can be exceeded upon the occurrence of certain conditions (eg, if the underwriting is made by professional investors or if the issue is backed by a first degree mortgage on real estate properties owned by the company for two thirds of their value). In April 2023, it was proposed that the issue of bonds for Srls should be made easier, as they can currently be underwritten by professional investors only and their issuance is subject to certain other limitations.

The Civil Code and other specific statutes (eg, those cited above) are the main sources of law governing shareholders’ rights. Another important and primary source of rules governing shares is the company’s by-laws, which are an agreement in nature and regulate the rights of shareholders under the principle of freedom of contract, albeit subject to public policy and/or mandatory rules of law. In parallel, shareholders' agreements are of great importance, although their legal effects are different to those of the by-laws, since their breach entitles the injured party to damages only.

Depending on the circumstances, by-laws and/or shareholders’ agreements may expand or limit the rights of the shareholders, save for those rights that by law cannot be varied (such as exclusion from participation in the company’s losses – patto leonino) and provided that the variation in the rights at the level of the by-laws can in some cases trigger the right of withdrawal on the part of the shareholder from the company (Article 2437 of the Civil Code for SpA companies and Article 2473 for Srl companies).

SpA and Srl companies are obliged to obey minimum capital requirements for their incorporation, which are as follows.

• For an Srl: EUR10,000 (Article 2463 of the Civil Code), 25% of which must be paid in at the time of the incorporation. If the capital of an Srl is owned by only one stockholder, the contribution in money must be paid up in full at the time of the company’s incorporation. Capital contributions can also be made in kind, in which case the value of the assets contributed has to be appraised by an expert (usually a certified accountant chosen by the incorporating shareholders) to ensure that it has been assessed on a fair market basis.
• For an SpA: EUR50,000 (Article 2327 of the Civil Code). The same requirements regarding the percentage of the capital to be paid (25% or 100%) apply to SpAs, as well as the amount to be paid up at the time of the incorporation and where the company is owned by only one shareholder. The same rule regarding contributions in kind and their evaluation also applies, except that the expert conducting the appraisal cannot be selected and appointed by the incorporating stockholders in an SpA: it must be done by the court sitting in the company’s place of business upon the request of the incorporating shareholder(s).

The system also contemplates a “simplified” type of Srl company, which requires only EUR1 as the minimum capital for its incorporation. The rationale for its introduction was to favour younger people (up to the age of 35) and encourage them to engage in business activities in a corporate form, albeit simplified. A 2013 reform extended the possibility to incorporate a company of this type to those of an older age by cancelling the initial age requirement. This objective notwithstanding, the number of simplified Srls seems to be much lower than law makers expected, and the choice of a “standard” Srl corporate form appears to continue to be the preference of business people at large.

There is now a possibility for companies to be owned by one shareholder only, who can still enjoy limited liability, under certain conditions (eg, the corporate capital must be fully paid in upon the incorporation, and the sole shareholder’s structure must be appropriately disclosed). Conversely, there are generally no limits on the maximum number of shareholders.

Shareholders’ agreements concerning privately held (non-listed) companies are rather common, even if in Srl companies most of the provisions that would normally be inserted in the shareholders’ agreement are now actually part of the company’s by-laws.

Shareholders’ agreements and joint venture agreements are fully enforceable and are informed by the principle of freedom of contract, which means the only limit is that these documents cannot contain provisions that are against the law or in breach of public policy or mandatory rules. Typical provisions include:

• put and call options;
• drag and tag-along rights;
• lock-up arrangements;
• voting syndicates and voting trusts (where the shares are held by a trustee to ensure that the shareholders' agreement is fully carried out in accordance with the instructions given to the trustee);
• way-out provisions in case of deadlocks; and
• the regulation of financial policies (recourse to bank lending v shareholders’ loans) to be adopted as a matter of principle.

Shareholders’ agreements do not need to be disclosed or filed with the companies’ registrar, unless they concern public listed companies.

In SpA companies, the duration of shareholders’ agreements cannot exceed five years, and three in the case of public companies; in agreements of an undetermined duration, the shareholder has a right to withdraw upon giving 180 days’ notice (six months in the case of listed companies). In Srl companies, the duration is indefinite.

