Companies

In setting up a company, it is desirable to be assisted by a notary who will help you choose the form of company that, from the organizational standpoint, is best suited to achieving the corporate purpose.

From the organizational point of view, companies can be distinguished into the following types:

1. Partnerships

These include:
- informal partnerships;
- general partnerships;
- limited partnerships.

2. Companies limited by shares

These comprise:
- joint-stock companies;
- limited partnership with share capital;
- limited liability companies.

There have recently been introduced two subspecies of the srl (limited liability company): the simplified limited liability company and the reduced-capital limited liability company.

All the above companies are for profit, that is to say, they are set up in order to make profits which will subsequently be distributed among the partners.

The type of company to be set up is decided by the partners; companies with the purpose of carrying out a commercial activity can only take the form of an informal partnership. This is the only restriction with which they must comply.

There is also the possibility of setting up other types of company in the form of cooperatives and mutual societies based on the principle of mutuality.

Their aim is to provide their members with goods, services and job opportunities at better conditions than those offered in the marketplace. The provisions that govern joint-stock companies may also apply to cooperatives and when this is envisaged in the Memorandum of Association, the provisions governing limited liability companies shall apply.  Mutual societies are governed by the rules that govern cooperatives.

Finally, all companies, except for informal partnerships, may have the aims of a consortium, i.e. coordinate the economic activities of several entrepreneurs who do similar business or who contribute to specific steps in the overall business cycle.

Partnerships

General

Let us take the case in which the Parties decide to undertake an entrepreneurial activity by setting up  a partnership.

What would the general characteristics of such a company be?

First of all, as regards the unlimited and joint liability of the partners:
- in the case of a general partnership, all the partners have unlimited and joint liability;
- in the case of an informal partnership, all the partners have unlimited and joint liability, but there can be an agreement whereby the partners who do not have powers of agency are relieved of such liability;
- in limited partnerships only the working partners are liable, whereas the inactive partners enjoy the benefit of limited liability.

Unlimited liability means that the partners answers for the company’s debts with their present and future assets.

Joint liability instead means that the creditor of the company may, at his discretion, address any of the partners and demand payment for the entire debt from that partner.

Secondly, each partner, as such, has the power of running the company, unless otherwise agreed. An exception is the limited partnership in which the inactive partner cannot have this power.

Finally, a partner cannot transfer his/her quota of participation without the approval of the other partners, both during the lifetime and after the death of the partners.  Indeed, if one of the partners dies, except for the inactive partner, his share is not automatically transferred to his/her heirs.

In order for the shares to be transferred, both the heirs and the surviving partners must give their consent.

However, partners can add a clause (called the continuation and consolidation clause) allowing shares to be transferred through a deed while the partners are alive and after their death;  seek the professional advice of your notary to help you word this clause appropriately without violating any legal regulations.

Informal Partnerships

Activities that can be carried out by this type of company – Liability of the partnership and liability of the partners in regard to social security liabilities

Informal partnerships are the most elementary form of enterprise.

The fundamental characteristic of an informal partnership is that the scope of its activities is limited to non-commercial profit-making economic activities.

The scope of an informal partnership may therefore include:

- agricultural activities, with certain limitations because:
• the purpose of the enterprise cannot be merely that of using assets, but must consist in the joint operation of a business activity;
• tacit family ‘community of interests’, such as family groups practising agriculture on their own land or on other people’s land, are regulated by customs and not by partnership contracts;
- real estate management:  Art. 29 of Act n° 449 dated 27 December 1997 envisages that enterprises whose exclusive activity is that of managing property which is not instrumental for the business of the enterprise, or of managing registered financial investments or equity interest in companies, are to be turned into informal partnerships.  However, this is an exceptional, and temporary, provision.

Another characteristic is the unlimited liability of partners for social security liabilities.  Special agreements can be concluded whereby the partners without powers of representation have no liability.

In the case of an enterprise that has a debt:  what assets are to be used to pay for that debt?  The assets of the company, or those of the individual partners?

In an informal partnership a  creditor can claim his/her due either against the assets of the company, or of the unlimited liability partners.  However it should be noted that, if payment of the sum owed were to be demanded directly from the partner, the latter may request the creditor to claim payment from the company’s assets, or he may indicate the company assets that may be seized to enforce such payment (so-called benefit of prior enforcement on company assets).

How to set up an informal partnership

It is extremely simple to set up an informal partnership:

- the contract needs not be of any special type, except where special types of assets are involved (and except for evidentiary limitations);
- all that is needed to set up an informal partnership is the mutual engagement by the partners to jointly carry out a non-commercial profit-making activity;
- informal partnerships must be entered into the register of companies. 

Such registration takes place in a special section and does not imply any legal effects, its sole function being that of establishing official identification details and of providing public notice.

