Starting Up Business In Italy

Avv. Daniele Bagalà
Attorney at law Kenichiro Kawada© 2019 Bagalà & Partners International Law Firm

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Introduction

Why Start a Business in Italy?
La dolce vita. The sweet life. The Italian way of living. We all know Italy does
fashion, food and cultural finesse enviably well. You'd run out of fingers, limbs
and any other anatomical features trying to count their brands and industries:
Ferrari, Maserati, Alfa Romeo, Lamborghini, Armani, Versace, Gucci, D&G,
Pirelli. The list goes on and on; brand is its middle name.
Italy may have refined the torture of bureaucracy to an art form, but it evidently
gets things done. In fact, things get more than done. They get big. They get
successful. They get exported. A salient propensity toward entrepreneurship ismore than apparent. But where does the foreign investor come into all of this?
Where do you fit in?

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What are the key advantages to setting up a business in Italy?
The geographical position of Italy (at the center of the Mediterranean and theinfrastructural links with the countries of Europe) allows it to form a crossroads
for international trade, a natural bridge between Europe and the rest of theworld.
Italy, particularly the prosperous north, has one of the highest per capita
incomes in Europe. Italian consumers are sophisticated and demanding,particularly in terms of quality.
Starting a business
Foreign investors can set up a business activity in Italy by:• Opening a representative office (ufficio di rappresentanza) of a foreigncompany• Establishing as a one-man enterprise (ditta individuale)• Establishing an Italian company• Establishing a secondary registered office (sede secondaria) or branch (filiale)of a foreign company© 2019 Bagalà & Partners International Law Firm

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Regulatory reference
Regardless of the method selected to start up a business activity in Italy, foreign
framework investors will be supported by a legislative and regulatory framework
acknowledged as one of the most advanced and dynamic in Europe, and primarily basedon:• The body of corporate law set out in the Italian Civil Code, extensively reformed in 2003;• The Unified Text on Financial Intermediation - TUIF (“Testo Unico in materia diintermediazione finanziaria – namely Legislative Decree 58/1998 as amended andsupplemented), which includes specific provisions for listed companies. The above
Legislative Decree was repeatedly amended aimed at harmonising the national law withthe legislations of Member States concerning financial markets and tender offers;• Legislation on legal persons liability (Legislative Decree 231/2001, as amended);• Legislation on personal information protection (Legislative Decree 196/2003 , asamended and supplemented);• Legislation on workplace safety and hygiene (Legislative Decree 81/2008, as amended
and supplemented);• Legislation on fire prevention and electrical systems safety (Presidential Decree577/1982, Legislative Decree 139/2006 and Law 46/1990, as amended andsupplemented) as well as environmental legislation (Legislative Decree 152/2006, also
known as the Environmental Code, as amended and supplemented).
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Registering the business• Companies established in Italy by natural persons or foreign legal persons, and/or• Foreign company’s secondary registered offices
shall be registered in the competent Register of Enterprises (Registro delle
Imprese); whereas• One-man enterprises established by a foreign investor• Foreign company’s branches• Foreign company’s representative offices
shall be registered with the competent Economic and Administrative Index(Repertorio Economico-Amministrativo (REA)).
The relevant Register of Enterprises and REA offices are set within the Chamber ofCommerce, Industry, Crafts and Agriculture (CCIAA) relevant for the site where thecompany, secondary registered office, one-man enterprise, branch or
representative office are located, respectively.

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1. Starting a Business in Italy
by establishing an Italian Company
Italy’s corporate law primarily differentiates between:
Partnership, generally characterised by:• Unlimited joint and several liability of partners for company obligations• Each partner acts as a director of the company with managing powers• Non-transferability, either inter vivos or mortis causa, of the partner status
except whereby authorised by all other partners; andCorporations, generally characterised by:• Legal personality, autonomous from company owners’ personality• Limited liability for company owners, i.e. each owner’s liability is limited to the
cash or assets he/she has contributed to the company• Separation of ownership and managing powers; hence company owners are
not necessarily also company directors, and directors are not necessarily
company owners• Ownership as freely transferable, either inter vivos or mortis causa.

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1. Starting a Business in Italy
by establishing an Italian Company

The most widespread types of companies in Italy are: Società per Azioni –S.p.A. (companies with liability limited by shares) and Società a responsabilità
limitata – S.r.l. (companies with liability limited by quotas).
Both types of companies are to be established via a Memorandum of
Association (or Deed of Incorporation) – either a unilateral instrument (whereby
there is one founder only) or a contract (in the case of multiple founders). The
document is complemented with the Articles of Association (or By-Laws) of thecompany, i.e. the set of rules governing the company’s operations through its
existence. Whereby company’s owners should decide to change one or more ofsuch rules over the years, the Articles of Association shall be consistently
amended, whilst the Memorandum of Association shall remain unchanged overtime. Accordingly, consideration shall always be ensured to the Articles of
Association currently in force.