Shareholders’ agreements are applicable to both SpA and Srl companies, although their use in Srls seems to be more limited than it used to be, due to the possibility of instead adopting by-laws that can generally include all the provisions that would be typical in a shareholders’ agreement. The rationale to privilege a “structured” form of by-laws over a shareholders’ agreement is that, whilst the legal effects of a shareholders' agreement are limited to their parties and are of an “obligatory” nature (ie, the breach of any such agreement entails the right to damages only), the by-laws are binding upon the company and are enforceable against third parties. Thus, for example, a voting syndicate covenant contained in the by-laws will be fully enforceable, and the resolution taken, despite its breach, can be challenged in court. Conversely, such covenant contained in a shareholders' agreement would only give the injured shareholder party the right to claim the damages resulting from its breach, and the relevant resolution would be fully valid.

An annual general meeting (AGM) must be convened at least once a year to resolve upon the approval of the financial accounts at such time as the by-laws provide, and in in any case no more than 120 days from the close of the fiscal year. This term can be extended to 180 days if particular circumstances should so require. The notice period to call a meeting is 15 days for SpAs, or eight days for privately held companies if so provided by the by-laws. This period can be shortened by holding the meeting without giving any notice period and in the so-called “totalitarian” form – ie, all the voting shares must be duly represented and the majority of the directors and auditors are also present at the meeting (Article 2366 of the Civil Code).

See 2.1 Types of Meeting, Notice and Calling a Meeting.

The general rule is that the directors or, in some cases, the statutory auditors are in charge of calling the general meeting.

In Srl companies, this right also extends to those shareholders who own no less than one third of the entire corporate capital, and who can exercise it if the directors reject their request to call the meeting. In SpA companies, the ownership interest required is lower (eg, 10% in privately held, non-listed companies or an even lower threshold if the by-laws so provide), although the request is to be submitted to the board of directors at first and, failing their acceptance, to the board of statutory auditors (or the supervisory board for dual governance system companies). Failure by the latter to uphold the request to call the meeting will give the shareholders the choice to request that the meeting be called via a court order.

Notice of the meeting must comply with the requirements set out in the company’s by-laws. These can make reference to the applicable provisions of the Civil Code or may provide that, as in the case of SpAs, the notice is sent out by any other means of communication that constitutes valid proof that the meeting has been validly called, in all cases no less than eight days in advance. In Srls, the same principle applies. In the absence of any specific requirements, the notice of call must be sent in compliance with the Civil Code provision under Article 2479 bis, which establishes that, failing the provision of specific rules in the by-laws concerning the calling of the meeting, it must be called through a notice being sent by registered letter no less than eight days in advance.

All shareholders are entitled to receive notice of a general meeting, according to the law and the by-laws. The general principle is that the shareholders must be made fully aware of the matters to be discussed at the meeting. Shareholders who claim not to have been adequately informed, and who own at least one third of the shares represented at the meeting, have the right to request that the meeting is postponed by no more than five days ,and can do this only once (Article 2374 of the Civil Code). There does not seem to be a distinction between SpAs and Srls in terms of the information that the shareholders must receive about the items of the agenda. Shareholders must be put in a position to express their vote upon the receipt of any appropriate explanation about the items of the agenda upon which they are called to adopt a resolution.

There is a rather sharp distinction in this respect between an SpA and an Srl company regarding access to information about the company, as Srl shareholders have the right to access and inspect virtually all information and every document concerning the company.

Shareholders of SpAs, and now also those of Srls, nevertheless have the right to report any legitimate suspicions of “irregularities in management” to the local court, provided they own no less than 10% of the entire corporate capital in privately held companies and 5% in listed companies (Article 2409 of the Civil Code). This remedy was cancelled for Srl companies but has now been reintroduced following the enactment of the Codice della crisi dell’impresa (Code of the crisis of enterprises – Law decree No 83/2022). If a petition regarding the existence of these irregularities is upheld, the court may appoint a commissioner to inspect the irregularities; if evidence is found of the actual existence of such irregularities, the directors may be removed and the commissioner may be appointed to act in their stead for as long as is deemed necessary.

Procedures of this type can be harmful to the company in that, during the deputyship of the commissioner, the company’s business may slow down as a result of the lack of management. Moreover, if the irregularities are not settled and the company is not put back in an ordinary management situation, in some cases this may lead to the liquidation of the company. In the views of many scholars, the strength of this remedy in SpA companies as a true deterrent available to shareholders somehow replaces the rather scarce substance of the minorities. The rights available to all shareholders in Srls include the right to inspect and obtain copies of the shareholders' book and the minutes of general meetings (Article 2422 of the Civil Code). Shareholders also have the right to receive and inspect the draft financial statement 15 days prior to its approval by the general meeting (Article 2429(3) of the Civil Code).