Therefore, since no special forms are prescribed, setting up a company may take place even verbally or in the form of conclusive facts (de facto informal partnership). Of course, in such cases there will be obvious difficulties if a partner needs to provide evidence of the existence of the partnership.

In any case, a written agreement is necessarily required when:

- real estate or real estate rights are transferred to the partnership;
- the right to use property is granted to the partnership for an unlimited time or for a period of time in excess of nine years.

 

When a partnership contract is concluded, the contracting parties take on the capacity of partners, thus giving rise to rights and duties explicitly envisaged by the law.

 

The obligation of transferring assets is essential for the acquisition of such capacity.  Especially in the case of an informal partnership, the law establishes that partners are obliged to transfer assets or capital as set forth in the partnership contract.

 

Unlike joint-stock companies and limited partnerships with share capital, for partnerships, and as now occurs with limited liability companies as of 1st January 2004,  there is no limitation on the bargaining autonomy of the parties as regards the assets which may be contributed to the partnership.  Any asset or service that has economic value or that is useful for achieving the partnership’s purpose may be transferred to it.

 

Consequently, contributions may consist in money credits or they may be in kind (real estate, machinery, raw or processed materials).   

 

The contributions may consist in transferring the ownership or in using firms, also firms encumbered with debts, and also guarantees (endorsements and sureties).

 

Contributions may also consist in the obligation of a partner to work (manually or intellectually) for the company (so-called working partner).


Management and legal representation of the company

 

The management of a company is the activity of running the corporate enterprise. The power of management is the power of carrying out any activity that falls within the scope of the corporate purpose.

 

When the management of the company falls on more than one partner (all or some), and the partnership contract makes no provision on how the power of management is to be exercised, then the notion of  separate management shall apply:  each partner is a director, that is, he has the power of managing the company and may carry out by himself any transaction comprised in the corporate purpose, without the obligation of requesting the consent or the opinion of the other directors, or to informing them in advance of any transactions he has planned.

 

Separate management offers the advantage of taking decisions rapidly, but is not without pitfalls, since the individual director may carry out transactions which are not profitable for the company without the others being aware of what is going on.

 

For this very reason joint management is envisaged. Joint management must be explicitly agreed on by the partners in the partnership deed (Memorandum of Association) or by amending the latter if this is not envisaged, since, unless explicitly specified, separate management is the rule.

 

Furthermore, joint management may be based either on unanimity or on a majority vote. Where unanimity is required, the consent of all the partner-directors is required in order to carry out business transactions;  in majority-based companies, the majority of the directors is sufficient and it is calculated on the basis of the profits attributed to each partners.

 

Both separate management and joint management may be entrusted to all the partners, or only to some of them. Finally, the management of the company may be entrusted to only one of the partners. And finally, informal partnerships and general partnerships can be managed by third parties who are not partners. If a company, whether it is a stock company or a partnership, is a member of a partnership, it can legitimately be appointed manager of the latter.  In this case the manager is the stock company or a shareholder of the latter, and not a person appointed by the latter.  

 

There are many options to choose from and the notary public, thanks to his competence, will be in a position to help you draw up a management model that best suits your needs and those of your enterprise.

 

While the director is the person who has the power of managing the company, that is, the power of deciding on the business transactions (internal impact), the representative is the person who has the power of expressing the corporate will outside the company, in other words, the representative acts in the name and on behalf of the company (external impact).

 

a) Unless otherwise provided for in the partnership contract, each director shall represent the company, jointly or severally, depending on the type of company. 

This implies that:
- if the management is separate, each director may decide and stipulate deeds in the name of the company by himself (separate signature);
- if joint management has been chosen, then all the directors must participate in making deeds (joint signature).

 

b) However it must be pointed out that the partners can decide to regulate the power of representation differently from how they go about the management of the company.

 

For example:
- legal representation of the company may be reserved only to certain partner-directors;
- it may be established that for given deeds, joint signature is required, even if the separate management model is adopted;
- Separate signatures may be envisaged for transactions that do not exceed given amounts or, in general, for deeds that are part of routine business,  while joint signature is required for transactions where higher amounts are involved or for-non listed transactions, or for exceptional transactions (or for business transactions which are included among the activities envisaged as part of the social purpose of the company).      

 

Seek the professional advice of your notary public.

Amendments to the partnership agreement during the lifetime of the company

 

Throughout the life of the company the partners may modify the partnership contract but this requires a unanimous vote, unless otherwise agreed and except for the case in which the company were to be turned into a  stock company, for mergers and spin offs, in which cases (unless otherwise decided in the shareholders’ agreement on which you should be advised by your notary) a simple majority is required by law.  The majority is established on the basis of the share of profits attributed to each shareholder. The partner who does not agree on the amendment has the right of withdrawing from the company.