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1-A. Società per Azioni (S.p.A.）
A Società per Azioni is the primary form of corporation, i.e. it best meets the needs of enterprises requiring significant
capital.

Share Capital and Shares
S.p.A. share capital may not be lower than €. 50.000,00, and is divided into “shares”, which can be even dematerialized
securities.
The share capital amount is determined at the moment the S.p.A. is incorporated and shall be subscribed by thoseestablishing the company. In the event of a single founder, one subscription only will therefore exist; in the event of multiple
founders, all shall subscribe (varying) portions of share capital until the whole capital has been subscribed.
Via capital subscription, each shareholder undertakes to pay the portion of capital subscribed upon execution of theMemorandum of Association. Payment can take place either by money contribution to the S.p.A. (to its cashier or onto acurrent account in the company’s name) or, whereby expressly provided in the Memorandum of Association, via in-kind
contribution or contribution of receivables, whose value shall be equal to the amount of capital subscribed.
In the case of multiple founding shareholders, those paying the capital subscription in cash are not required to pay theentire amount of their share(s) up front. They are entitled to deposit at least 25% initially and agree to pay the remaining
75% at a subsequent date consistently with the managing body’s request.
Conversely, whereby paid in kind or via transfer of receivables, the share capital is to be paid in its entirety.
In the event of a single founder, he/she shall pay the entire share capital subscription up front, regardless of whether
payment is in cash or in kind (i.e. goods or receivables).
Any share premium the founding shareholders might wish to pay for the shares shall be paid in its entirety upon S.p.A.
establishment.
Once the Memorandum of Association has been filed with the competent Register of Enterprises and the S.p.A. company
therefore has been incorporated, the company may issues shares representing its own share capital.
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1-A. Società per Azioni (S.p.A.）
Corporate Bodies
Shareholders’ Meeting
The Shareholders’ Meeting is the S.p.A. sovereign corporate body, i.e. the forum within which its shareholders form
their will as to the company, then implemented by the managing body. The shareholders pass resolutions
collectively. Resolutions legitimately passed during the meeting are binding for all shareholders, including thoseabsent and those who voted against the resolution passed; nevertheless, in some cases it is possible for suchparties to withdraw from the company, following procedures established by law.

Managing Body
The managing body is responsible for company management. In performing ordinary and extraordinary managementtasks, it is not bound to seek approval from shareholders for its actions, except for corporate administration acts
expressly subject to shareholders’ approval as by law.
In any event, the managing body composition depends on the corporate governance model adopted by thecompany, even if under the so-called “ordinary” model (which is the more common one) the company management
is entrusted to a managing body, either composed of multiple directors (i.e. Board of Directors) or a single director(i.e. Sole Director). The Board of Directors may delegate some of its administrative powers to an executive
committee or to a Managing Director. The Managing Body may be also a corporate body, unless further legal
provisions setting forth restriction or requirements related to certain type of companies.

Control Body
The control body is responsible for overseeing company management and/or auditing its accounts, although thelatter may also be entrusted to an independent auditing firm.
Within the so-called “ordinary” model of corporate governance management control is entrusted to a Board ofAuditors composed of either 3 or 5 statutory auditors and 2 alternate statutory auditors, while accounts are auditedby an external auditor or auditing firm enrolled in the Register of Auditors.
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1-B. Società a responsabilità limitata (S.r.l.）

A Società a responsibilità limitata (S.r.l.) – i.e. company the liability ofwhich is limited by quotas – has a much more streamlined corporate
structure than an S.p.A., particularly due to the broader freedom that
Italian law grants to the founding quotaholder(s) in establishing its
functioning, organisation and other features and adapting them to their
specific needs. Indeed, the Memorandum and Articles of Association
may derogate from much of the legislation governing an S.r.l.