As noted previously, Srl shareholders enjoy much broader (theoretically unlimited) rights of access to the company’s documents and information, regardless of the percentage of their ownership interest in the company. The rationale for this principle, which is established in Article 2476 of the Civil Code, most likely lies in the 2003 corporate law reform restructure of the functioning of an Srl, which the lawmakers conceived as a sort of a de facto partnership – where the personal element is of higher relevance than the capital – despite its having a corporate form and the liability of its owners being limited; as such, it should be transparent and fully inspectable regarding its management operations.

In the exercise of these rights, Srl stockholders can be assisted by third-party experts (Article 2476(2) of the Civil Code). To prove effective, however, these rights require the assistance of an “efficient” court to ensure appropriate enforcement.

In both SpAs and Srls, shareholders can participate in meetings by telecommunication means and can vote by correspondence (for Srl companies) if such is allowed by the by-laws. Even in the absence of comprehensive legislation governing remotely held meetings, a company's by-laws can validly contain clauses allowing such meetings to be held remotely, conditioned upon the respect of a collegial method, good faith and equality of treatment. Whilst shareholders can participate online and access the meeting from different places, many believe that the chair and secretary of the meeting must be present in the same place.

In SpAs’ ordinary meetings, on first call at least 50% of capital shall be represented and the resolutions are taken with the favourable votes of 50%+1 of the attendees; on second call resolutions are validly taken with the favourable votes of 50%+1 of the attendees, regardless of the percentage of capital represented at the meeting. Such requirements may be increased by the by-laws, except, on second call, regarding such matters as the approval of the yearly accounts and the appointment or revocation of the directors or auditors. Higher requirements are provided by law for extraordinary meetings (eg, amendments of the by-laws).

In Srls, save for some specific matters (eg, the waiver or settlement of a liability action against the directors), at least 50% of the voting capital shall be represented at the meeting and resolutions are taken with the favourable votes of 50%+1 of the attendees; such requirements may be increased by the by-laws.

In SpAs’ ordinary meetings, as mentioned in 2.6 Quorum, Voting Requirements and Proposal of Resolutions, resolutions on balance sheet approval or the appointment or revocation of directors shall be taken with the favourable votes of 50%+1 of the attendees on second call; such requirement cannot be increased by the by-laws (as allowed for other kinds of resolutions in ordinary meetings). Resolutions that shall be taken at extraordinary meetings (eg, by-law amendments or changes to corporate purposes or shareholders’ rights) shall be taken with higher quorums. The same approach is generally taken with respect to Srls.

The main matter that requires mandatory shareholder approval is the company’s yearly accounts. Apart from those specific cases where approval is required by the company’s by-laws, the other main issues for which such approval is necessary concern:

• the election and revocation of the director(s) and the (board of) statutory auditor(s) or of the supervisory board, and the initial compensation of their members;
• the determination to bring a liability action against any such members, whether separately or collectively; and
• the distribution of dividends upon the approval of the company’s accounts.

The above issues fall under the competence of the general shareholders’ meeting in “ordinary” form.

Any issue or transaction that entails a change in the company’s by-laws (eg, mergers, demergers and any change in the form of the company) and the issue of new shares or bonds also requires the approval of the shareholders’ meeting, but in its “extraordinary” form.

The main difference between the form in which the meeting takes place (ordinary v extraordinary) lies in the type of issues to be approved and the quorum required for the approval (a simple majority in the first case on first and second call, and in the second case one third + one, or two thirds + one, of the voting rights of the shareholders attending the meeting when held on second call, depending on the items on the agenda).

The company’s by-laws may require supermajority quorums for the approval of certain resolutions.

Shareholders can participate in the meeting personally or by proxy, which can be given to another shareholder or to a third person. In SpA companies, proxy cannot be given to members of the board of directors, auditors and/or employees of the company or of its subsidiary (controlled) companies. These prohibitions do not apply to Srl companies.

The right to request the insertion of a specific item in the agenda is linked to the right to call a meeting.

Shareholders in public SpA companies representing no less than 5% or 10% in closely held companies can indeed request that a shareholders’ meeting is convened to resolve on the matters that shall be indicated in the shareholders’ request.