 

Changes in the company membership (for example transferring one’s share to another person or inheritance of a share as a result of the death of the original shareholder) and changes in the corporate purpose are considered to be amendments to the partnership agreement.

 

Transferring the shares held may be agreed upon beforehand by including a clause in the Memorandum of Association stating that shares may be sold and that members who die can be succeeded by their heirs.
 

Conclusion of the partnership for an individual partner:  causes and liquidation of the capital share

 

Members may withdraw from the company.  Causes of withdrawal are:  death of the member, voluntary withdrawal and exclusion.

 

One or more partners may withdraw from the company, without this entailing the winding up of the company.

Death of a Partner

 

The relationship between a partner and the company ends automatically when the partner dies. Within six months from his death, the surviving partners have the duty of returning the share held by the dead partner to his heirs. The surviving partners are not obliged to accept that the heirs of the deceased member should succeed him by taking his place in the company.

The surviving partners have two options they can choose from. They may either decide:
- to wind up the company in advance;
- to carry on the company with the deceased partner’s heirs, in which case, however, consent by all surviving partners and by the heirs is mandatory.

 

However the partners may introduce specific clauses in the partnership contract hence pre-determining what will happen in case of death.  Among the most common clauses mention can be made of:
- a consolidation clause, which establishes that the deceased partner’s quota will be purchased by the other partners, and the heirs will receive the value of the share by way of settlement;
- a clause of continuation with the heirs (all or some of them), whereby the partners agree in advance on transferring the quota to the heirs, thereby precluding recourse to the other two alternatives (purchase of the capital share or dissolution of the company).

 

The clauses of continuation may, in turn, be distinguished into three groups:
- the clause is binding only on the surviving partners, while the heirs are free to choose whether to join the company or to request settlement of the quota they are entitled to (clause of optional continuation);
- the clause sets forth the obligation for the heirs to join the company, with the consequence that they will be obliged to pay compensation to the surviving partners if they choose not to join (clause of compulsory continuation);
- the clause envisages that the heirs will automatically join the company (clause of succession).  In other words, as heirs of the deceased they automatically become partners of the company

These types of clauses are not all considered valid by case law, since they may be in contrast with the provisions of the law, for example entering into agreements on successions is illegal:  in order to avoid problems in inheritance matters seek the professional advice of a notary public who will draw up an unambiguous clause that reflects your intentions.

Withdrawal of a partner

If for any reason a partner no longer wishes to belong to the company, he may exercise the right of withdrawal.

In particular, if the company was set up for an indefinite period of time or for the lifetime of one of the partners, each partner may withdraw freely.

Otherwise, if the company is for a definite period of time, withdrawal is admitted by law only in the case of a just cause.

The partnership contract may in any case envisage other circumstances in which a partner may withdraw, specifying how such right is to be exercised.

Exclusion

The individual partnership may be resolved following the exclusion of a partner from the company.

In some cases this occurs by law (e.g. in cases of bankruptcy), while in other cases the exclusion is decided by the other partners, when circumstances envisaged by the law or by the  partnership contract occur. Your Notary public will describe such cases to you.

In all the cases examined thus far in which the relationship of a single partner ends as a result of death, withdrawal or exclusion, the latter or his heirs are entitled only to a sum of money representing the value of his/her capital share.

Hence the partner cannot claim any of the assets he had conveyed to the company, even if they are still on the balance sheet of the company, nor can he/she claim return of the assets that had been given to the company for it to use for as long as the it existed, unless otherwise agreed.

The value of the share to be liquidated is determined on the basis of the financial situation of the company as at the date when the relationship terminates.

Conclusion of the partnership for an individual partner:  causes and payment of his/her capital share

Individual partners can withdraw from the company. The causes of withdrawal are:  the death of the partner, voluntary withdrawal and exclusion.

The withdrawal of one or more partners for one of the above-mentioned causes does not entail the winding up of the company.

General partnerships

How to set up a general partnership (s.n.c.)

In this case too a partnership contract must be concluded (explicitly called by the law as “Memorandum of Association”). The contract must be drawn up in the form of a public deed or of an authenticated private contract.

Activities which can be carried out in this form.  Liability of the partnership and the social security liability of the partners

If the parties wish to set up an general partnership, they must respect the specific rules laid down in this regard by the Civil Code, bearing in mind, in any case that, for many aspects, the law refers the reader to the provisions regulating informal partnerships, which consequently apply equally to general partnerships.

So that, in the light the foregoing, the present file foresees multiple referrals to the subjects already dealt with and developed with regard to the informal partnership.

The general partnership (commonly abbreviated to s. n .c.) is a type of company which may be utilised both for carrying out a commercial activity, and for carrying out a non-commercial activity (see informal partnership to the related paragraph).

