Business Laws in Italy: what are the most important ones?
What leads someone to open a business in Italy? The simple answer is that Italy is conducive to business. It’s the third largest economy in the EU and eighth in the world. Italy is very open to foreign investment—with no residency requirement—and offers incentives to new companies looking to enter the market.
Types of Companies
There are two main types of companies in Italy: joint stock companies (Società per Azioni or SpA) and limited liability companies (Società a Responsabilità Limitata or Srl). In short, and in general, SpAs is intended for large companies both public or private, i.e. those owned by shareholders, while an Srl tends towards small/medium-sized private companies. In both however, the liability of the stockholders is limited to the amount of capital provided during startup. There are some differences in the law as we’ll see below.
Foreign companies coming into Italy can also establish a branch which is a corporate body of the parent company or a representative office which is a registered office that is only able to carry out promotional and advertising activities, scientific or market research, and information collection. Branches are not considered separated from the parent company and are subject to the same regulations as other Italian companies with the exception of taxes and minimum capital for startup.
An investor who wants to open a company in Italy must observe the relevant legislation and comply with Italian law. The most important legislative documents for running and registering a company in Italy are:
● the Italian Civil Code which contains the basic legislation for SpAs and Srl companies, e.g. that both must be incorporated through a public notary;
● Legislative Decree 58/1998 (called TUF) which contains disclosure and compliance obligations for SpAs;
● the National Commission for Companies and the Stock Exchange (CONSOB);
● the code issued by the Italian Stock Exchange;
● the company’s Articles of Incorporation.
The above legal framework only applies to companies listed in Italy. As part of the EU then, Italy is also subject to laws already established in the European Union and those that come down from the European Commission.
In Italy, corporate governance comes in three forms and is slightly different for Srl and SpA:
In the traditional structure, if the company is overseen by a Board of Directors who serve in terms of three financial years, then a chairman of the board is to be appointed by the shareholders.
For an SpA, it is necessary to have a Board of Statutory Auditors. This is the body entrusted with legal compliance and control over a company and is essentially a supervisory board. Their primary duty is to establish procedures that ensure compliance with both the law and the by-laws. It consists either of three or five members (with two additional deputy members in case one permanent member leaves) whose minimum requirements are that: at least one standing and one deputy member must qualify as a certified public accountant while the others may be accountants, lawyers, business and/or labor consultants.
For an Srl however, management of the company is commonly through a Sole Director although it is still possible to have a board of directors instead. There is also a choice between having a Board of Statutory Auditors, a sole statutory auditor, or an outside certified public accountant or auditing firm.
Shareholders meetings are usually called by the managing body. Meetings should be convened at least once a year in order to approve the yearly balance sheet. Both SpA and Srl companies must prepare consolidated financial statements for auditing.
Corporate Social Responsibility
In Italy, safeguarding and protecting the country’s natural heritage is very important which means that there are restrictions in place with respect to regional and national parks, natural reserves, marine reserves and other areas.
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Check also our business and fiscal tips in the video below.
After moving back to Italy from the United States in 2013, I realized how much an accounting and tax firm was needed to help expats living in Italy to comply with the local tax regulations.