In SpA companies, dissenting, absent or abstaining shareholders who represent at least 5% of voting shares in respect of a resolution of the general meeting can challenge a resolution on the grounds that “it can be voided” (azione di annullabilità) (the threshold is 0.1% in the case of public companies). A company's by-laws may reduce or exclude such percentage requirements. The action shall be brought within 90 days from the date on which the relevant resolutions were adopted or filed with the Companies' Register. If the resolution is challenged on the grounds of its alleged nullity (azione di annullamento), the action can be brought by anyone who has a valid cause of action within three years of the date when it was adopted. The same terms apply to challenge of resolutions of Srl companies.

Institutional investors in Italy are mostly investment funds, pension funds and insurance companies. Broadly speaking, as regards privately held companies in the absence of minority protections in the by-laws or at the level of the shareholders’ agreement, institutional investors tend to retain a vast range of powers to secure the performance of the company in which they have invested. Typically, by way of example, such rights include the right to remove the senior management if the company’s performance is not satisfactory, and way-out provisions that contemplate rather high multiples of invested capital. Moreover, it is not incorrect to say that the scarcity of alternative forms of financing means that institutional investors wind up exercising a rather influential role even at the level of lending, which these days is on average well above 10%.

There are no specific corporate law provisions relating to information on the matters to be votedon for shareholders who hold their shares through nominees. Any specific right would have to be found in the relevant trust or fiduciary agreement, which will regulate the administration of the shares. The following is worth noting:

• upon the appointment of an Italian trust company as a nominee shareholder, the trust company is the registered owner of the shares and holds the shares for the benefit of the beneficial owner;
• there are no restrictions on a foreign citizen appointing an Italian nominee shareholder, provided that the beneficial owner complies with the requirements set out in the EU 4th Anti-Money Laundering Directive (Directive (EU) 2015/849 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing); and
• the share owner or the person who is willing to set up and register a new company in Italy through a nominee shareholder may remain anonymous.

In Srls, but not in SpAs, the by-laws may provide that resolutions are adopted without holding a meeting (consultazione scritta or consenso scritto), except for resolutions concerning amendment of the by-laws, a change of corporate purpose or a capital reduction for losses, and except when the holding of a meeting is requested by one or more directors or as many shareholders as represent at least one third of the company’s capital (Article 2479 of the Civil Code).

Each shareholder has the pre-emptive right to subscribe newly issued shares in proportion to the amount of shares owned at the time of the new issue (Article 2441 of the Civil Code). The owners of convertible bonds have the same right, on the basis of the exchange rate.

The general principle is that shares are freely transferable. Certain limitations to this general principle can be established in the by-laws or shareholders’ agreement (eg, lock-up agreements and the requirement that the other shareholders must provide their consent in order for a sale to third parties to be valid). Shares that are not fully paid up can be transferred but the transfer causes the seller to be jointly obliged to pay any amounts that are still outstanding.

Shareholders have the right to pledge their shares in favour of a third party as a form of the most common security interest. In such cases the voting rights belong to the pledgee, unless otherwise agreed.

Shareholders are not required to disclose their interest in another company unless it conflicts with that of such other company. In such a case, the shareholder does not have to refrain from voting, but if the relevant resolution is adopted with their “decisive” vote, that resolution can be challenged on the grounds that it harmed the interest of the first company. A company does not have the right per se to require the disclosure of the shareholder’s interest in other companies, unless it knows or has reason to believe that the shareholder has a potentially conflicting interest in other companies.

Listed companies have specific disclosure duties.

Cancellation may occur in connection with the sale of treasury shares as a consequence of the acquisition of such shares by the company in violation of the limits set forth by the law (if they are not transferred within one year of their acquisition) (Article 2357 of the Civil Code). Cancellation is usually related to voluntary or compulsory capital reductions for losses, as long as the minimum capital requirement is still met. In these cases, the relevant resolution can be challenged by the companies’ creditors within 90 days of its registration in the Companies’ Register. Cancellation may also take place in connection with a merger or following the withdrawal by one or more shareholders if the shares are not sold or repurchased by the company and the capital of the company must be reduced accordingly.

In SpA companies, a buyback is resolved by the shareholders’ meeting, and is permitted if certain conditions are met; these conditions vary depending on whether the company is privately or publicly held. In the first case, the amount is limited to the amount of the profits and of the distributable reserve funds recorded in the latest approved accounts, on the additional condition that the shares to be bought back are fully paid in. For publicly held companies, the maximum amount that can be purchased is 20%, taking into account the shares owned by controlled companies as well. Certain other limitations are provided for under Article 2357 of the Civil Code (see 4.1 Cancellation).