In this form of company all the partners are liable jointly and unlimitedly for the corporate obligations. Any agreement to the contrary is without effect on third parties.

The aforesaid characteristic is proper of the general partnership alone and does not apply to the other two types of partnership (in fact, in the informal partnership the liability of the partners not representing the company may be excluded, while on the contrary in the limited partnership it is essential that only certain of the partners are liable jointly and unlimitedly for the corporate obligations).

In case the company has incurred a debt: against which assets can the creditor stake his/her claim? The assets of the company or the assets of the individual partners?

In the case of an general partnership, first and foremost the company with its assets is liable for payment of the company’s debts, and to a lesser extent the individual partners may be unlimitedly and jointly liable with their personal assets.  In the general partnership too, as in the informal partnership, the partners accordingly enjoy the benefit of prior excussion of the social worth, which however operates automatically.

Only if the company assets are insufficient to meet his/her claims, can a creditor request payment by any one of the partners.

In practice, an s.n.c. contract is a document which may consist of the Memorandum of Association proper and of the company by-laws attached to the latter.  The former contains the expression of the will of the partners and the essential elements of the company’s organisation, while the latter lays down the rules for the running of the company.

Even if drawn up separately from the Memorandum of Association, the company by-laws constitute an integral part of the latter.

It is necessary to resort to the form of public deed or of an authenticated private contract if the s.n.c. is to be entered into the Register of Companies and, although not a condition for the existence of this type of company, registration is however a condition for its regularity.  Being in the Register of Companies discloses the partnership contract and any subsequent amendments as well as the most important events in the company’s life, so that third parties can be informed and can rely on such information. This information is backed by ‘public faith’ (notary’s word): this is why the Memorandum of Association and subsequent deeds making amendments to the latter are to be examined by the notary public in his capacity as unbiased third party empowered by the State to exercise this function.

If the Memorandum of Associationis not entered into the register of companies, the s.n.c. may still be set up;  however, failure to register the

Memorandum of Association means that relations between the company and third parties will not be governed by the provisions laid down for the s.n.c., but by the provisions that govern informal partnership, which are less favourable for the partners, precisely on account of the lack of publicity relative to the existence of such an entity.

An unregistered s.n.c. is known as an irregular general partnership.

As regards the assets which may be contributed to a general partnership, please refer to informal partnerships.

Management and legal representation of the company

The rules governing general partnerships are in may respects similar to those laid down for informal partnerships (please refer to the related paragraph).

Amendments to the partnership contract in the course of the company’s existence

In general partnerships too it may happen that, in the course of the company’s existence, the partners may wish to amend the partnership deed.

Unless otherwise agreed, such changes must be adopted unanimously (except for when the company is turned into a company with share capital, or when mergers or demergers are carried out),  and must be written in a public deed or in an authenticated private contract, just like the partnership deed, since the law prescribes that also these amendments must be entered, at the request of the directors or of the notary public, into the Register of Companies for reasons of public notice or disclosure, which is a very important requirement as pointed out in the preceding paragraph.

Amendments may be subjective or objective.  Subjective changes affect the personal composition of the company. For example, the assignment of the capital share, the introduction of a new partner, the replacement of a partner, and a partner’s withdrawal from the partnership.

Objective changes involve the content of the partnership deed.  For example: extending the lifetime of the company, reducing or increasing the share capital, moving the registered office, (however it is deemed that Article 111-ter of the provisions implementing the Civil Code, applies to all types of companies, and hence also to partnerships that have embodied this provision in their shareholder agreements; seek the professional advice of your notary public on this issue) deciding to dissolve the company, changing the corporate purpose, varying the number of directors or of the representatives appointed in the partnership deed, revoking the director appointed in the partnership deed, modifying the criteria for the sharing out of profits, transforming the partnership into another type of company, and carrying out mergers and demergers.

Changes in the share capital – Reducing and increasing the share capital

Take the case in which the company has lost capital. What is the company allowed to do?

In this connection the law envisages that, in case of losses, the company cannot distribute profits among the partners until the capital has been reduced or replenished by the corresponding amount.

However, unlike what happens for companies with share capital, there is no obligation to reduce the capital whatever the amount of the losses incurred, even if the latter are such as to wipe out the  entire capital.

 While, however it is true that, if the company intends to continue to distribute profits to its shareholders, there is no escaping from the alternative laid down by the law:  either the capital is used to pay for the losses, or the partners contribute the financial resources required.

Besides the reduction in capital because of operating losses, the it may also be reduced for what is termed capital in excess.

In this case the company decides to reduce the net worth of the company by choosing from two options that are available:

- it may release the partners from the obligation of making any further payments already promised but not yet effected;
- it may return to the partners the capital contributions they have already made.

Whereas, if the partners should decide to increase the share capital , how should they go about this?

The increase may result from new money coming into the company, or resources taken from the reserves of the company.