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1-B. Società a responsabilità limitata (S.r.l.）Capital and Quotas
S.r.l. capital can be lower than € 10,000.00 but not less than 1 €, and is divided into “quotas”. The amount of capital isdetermined at the time the S.r.l. is incorporated and (likewise S.p.A.s) shall be subscribed in its entirety by founding
quotaholder(s). Quotas are dematerialized.
Like S.p.A.s, in the case of multiple founders, those paying the subscription of capital in cash are not required to pay theentire amount of their quota; they may deposit 25% initially and agree to pay the remaining 75% at a subsequent dateupon the managing body’s request. Conversely, sole quotaholder is required to pay its capital contribution in its entirety,
likewise multiple quotaholders intending to make in-kind contributions or contributions of receivables.
Any premium on quotas shall always be fully paid up front.
Unlike S.p.A.s, quotaholders may also contribute the value of services to be provided to an S.r.l. by one or more of them.
The subscribed capital shall be paid in its entirety by those quotaholders electing to contribute the value of their services;such contribution shall take the guise of a formal undertaking by the quotaholders to provide such services to the S.r.l.
Each S.r.l. quotaholder holds only one quota, which represents a varying portion of subscribed capital. In the case of solequotaholder, his/her quota represents the whole capital.
Unless otherwise specified in the Memorandum of Association, the value of each quota is calculated proportionately to thevalue of the quotaholder’s contribution to the company, and his/her rights (e.g. voting rights, and the right to share in
profits) are also proportionate. For instance, if a quotaholder holds 60% of an S.r.l. capital, he/she is the owner of a quota
equal to 60% of total capital, is entitled to 60% of the company’s earnings, and his/her vote represents 60% of the quorum
required for passing quotaholders’ resolutions.
Nevertheless, quotaholders may establish – either in the Memorandum of Association or, subsequently, in the Articles of
Association – quotas not proportionate to the value of the contribution to the company, and may also establish special
rights for specific quotaholders.
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1-B. Società a responsabilità limitata (S.r.l.）

Quotaholders’ Meeting
Corporate Bodies and Governance Quotaholders’ Meeting
Quotaholders may take decisions provided for by law or company’s Articles of Association in thecollegial manner typical of Shareholders’ Meetings. However, the Articles of Association may also
provide for such resolutions (unless related to specified matters) to be taken through more streamlined
procedures, such as written consultation or written consent.
Management Body
Unless otherwise specified in the Articles of Association, S.r.l. management is entrusted to one or moreshareholders appointed by the quotaholders themselves.
As such, an S.r.l. may be managed by a Sole Director or by multiple Directors. In the latter case, thecompany may adopt one of the following administration systems: (i) Board of Directors; (ii) Several
Management; (iii) Joint Management.
The Managing Body may be also a corporate body, unless further legal provisions setting forth
restriction or requirements related to certain type of companies.
The Articles of Association may establish that multiple administration systems be used, each for a
specific set of issues for which the managing body is called upon to decide. In any event, all directors’decisions shall be documented in a dedicated corporate book.

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1-B. Società a responsabilità limitata (S.r.l.）Control Body
In S.r.l., management control and accounts auditing are entrusted to a Board of Auditors or
a Sole Auditor.
Control Body is not mandatory, except if certain circumstances occur, that is if the company:• has got a capital equal or more than Euro 50.000,00; or• must keep a consolidated balance; or• controls a company obliged to statutory audit; or• for two years has exceeded the following limits: (i) total assets of the balance sheet: Euro
4,400 millions; (ii) revenues from sales and services: Euro 8,800 millions Euros; (iii)
workers employed on average during theear: 50 units.
Whenever the company may got an income or a net worth equal or higher than Euro one
million, the Control Body must be a Board of Auditors, not a sole Auditor.
The Statutory Audit will be carried out by the Control Body, unless the Quotaholders’s
Meeting deliberate to entrust it to an Auditor or an Auditor Firm; any revocation must be
approved only by the resolution of quotaholders, according by the law.

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1-C. Società a responsabilità limitata semplificata(S.r.l.s.）
Recently, in addition to the ordinary model, a new types of S.r.l. has been
introduced:
Simplified S.r.l. (Società a responsabilità limitata semplificata) – “S.r.l.s.”
The main differences among ordinary S.r.l. and a S.r.l.s. are the following:(i) S.r.l.s can be only incorporated by individuals (a wholly-owned S.r.l.s. is allowed);
therefore, legal entities (such as companies) are excluded. Quotaholders of a S.r.l.s.
can be only individuals and not corporations. Conversely, an ordinary S.r.l. can beincorporated by individuals as well as legal entities;(ii) S.r.l.s. capital contributions can be carried out in cash only. Conversely, in the eventof ordinary S.r.l., in-kind contributions, contributions of receivables, and contributions ofservices may be also made. In particular, in cash contributions of the S.r.l.s. have to be
paid directly to the Managing Body when the company is being incorporated. It implies
that the Managing Body must attend the company’s incorporation before the Notary
Public in order to immediately accept its charge and it has to formally state, before theNotary, that the corporate capital has been paid-in.
Also for the S.r.l. the capital has to be paid directly to the Managing Body.
(iii) The incorporation costs are different: S.r.l. is around 2.500 € and S.r.l.s. is 1.000 €.