Srl companies cannot purchase treasury stock (Article 2474 of the Civil Code).

The distribution of dividends is resolved upon the approval of the company's financial statement. Only profits that were actually achieved and 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 of the Civil Code).

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

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

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

In both types of companies, the initial directors are those in place at the time of the incorporation (Article 2328 of the Civil Code). Afterwards, they are appointed by the shareholders’ general meeting in ordinary form.

In Srls, directors can be appointed by means of a written consultation or written consent.

In SpAs, directors can be removed by the shareholders’ meeting at any time and for any reason, although they have a right to damages if the revocation is made without just cause. On principle, the mere revocation or withdrawal of the executive powers given to a member of the board (including the CEO), but not of their office, does not give rise to the right to damages, although some recent cases have upheld such a right (eg, Supreme Court No 7587/2016).

Conversely, in Srls, there are no specific legal provisions concerning the removal and replacement of directors. However, the same Civil Code rule on the right of access to the documents and information of the company (Article 2476) provides that, when a liability action is brought against the director(s), the plaintiff has the right to request that the court removes the director(s), as an interim, cautionary measure. Scholars and a significant portion of the case law are in favour of the possibility that. despite the absence of a specific provision on the removal, the right to remove a director is intrinsically linked to the right of their appointment, which is indeed specifically provided for by the Civil Code for Srl companies.

Dissenting or absent directors and the auditors in SpA companies have the right to challenge the resolutions of the board of directors within 90 days of the date when the resolution was taken. Shareholders also have such a right but only when the resolution is in breach of their rights as shareholders and not on the grounds of mere business dissent (Article 2388 of the Civil Code). In these cases, the same rules on the objection to the shareholders’ resolution will govern the relevant legal action, to the extent applicable (Articles 2377 and 2378 of the Civil Code).

By analogy with the rule provided by Article 2388 of the Civil Code for SpA companies, a recent order of the court of Venice (No 1756 of 10 July 2023) held that shareholders of Srls can actually challenge a directors’ decision, contrary to the past trend of case law that had excluded such a remedy. In both types of companies, any shareholder (or third party) who suffered loss as a direct result of the directors' negligence or misconduct has the right to sue the directors for damages.

In both SpAs and Srls, the initial members of the board of statutory auditors (or the sole auditor in Srls, if present) are appointed at the time of the company’s incorporation (Article 2328 of the Civil Code). Afterwards, they are appointed by the general meeting of the shareholders. In Srls, they can also be appointed by written consultation or written consent. The existence of a controlling body such as a board of auditors is required for SpA companies, but auditors do not need to be appointed in Srl companies, except when certain conditions occur – eg, if the volume of sales and the number of employees exceed certain thresholds. The rationale for this rule lies in the principle that – at least theoretically – Srl stockholders have larger control over management actions and operations.

Auditors can be removed only for just cause and upon a court-approved resolution.

Auditors must satisfy certain requirements set out by law regarding their professional qualifications, eligibility and compatibility (for example, they must be certified accountants).

Any arrangement that may have an impact on the company should be fully disclosed. Listed companies may voluntarily adopt the Corporate Governance Code, which is periodically revised by the Corporate Governance Committee; the latest version was issued in 2020. In January 2023, the Corporate Governance Committee approved its 11th annual report on the Code. For SpA and Srl companies, the directors are subject to several disclosure duties, which depend on the business carried out by the company.

The controlling entity may incur liability towards the controlled companies under the rules and liabilities provided for in the Civil Code in relation to the exercise of direction and co-ordination, if they act in their own interest or in the interest of third parties in breach of correct management principles. In such cases, the controlling entities may be liable towards the shareholders of the controlled company or its creditors.

An insolvency situation may lead a company to resort to one of the reorganisation procedures contemplated by the new bankruptcy law, Codice della crisi dell’impresa (the Code of the crisis of enterprises – Law decree No 83/2022). The applicable legal provisions are those that focus mainly on the protection of the interest of the company's creditors and, wherever possible, on the prosecution of the business activity of the company.

The main changes are the possibility for the insolvent debtor to propose a settlement with the assistance of a mediator, who can “negotiate” a settlement with the creditors in the interest of the debtor (Composizione negoziata della crisi di impresa). The right to receive a number of “alerts” from banks and the tax and social security authorities whenever they feel the company is about to face serious difficulties in the near future is of particular note. This measure has been introduced with the aim of preventing an irreversible crisis for the company. To benefit from such remedies, the company must have adopted “adequate measures” to prevent the crisis.