In the former case the capital increase is provided by having new partners join the company or by collecting new contributions from the existing partners.

In the latter case, the partners decide to release resources from existing capital account reserves.

In a partnership the setting up of reserves is not obligatory. However, the Memorandum of Association or the partners may unanimously decide to constitute a reserve, by setting aside profits which it decides not to distribute to the shareholders.

When financial resources are transferred from the reserve to the share capital, the each partner’s quota stock in the company rises in proportion to his/her attributed share in the profits, thus safeguarding also the position of the working partner.

Amendments to the partnership contract in the course of the company’s life

In general partnerships too it may happen that, in the course of the company’s existence, the partners may wish to amend the partnership deed.

Unless otherwise agreed, such changes must be adopted unanimously (except for transformation of the company into a company with share capital, for mergers and demergers) and must be written in a public deed or in an authenticated private contract, just like the partnership deed, since the law prescribes that also these amendments must be entered, at the request of the directors or of the notary public, in the register of companies for reasons of public notice or disclosure, which is a very important requirement as pointed out in the preceding paragraph.

Amendments may be subjective or objective.  Subjective changes affect the personal composition of the company.  For example, the assignment of the capital share, the introduction of a new partner, the replacement of a partner, and a partner’s withdrawal from the partnership.

Objective changes involve the content of the partnership deed.  For example:  extending the lifetime of the company, reducing or increasing the share capital, moving the registered office, (however it is deemed that Article 111-ter of the provisions implementing the Civil Code, applies to all types of companies, and hence also to partnerships that have embodied this provision in their shareholder agreements; seek the professional advice of your notary public on this issue) deciding to dissolve the company, changing the corporate purpose, varying the number of directors or of the representatives appointed in the partnership deed, revoking the director appointed in the partnership deed, modifying the criteria for the sharing out of profits, transforming the partnership into another type of company, and carrying out mergers and demergers.

In particular: changes in the share capital – Reducing and increasing the share capital

Take the case in which the company has lost capital. What is the company allowed to do?

In this connection the law envisages that, in case of losses, the company cannot distribute profits among the partners until the capital has been reduced or replenished by the corresponding amount.

However, unlike what happens for companies with share capital, there is no obligation to reduce the capital whatever the amount of the losses incurred, even if the latter are such as to wipe out the  entire capital.

 While, however it is true that, if the company intends to continue to distribute profits to its shareholders, there is no escaping from the alternative laid down by the law:  either the capital is used to pay for the losses, or the partners contribute the financial resources required.

Besides the reduction in capital because of operating losses, the it may also be reduced for what is termed capital in excess.

In this case the company decides to reduce the net worth of the company by choosing from two options that are available:

- it may release the partners from the obligation of making any further payments already promised but not yet effected;
- it may return to the partners the capital contributions they have already made.

Whereas, if the partners should decide to increase the share capital, how should they go about this?

The increase may result from new money coming into the company, or resources taken from the reserves of the company.

In the former case the capital increase is provided by having new partners join the company or by collecting new contributions from the existing partners.

In the latter case, the partners decide to release resources from existing capital account reserves.

In a partnership the setting up of reserves is not obligatory.  However, the Memorandum of Association or the partners may unanimously decide to constitute a reserve, by setting aside profits which it decides not to distribute to the shareholders.

When financial resources are transferred from the reserve to the share capital, the each partner’s quota stock in the company rises in proportion to his/her attributed share in the profits, thus safeguarding also the position of the working partner.

Conclusion of the partnership for an individual partner:  causes and settlement of the capital share.

The rules governing the general partnership are similar from many points of view to those laid down for informal partnerships (please refer to the related paragraph).

Causes determining dissolution of the company

Dissolution of general partnerships is determined by the causes already mentioned and described with reference to informal partnership,  to which the reader is explicitly referred.

However, other specific causes of dissolution of the s.n.c. are the latter’s bankruptcy, and a provision by a government authority laying down the compulsory administrative winding up of the partnership.

Consequences of the occurrence of a cause for dissolution of the company

The rules governing general partnerships are similar in many respect to those laid down for informal partnerships (please refer to the related paragraph).

Revocation of the state of liquidation

The rules governing general partnerships are similar from many points of view to those laid down for informal partnerships (please refer to the related paragraph).

Cancellation of the company

Following approval of the final settlement accounts, the liquidators must draw up a request to cancel the company from the Register of Companies, submit the cancellation request to the Office of the Register of Companies c/o the Chamber of Commerce of the province where the company is based. As a result of cancellation the company ceases to exist.

Limited partnerships (s.a.s.)

Activities which can be carried out by this type of company - Liability of the  partnership and social security liabilities of the partners

If the parties wish to join forces by setting up a partnership, they can do this also by setting up a limited partnership (hereafter referred to as an s.a.s.).