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2. Opening an Italian Branch
Foreign company branches are separate – though not legally autonomous – units of the company
itself; as a matter of fact, with regard to the company head office, branches enjoy bothorganisational and decision-making autonomy.
An Italian branch of foreign company enables the company to operate in Italy with a morestreamlined, cost-effective structure than if a full subsidiary were established in the Country.
Furthermore, a foreign company can utilise a branch to conduct the same business in Italy as
abroad – impossible whereby the foreign company were merely to open a representative office,unable to conduct any direct production-related activities.
As far as internal organisation is concerned, we need differentiate between a branch proper and asecondary (registered) office.
A foreign company’s secondary office is usually managed and represented by a permanentcompany representative having general power of attorney (known as an “institore”, as invested witha “procura institoria”), who conducts business for the secondary office on behalf of the company
and handles its external relations in the Country.
Conversely, a branch proper – at least in principle – is managed and legally represented by the
managing body and legal representative of the foreign company, although, in practice, companies
frequently appoint a local manager (institore) to run the branch.
For tax purposes, both secondary offices and branches are considered as permanentestablishments and are therefore subject to taxation. They shall thus keep their own books, submit
VAT and income tax returns to tax authorities (Revenue Agency) each year, and file the annual
report of the foreign company with the relevant Chamber of Commerce.
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3. Opening a Representative Office
Whereby a foreign company wishes to get a feel for the Italian market before locating a business or aims topromote its business, a representative office may be opened in Italy.
Current Italian legislation does not provide an official definition of “representative office”. It is therefore
standard practice to refer to the OECD Model Convention to avoid double taxation and prevent tax evasion(affecting Article 162 of the Italian so-called Revenue Tax Consolidated Act, Presidential Decree no.
917/1986).
And it is always standard interpretative practice to distinguish between a “mere” representative office and a
representative office that does not merely perform representation functions.

What is a “mere” representative office?
It is the fixed place of business of a foreign company in Italy engaged only and exclusively in marketing andpromotional activities, or scientific or market research, or other information gathering activities. In other words,
a “mere” representative office merely plays an auxiliary or preparatory role for the foreign company to enter the
Italian market, and may not conduct production-related or commercial activities.
As such, for tax purposes, a “mere” representative office is not considered a “permanent establishment” of theforeign company and is therefore not subject to taxation. Accordingly, such an office is not required to keep
books, publish financial statements or file income tax or VAT returns. It is, however, required to maintainordinary accounts in order to document expenses (e.g. personnel costs, office equipment, etc.) to be coveredby the foreign company’s head office.
The establishment of a “mere” representative office shall be simply reported to the relevant REA based on thelocation where the concerned office is to be started. The filing shall be carried out by the legal representativeof the foreign company, endowed with an Italian Fiscal Code (or by an attorney-in-fact with special power ofattorney and Italian Fiscal Code), through Single Notification. Upon receipt by REA, the Revenue Agency will
provide the “mere” representative office with ad-hoc Fiscal Code.
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3. Opening a Representative Office
What distinguishes a “representative office that does not merely perform
representation functions”?
First, while such an office may not engage in production-related or commercial activities, it,unlike a mere representative office, may provide third parties with non-commercial or
preparatory services to the company’s business (i.e. display, purchasing and storing goods,
gathering information, advertising, research, and other ancillary or preparatory activities). Of
course, governance of the relationship between this kind of representative office and third
parties shall be agreed between the third party and the foreign company establishing theoffice.
Consequently, it is standard interpretative practice to consider such a non-mere
representative office as a permanent establishment and thus subject to taxation. As such, in
addition to being registered with the competent REA and possessing a Fiscal Code, theoffice shall also obtain a VAT number from the competent Revenue Agency office. The filingshall be carried out by the legal representative of the foreign company endowed with an
Italian Fiscal Code (or by an attorney-in-fact with special power of attorney and Italian Fiscal
Code) through Single Notification. Upon receipt by REA, the Revenue Agency will provide
the “non-mere” representative office with ad-hoc Fiscal Code.
Unlike a “mere” representative office, it shall also keep separate books, file VAT and income
tax returns each year and file the foreign company annual report with the relevant Chamberof Commerce.
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