The right afforded to companies include a series of reorganisation plans that are aimed at saving the company from bankruptcy (this term has now been replaced with “judicial liquidation”).

Apart from the right to challenge shareholders resolutions, the most important remedy seems to be the petition under Article 2409 of the Civil Code to claim the existence (or rather the suspicion) of the commission of “serious irregularities” on the part of the board. This action can be brought by 10% of the voting shareholders in privately held companies and 5% in publicly held ones. If the court does not dismiss the claim, it may order an inspection through a person in its trust; if the irregularities are found to actually exist, the court may remove the directors and replace them with a commissioner. Other remedies, in the largest meaning of such a term, include the right of withdrawal provided under Article 2437 of the Civil Code for SpA companies and Article 2473 for Srls (diritto di recesso).

Directors have the duty to:

• manage the company and carry out any activities that are necessary for the pursuit of its corporate purpose (Article 2380 bis(1) of the Civil Code); and
• represent the company in compliance with the provisions of the by-laws and the resolution by which they were appointed (Article 2384(1) of the Civil Code).

The level of diligence requested is based on the nature of their office and the specific competence (professional qualifications or experience) of the directors (Article 2392(1) of the Civil Code).

There are three types of liability actions against directors of SpAs:

• one can be lodged by the company upon a resolution of the AGM;
• one can be lodged by shareholders that represent at least 20% of the voting rights; and
• one can be brought by a single shareholder or a third-party creditor.

In principle, directors are jointly liable towards the company for any damages suffered as a consequence of the breach of their fiduciary duty, the conflict of interest rules, the obligation to act in an informed manner and any other obligations or rules provided for by the applicable laws or the by-laws. In these cases, the director’s liability action can be exercised following a resolution of the ordinary shareholders' meeting. The action is subject to a statute of limitations period of five years from the date when the director ceases holding their office.

In SpAs, liability actions that are resolved upon by no less than 20% of the corporate capital in privately held open companies (Article. 2393 and 2393 bis of the Civil Code, respectively) entail the removal of the directors. In Srls, any shareholder can launch such an action and, in the case of serious irregularities, can request that the court, also provisionally, removes the director(s) against whom the action is brought. Those shareholders who intentionally approved or authorised the directors' challenged actions are jointly liable with the directors (Article 2476 of the Civil Code).

In both SpA and Srl companies, any shareholder (or third-party creditor) who suffered a loss as a direct result of the directors' negligence or misconduct has the right to sue the directors for damages. This action seems nonetheless to be freighted with some uncertainty, due to the difficulty of proving the existence of the proximate cause between the alleged misbehaviour of the director(s) and the damages suffered.

A director dissenting from a decision of the board has the right to protect themselves and insulate their liability in connection with the decision adopted by the other directors, as long as said director recorded their dissent in writing and informed the chair of the board of statutory auditors of their dissent (Article 2392(3) of the Civil Code). An additional defence is represented by raising the argument of the business judgement rule, if and when the circumstances should so permit, or by giving appropriate evidence that they had no executive powers, which were actually concentrated in another “executive” director, and could not prevent the damages occurring despite their efforts to learn about the potentially harmful event.

Furthermore, directors of SpAs who have a conflict of interest in relation to certain transactions to be carried out by the company must inform the board and the board of statutory auditors. 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 of the Civil Code).

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

For both types of companies, resolutions adopted by the board of directors with the determining vote of the director who has a conflict of interest can be challenged within 90 days by the dissenting directors and by the auditors (Articles 2391(3) and 2475 ter of the Civil Code).

Directors can also be removed by the shareholders' meeting and, unlike the older trend of court cases, the requirement of just cause now seems to be necessary to avoid the obligation to reimburse the removed director for any damages suffered.

In Srl companies, it is uncertain that a liability action against the director(s) can be brought by the company, based on different court cases, but any stockholder has such a right. The action takes the form of a derivative action brought in favour and to the benefit of the company rather than of the single stockholder.

The main regulatory provisions are as follows.