In general, the s.a.s. is governed by rules that govern the general partnership (for which in turn, reference is made to the rules laid down for informal partnerships), except for the specific provisions which will be examined below.

Such a partnership is characterised by the presence of two categories of partners:

- unlimited partners, exclusively responsible for the administration and running of the company. These have unlimited and joint liability for carrying out the corporate duties and, accordingly, are in a similar situation to that of the partners in general partnerships (s.n.c.); 
- limited partners (silent partners), who are liable for the social security liabilities proportionately to their quota, providing they do not interfere with the administration of the partnership.

The s.a.s. is a type of partnership which may be utilised for carrying out both commercial and  non-commercial activities (please refer to the section on informal partnerships).

As for the system of liability of the partnership and of the partners for the social security liabilities, the reader is referred back to the section on general partnerships (s.n.c.), pointing out that in limited partnerships the limited partners do not have any liability, providing they have not interfered in the administration.

How to set up an s.a.s.

The rules described for the s.n.c. also apply to the establishment of an s.a.s.

The Memorandum of Association must comply with the same requirements, in form and content, as those laid down for the s.n.c.

An additional requirement is that the unlimited partners and the limited partners be distinctly indicated.

The Memorandum of Association of the s.a.s. are to be entered in the Register of Companies. If this is not done the partnership is irregular and the provisions that shall apply are less favourable for the partners as already described in the paragraph on general partnerships (s.n.c.). Registration ensures disclosure and the protection of third parties who have nothing to do with the company, as pointed out for the s.n.c..

Limited (Silent) partners have limited liability so long as they do not participate in company transactions.

As to the assets that can be contributed to the limited partnership, the same conditions apply as in the case of informal and general partnerships.

Whether the limited partner can be a working member i san issue that you will have to discuss with your Notare Public.

Upon signing the agreement which establishes the company, the parties become partners, a condition which carries with it powers, rights and duties which are expressly envisaged by the law. Limited and unlimited partners have different powers, rights and duties.

The unlimited partners

By law all unlimited partners are directors of the s.a.s..

However, the Memorandum of Association may entrust the management to one or some of the unlimited partners, excluding the other unlimited partners from the management.

Unlimited partners who are directors are governed by the same rules as those laid down for s.n.c. directors.

Their liability is identical to that of the partners in an s.n.c., and is accordingly unlimited and joint, with the benefit that the corporate assets are used to pay for the company’s debts.

The limited partners

Limited partners are excluded, in principle, from managing the company.

However, they may negotiate or conclude individual deals on behalf of the company, providing they have received a specific proxy or authorisation empowering them to do so.

Each limited partner is responsible for social security liabilities in a degree that is proportionate to the contribution they made to the company. Accordingly he/she does not assume any other risks, except that of losing the value of the capital he/she has contributed.

However he/she loses the benefit of limitation of such liability when he/she infringes the rule of not interfering with the management of the company and when he/she allows his/her name to be included in the registered business name of the company.

What is meant by the limited partner not being allowed to interfere?

Generally the limited partner does not have any autonomous decision-making power in running the company. 

Therefore, in general, he/she cannot carry out internal administration activities, nor acts of representation, under pain of losing his/her limited liability and of no longer being sheltered from bankruptcy.

The limited partner may however represent the company on the basis of a special proxy for an individual transaction or may carry out given acts under the direction of the unlimited partners.  Issuing a general proxy or giving an administrative assignment to a limited partner is a clear infringement of the above rule of not interfering.

Administration and legal representation of the company

The rules applying to limited partnerships are in many ways similar to those that govern informal  partnerships (please refer to the related paragraph)

However in limited partnerships, only the unlimited partners can be directors and legal representatives of the company.

Conclusion of the partnership for an individual partner:  causes and liquidation of the capital share

The rules applying to limited partnerships are similar from many points of view to those laid down for informal partnerships.  Please refer to the Fact Sheet .

However it is underlined that death of a limited partner does not imply conclusion of the business relationship, since upon the death of the partner his/her share is transmitted, unless otherwise agreed in the Memorandum of Association.

Amendments in the partnership contract during the lifetime of the company

The rules applying to limited partnerships are similar in many respects to those that apply to informal partnerships (please refer to the related paragraph).

In addition, as regards subjective changes arising from the transfer of a partner’s capital share, a distinction needs to be made between the unlimited partner’s share and that of the limited partner.

If one of the unlimited partners decides to transfer his/her capital share he may undoubtedly do so through a conveyance deed; however, unless otherwise agreed in the Memorandum of Association, the consent of all the other  partners will be required, both limited and unlimited partners.  In order to transfer a partner’s capital share upon his/her death, also the heirs must given their consent (please refer to informal partnerships  and to general partnerships).