• The Civil Code contains the provisions regarding the calling of a shareholders' meeting, the adjournment of a meeting in the absence of sufficient information and the cancellation of resolutions, and the rules concerning liability actions against the directors, the report to the board of statutory auditors, any alleged mismanagement actions, withdrawal actions, actions for the appointment of a judicial commissioner in lieu of the board, and the rights to information on management actions and operations.
• The most significant measures of Legislative Decree No 58/1998 concern the lowering of the relevant thresholds to call the shareholders' meeting of public (listed) companies, and the increase of the voting quorum required in an extraordinary shareholders' meeting.
• Law No 262/2005 introduced the slate voting system mechanism (voto di lista) for the election of directors, and introduced an obligation for companies listed on Italian or EU regulated markets to reserve a place on the board of directors for minority shareholders.
• Legislative Decree No 27/2010 ratified Directive 2007/36/EC on the exercise of certain rights of the shareholders in listed companies (the “Shareholder Rights Directive”). Generally speaking, the new rules have increased transparency, encouraged shareholders' attendance at the shareholders' meeting and implicitly fostered shareholder activism, allowing shareholders to receive more information and bear lower costs in connection with the vote in shareholders' meetings. The most relevant changes include a shorter term in which to intervene and vote at a shareholders' meeting. Previously, shares were de facto “blocked” from being transferred during the days preceding the meeting so as to continue to enjoy voting rights, whereas the new text of Article 2370 of the Italian Civil Code provides that the shares must now be deposited no more than two weekdays in advance in order to be validly voted. Furthermore, shareholders are now supposed to be warned in the notice of call about their right to put questions concerning the items on the agenda of the meeting (Article 125 bis of Decree No 58/1998, as amended under Decree No 27/2010). This right, which is further established by another provision (Article 127 ter of Decree No 58/1998 as amended by Decree No 27/2010), imposes upon management the duty to answer any such questions before or at the meeting. Last but not least, the use of proxies has also been made easier.

• Law No 116/2014 introduced new categories of shares in Italy, namely multiple voting shares (azioni a voto multiplo, with up to three votes for each share) with reference to non-listed joint stock companies, and shares with increased voting rights (azioni a voto maggiorato, with two votes for each share) in listed companies.
• The Regulation on Listed Companies No 11971 of 14 May 1999, as amended from time to time, was issued by the Italian Companies and Exchange Commission (Commissione Nazionale per le Società e la Borsa).

• Directive (EU) 2017/828/EU amending Directive 2007/36/EC as regards the encouragement of long-term shareholder engagement was adopted by the European Commission to remedy the failings and weaknesses identified in the corporate governance systems of listed companies. The amendments focus on enhancing transparency between investors and companies.
• Law Decree No 148/2017 has been introduced with the purpose, among other things, of improving transparency and increasing the level of information provided to shareholders in corporate extraordinary transactions. One of the most important provisions introduced is the “early warning” provision, under which any purchaser of a number of shares equal to or exceeding 10%, 20% or 25% of a listed company's share capital must publicly disclose the plan that it intends to pursue with regard to that shareholding in the six months following its purchase. This disclosure statement must also contain further specific information, including:
1. the financial terms of the transaction;
2. whether the purchaser is acting alone or jointly with other investors;
3. whether the purchaser intends to buy additional shares in the target, or to acquire control of the company; and
4. whether the purchaser wants to change the composition of the company's board of directors or the board of statutory auditors.

In general terms, shareholder activism in Italy is represented by actions brought by:

• investors attempting to influence the company's management regarding corporate policies and strategies; and
• minority and outsider shareholders consisting of institutional investors attempting to put pressure on management or other shareholders by the extreme and possibly undue or abusive exercise of their rights.

In terms of volume, activism by minority shareholders greatly exceeds any other form of similar activity. For this reason, this section concentrates on the aspects of activism that concern minorities and their disagreements with the management or the majority shareholders; it will deliberately not cover those few cases where activism is synonymous with a shareholder acting as a scale needle (eg, the recent case concerning Vivendi and TIM).

By and large, Italian corporate and financial regulations do not provide strong support for shareholder activism. In the absence of specific, steadfast provisions to the contrary (which would have to be contained in the company's by-laws or in a shareholders' agreement), majority shareholders enjoy full control of the company. Consequently, minority shareholders' involvement and participation in corporate governance, and their influence at the level of shareholders' meetings, are invariably limited, save for a few exceptions that nonetheless confirm this general principle.

In the last 20 years there have been significant legislative changes that have helped to encourage shareholder activism. As for public (listed) companies, the Finance Text Law (Consolidated Text on Financial Laws, enacted by Legislative Decree No 58/1998), among other things, increased the importance of transparency and the provision of information on corporate governance. Furthermore, Directive 2007/36/EC on the exercise of certain rights of shareholders in listed companies (Shareholder Rights Directive), ratified by Legislative Decree No 27/2010, significantly increased the rights of minority shareholders in listed companies. For closely held companies, the corporate law reform of 2003 (Legislative Decree No 6 of 17 January 2003) introduced certain amendments that have formed the basis of shareholder activism in these types of companies. These amendments included the right to withdraw from a company in certain specific cases (Articles 2437 and 2473 of the Civil Code) and the right to transparency and access to the company’s information (Article 2476, paragraph 2 of the Civil Code).