In the case of a limited partner wanting to transfer his/her capital share, he may undoubtedly do so through a conveyance deed; however, unless otherwise agreed in the Memorandum of Association, the consent of the other  partners will be required (both limited and unlimited partners) accounting for the majority of the share capital. Transferring the share capital following the death of the partner does not require the consent of the other partners.

Clauses may however be introduced that envisage different conditions; also in this case seek the professional advice of your Notary Public, which is especially important for the impact that such clauses may have on succession issues.

Withdrawal of  a member: causes and liquidation of the capital share

In general the rules for limited partnerships (s.a.s.) are the same as those laid down for informal partnerships (please refer to the related paragraph).

However, the death of a limited partner does not end the partnership because, as said above, in case of death, the partner’s shares are transferred to the heirs, unless otherwise provided for in the Memorandum of Association.

Causes that determine the winding up of an s.a.s.

In general, the winding up and liquidation of an s.a.s. is governed by the rules set forth for general partnerships, to which the reader is referred (please refer to the related paragraph).

However, besides the causes of dissolution that are the same for an s.n.c., there is another cause that is exclusive of the s.a.s., namely when there is only one category of partners left.

In fact, it is envisaged that the s.a.s. is to be dissolved when only limited partners or only unlimited partners remain unless, within the time limit of six months, arrangements are made to replace the type of partners that are missing.

During this six-month period, envisaged to reconstitute the category of missing partners, the company continues its trading activities normally if limited partners are the type that is missing.  Whereas in the opposite case, where only limited partners are available they must appoint a provisional director (who may even be a limited partner), whose powers are limited by law to carrying out the acts of ordinary administration.

It is pointed out that for any issues or problems not explicitly dealt with here, reference must be made to general partnerships and also to informal partnerships, since the rules laid down for informal partnerships also apply to general partnerships.

Companies limited by shares

General

In early 2003 the Italian legislator issued a law decree (n° 6 of 17 January 2003) which thoroughly reformed companies limited by shares.  The declared aim was to simplify, where appropriate, and enrich, wherever possible, the rules governing such companies, with a view to increasing their competitiveness on both domestic and international markets. 

Many changes were made and the following results have been achieved:  a better, though still not complete, co-ordination between the rules governing listed and non-listed companies (with explicit references also to the joint-stock companies with floating shares held mainly by the public at large); improvements in the instruments that protect minority interests;  and some power has been granted to private individuals (in particular to limited liability companies) so that they can take care of their interests in a way that had hitherto been impossible.

As a result of such changes and of the emphasis on the autonomy of the individual, the Memorandum of Association and the Company By-laws have taken on an extremely important role in the current and future life of the company:  these two documents regulate the formation of the company and the way its business is carried out.  As a consequence it is essential that the shareholders’ agreements be drawn up carefully so that they may allow to seize the many opportunities granted by the law and avoid inappropriate or illicit actions. A fundamental role is played by the notary public, called upon to establish the company, and who will draw up these documents and suggest solutions that are not only licit but also the best suited  to the concrete needs of the parties and in their best interest.  A Memorandum of Association and By-laws that are properly drafted will ensure that the company is based on sound and lasting rules thus avoiding contrasts and conflicts between partners and corporate bodies.

Memorandum of Association and By-laws that are well drawn up ultimately reduces costs and ensures that the business of the company will unfold in the best of ways .

Accompanied by a (not very clear) provision that regulated the transitional phase, the new law finally entered into force on 1 January 2004.

Companies with share capital may be of three types:  joint-stock companies (s.p.a.), limited liability companies (s.r.l.) and limited partnerships with share capital (s.a.p.a.).

These companies are organisations of persons and means for carrying out a productive activity in common, and they are endowed with assets that make them fully autonomous. This means that the company alone answers for social security liabilities with its assets.

Hence the liability of the partners is limited to the capital he/she has contributed, there is no personal liability, not even contingent liability, for the social security liabilities (with the exception of the unlimited partners of limited partnerships with share capital who, on the other hand, answer unlimitedly and jointly for the social security liabilities, and with the exception of the single partner of a proprietorship).

In order to offset this benefit of limited liability, the legislator has envisaged that the partner of companies with share capital shall not have direct powers of administration and control of the company, but they can only contribute to the latter by voting at the Shareholders’ Meeting for the appointment of the directors and statutory auditors:  in order to confirm this principle, the unlimited partners of an s.a.p.a. (who have unlimited liability) are assigned the capacity of directors by law by the legislator.  Partners can, however, be appointed directors, and hence take on the relevant responsibilities.

In fact, companies with share capital have a corporate structure, that is, they are based on the necessary presence of three bodies:  the Shareholders’ Meeting, that decides on issues of great importance for the corporate body, the directors, who run the company and implement the corporate purpose of the company, and the statutory auditors, a body that controls and monitors the activity of the directors (the foregoing holds for what the law considers to be the traditional management and control system:  there is a chapter on the other two systems, the so-called two-tier and the monistic system that do not apply to the limited liability company).  As regards the need for an auditor or for an auditing firm to control the accounting work of the company (leaving aside the issue according to which it is unlikely that they can be called a “body” that controls the company), please refer to the rules that govern the various types of companies with share capital.

The weight of a partner in the Shareholders’ Meeting (and of the partners of limited liability companies in decisions not taken at the shareholders’ meeting) is determined by the capital share he has underwritten, since decisions are taken on the basis of the majority principle. The rules that govern the Shareholders’ Meeting are designed to&

Geneal Features of Companies

The characteristics of companies in general

The advantages of a company structure

A company has a life of its own which is independent from that of its partners: it will go on living even after its partners die or it can be dissolved and wound up even if its partners are alive.

Legal status

All companies have a legal status and as such they have assets that are distinct from those of the partners that constitute the company. They have a name, a registered office and, hence are legal entities that are quite distinct from the individuals making up the company.

They are non-personified collective subjects.

In some types of companies (partnerships) the assets of the company are not fully separate from the assets of the individual partners who, to different degrees, are liable for the debts of the company.

Other types of company (companies with share capital and cooperatives) instead, are recognized by the legal system as having a legal personality and their assets are perfectly distinct from those of  its shareholders  and hence, the latter are never liable for the debts of the company except for some cases envisaged by the law.

In short, the recognition of a legal personality sets the assets of the company apart from the assets of its partners and the partners’ assets are autonomous with respect to the assets of the company.

The legal status is not attributed automatically to a company: the Memorandum of Association must be registered with the Register of Companies.

Joint investment of assets and financial resources

In order to do business often huge investments are required and often a single person may not have that amount of financial means. Doing business through a company enables several people to invest and work together so that each individual may then enjoy the benefits of the activity carried out proportionately to the amount of work done and to the quota of investments made.

A participation (share or quota) of the capital of the company is assigned to the partner in return for the assets he has contributed.

During the life of the company, the founding partners or new partners may contribute new assets, for instance by increasing the capital.

The resources put into the company become assets of the company and the investor will never recover such resources and will have to wait until the company is wound up or if he no longer wishes to be partner of the company he may transfer his share to a third party or he may withdraw, where this is envisaged, but he will never recover the resources he transferred to the company.

Financial autonomy

In  share capital companies the financial autonomy is perfect in that the shareholders are accountable for the debts of the company only in proportion to the share they hold.  

This means:
- that the personal creditors of a shareholder can never receive payment from the company;
- that creditors of the company, in turn, can never expect the members to use their personal assets to pay for the company’s debts.

The financial circumstances of the shareholder of a company with share capital will never affect the company’s assets and vice versa, with the sole exception in which all the quotas or shares of the company are held by a single person and when the obligations envisaged by the law are not fulfilled (refer to the provisions of the law in force on limited liability companies (s.r.l.) and on single-person companies limited by shares (s.p.a.). Seek the professional advice of your notary public.

In partnerships financial autonomy is imperfect:
- for instance, in informal partnerships and in other forms of partnership (general partnerships and limited partnerships) only when the life of the partnership is extended does the law envisage that a partner’s share can be liquidated for his personal debts;-  moreover the law envisages unlimited and joint and several liability of the partners (except for the inactive/limited partner) and hence their personal assets are used to pay for the company’s remaining debts once all of the company’s assets have been used.

Perfect financial autonomy means that if the company goes bankrupt the bankruptcy does not apply to the partners, whereas when the financial autonomy is imperfect also the partner who has unlimited responsibility goes bankrupt.

On the other hand, if the partner who has unlimited responsibility goes bankrupt, the company does not.

Duration of partnerships

Duration is not an essential element for the establishment of partnerships. The parties may also expressly agree on indefinite duration.

When a date of termination is envisaged, then on that date the company can be dissolved.

The termination date may be modified or eliminated by the partners via:
- express extension. In this case all the partners expressly decide on a new date of termination or on continuing the company’s life indefinitely;
- tacit extension. If, after the date of termination the partners continue to do business as usual, then the company is tacitly extended for an indefinite period of time.

Duration of companies limited by shares

Also companies limited by shares can have indefinite life, but in such case all the shareholders have the right of withdrawing: hence this is a choice that is to be adopted with caution, since the possibility of withdrawing is a major cause of instability.

Distinctive features

In carrying out its business, the company can use distinctive features such as a name, sign-board and trademark.

The name characterizes the entrepreneur in exercising the company’s business, the trademark identifies and distinguishes the goods and services produced by a company and the sign-board identifies the premises where the business is carried out.

Registered Office&