The corporate law reform of 2003 was welcomed by many as a significant step towards the protection of minority shareholders in privately held companies. In particular, the specific remedy introduced for Srls in the new text of Article 2476, paragraph 2 of the Civil Code should have finally allowed minority shareholders to learn about every single aspect of the management and operations of their company. However, in practice, this remedy and the reform more generally have proven to be of limited use. Actions involving shareholder activism are still channelled through ordinary types of court action, with the exception of the possibility of seeking a provisional remedy in court if the circumstances should so permit.

The principal remedy contemplated by the 2003 reform in favour of minority shareholders who would eventually want to leave the company in order not to continue to suffer the majority's tyranny is no doubt the right of withdrawal from the company (diritto di recesso), which is afforded to shareholders under certain specific circumstances provided by the Civil Code. However, this right can be exercised only under specific factual circumstances that, in reality, are rather unlikely to occur (eg, the company’s transfer of its registered office broad).

Activist shareholders tend to make use of the shareholders' rights provided to minority shareholders under Italian law, although it can be said that, broadly speaking, activism in Italy is not sought in a confrontational or controversial manner, but rather in a softer sort of way, by attempting to establish a dialogue with the board and not pursuing aggressive tactics. Usually, activists aiming for minority board representation look for the support of institutional investors (other than hedge fund investors), who invariably submit their list of candidates after having sought the support of other shareholders. To that end, the strategies used tend not to be aggressive.

Activist shareholders often prefer to conduct their activities quietly, establishing strategic alliances with target companies wherever possible, rather than deploying more aggressive strategies. Sometimes, activist shareholders will pursue their goals in different stages. At first, the activist campaign usually begins with private talks and negotiations with the management of the target company. If this proves insufficient, a second stage will cause the shareholder activists to resort to public actions such as letters and press announcements. At this second stage, activist shareholders will typically try to increase their voting power or will use strategies aimed at obtaining support from other shareholders.

So far, the telecommunications sector seems to have been targeted more than other sectors. 2022 saw a decrease in activist behaviour compared to the previous year.

Minorities are, by definition, the most active shareholders, although it is not uncommon for hedge funds to target a company that has management problems and/or cash reserves available for distribution. In such cases, the fund’s objective will be to buy an interest in the target company with a view to increasing its values and reselling it at a capital gain some time after, once the objective has been achieved

No precise information on this matter is currently available, but the number of campaigns in 2022 (two) decreased sharply compared to 2021.

Companies should ensure that their board of directors focuses on investor relations and maintains good relations with institutional investors. This can be achieved by implementing a dedicated team with the specific task of understanding these investments and the voting policies employed by a company's own investors. In addition, the board of directors should be prepared to entertain talks and negotiate with shareholder activists; with this in mind, the board must also be given all the relevant information that it will need in order to understand the shareholder activist environment. It is also important for companies to be prepared against the approaches of activist shareholders and to ensure the establishment of this specific team of managers and consultants, who should be prepared to face the private requests of institutional investors that have an activist shareholder agenda.

There are also a number of provisions that can be included in the company by-laws in order to minimise the risk of being targeted by activist shareholders.

• The issuance of multiple voting shares and shares with increased voting rights, which were introduced in 2014 to make corporate law more flexible. In principle, both listed and non-listed companies are allowed to issue loyalty shares (ie, shares that are owned for at least 24 months, which are entitled to two votes each). The adoption of such shares increases the voting rights for controlling, long-term shareholders, providing additional means for a company to face aggressive forms of shareholder activism conducted by short-term investors.
• The issuance of special classes of shares (eg, non-voting shares or shares with limited and/or conditional voting rights). These types of shares can also be used to alter the proportions between the ownership of, and control over, the company.
• The placement of statutory limits on voting rights. Another way to respond to shareholder activism is to limit the maximum number of votes that a single shareholder can cast. Only the by-laws can contain this type of limitation, which is aimed at altering the proportions between voting and cash flow rights. The by-laws may contain other provisions limiting or affecting share ownership, provided that such provisions comply with the applicable laws.