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SRL - Società a Responsabilità Limitata

Italy has finally revamped its Business Corporation Laws with the aim of providing businessmen with more flexible and transparent business entities.

The following information is based on the recently revisited Business Corporation Act (Dlgs. 17 January 2003 n. 6), effective as of January 1, 2004.

The purpose of this memorandum is to acquaint foreign investors to the Italian "Società a responsabilità limitata" (or Limited Liability Company, hereinafter referred to by its Italian acronym, "S.r.l."). The Srl is the most commonly used corporate form in Italy, although the Società per Azioni or "S.p.A." is the corporate form used by major public corporations quoted on the Italian stock exchange and preferred by large private enterprises. The S.p.A. (similar to a Joint Stock Company) is the most regulated of the two major limited liability companies requiring a full-blown board of directors and board of auditors, as well as higher minimum capital requirements (i.e. ¤ 120.000,00). The regulations set forth in the Italian Civil Code ("ICC") for the S.p.A. also apply to the S.r.l., unless stated otherwise.

Limitation of Liability

Whereas the S.p.A is a company having shareholders whose liability is limited to the par value of their shares, the S.r.l. is a company whose owners hold “quotas” instead of shares. Like shareholders of an S.p.A., “quotaholders” of an S.r.l. also enjoy limited liability up to the par value of their “quotas”.

Choice of Business Entity

The more structured S.p.A. is the business entity required by law for public corporations. The S.p.A. is also the business entity most favored by large private enterprises and foreign investors.

The formation procedures of an Italian limited liability company (S.r.l.) are basically the same as for an S.p.A.

The S.r.l. is the corporate form most used by smaller businesses. There are no requirements for management by a board of directors. Also in most cases, small S.r.l.'s can do without a board of auditors provided there be at least one director (Sole Director).

Capital Structure

The minimum authorized capital stock ("share capital") of an S.r.l. is as stated above, fixed at ¤ 10.000,00 which may be contributed in cash or kind and, under the new Business Corporation Act, individuals may even contribute professional work or services. In practice prior to formation, quotaholders are required to deposit only ¤ 2.500,00 in cash or bonds with a local Bank corresponding to 25% of the minimum authorized capital stock. The annual government tax on an S.r.l. is ¤ 361,52. In the S.r.l., liability is limited by quotas instead of shares as in the SpA. Thus an individual participant’s capital contribution in an S.r.l. is termed a participant's "quota" and the participants are termed "quotaholders". Higher amounts must be expressed in multiples of ¤ 1,00. S.r.l.’s may now issue bonds (debentures). Quotas may not be issued to the bearer but must be issued in nominative form. The list of quotaholders must be filed with the business registry office at the time of filing the financial statements. Every deed for the transfer of quotas must also be filed with the business registry office.

Relationship of quotaholders, directors and officers

The requirements are the same as for an S.p.A., except that, unless otherwise stated in the By-laws ("statuto"), the management of an S.r.l. is entrusted to the quotaholders. An S.r.l. must have one or more directors who need not be quotaholders or Italian nationals. S.r.l.’s may be formed by two or more quotaholders or unilaterally by a single (sole) quotaholder. An individual or corporate entity may be the sole quotaholder of an S.r.l. without such person losing limited liability status, regardless of similar holdings by the same quotaholder in other limited liability companies. And, in the event of insolvency, the sole quotaholder will continue to have limited liability, provided all capital contributions have been fully paid-up or the S.r.l.’s sole quotaholder has been identified and the entity’s sole quotaholder status publicized in the Registry of Companies.

Transfer of quotas

Unlike with other Italian corporations, the By-laws of an S.r.l. may contain a clause restricting the transfer of shares or subjecting transfers to the unanimous approval of the other quotaholders, making the S.r.l. the ideal form of "closed" corporation, well-suited for defending substantial private fortunes and holdings.

Books and Records

A board of statutory auditors is mandatory for S.r.l.’s under the following conditions:

1. A board is required by the By-laws.
2. The capital stock is greater than or equal to ¤ 120.000,00.
It should be noted that Italian principles of accounting conform to internationally accepted principles of accounting.

Estimated Time of Formation:

Excluding regulated industries such as banking, insurance, shipping, or aviation, requiring government licensing and compliance with special laws, formation of S.r.l.’s usually takes about four weeks.

Estimated Cost of Formation:

The cost of incorporating an S.r.l. will vary, depending on where the entity is incorporated and headquartered, i.e. where the registered offices are located. Setting up an S.r.l. in Milan or Rome will normally be more expensive than in the smaller towns and cities. Incorporating an S.r.l. in the northern industrial areas, regardless of the location, will tend to be more expensive, generally-speaking, than setting up a similar entity in rural areas, including southern regions and the islands. Incorporation costs will normally include legal fees and notarial fees, as well as accountants’ fees. Start-up S.r.l.’s will also need the on-going services of an accounting firm to do the company book-keeping, income tax returns, as well as provide tax advice on a yearly basis.

The above memorandum is no more than a brief overview of the subject matter and aims at providing only basic legal information. Although it has been prepared, as of 29 February 2004, with attention to accuracy, it is not intended to be relied upon as comprehensive advice or as a specific opinion on the subject matter, and it is recommended that its relevance and accuracy be rechecked prior to taking any implementing action.

Società a responsabilità limitata (S.r.l.)

A Società a responsibilità limitata (S.r.l.) is a private limited company by quotas. It is the corporate form that allows the broadest flexibility to the founder(s) in establishing the rules governing the company.
Starting from the August 2013 form, there are two types of società a responsabilità limitata:

  • Traditional società a responsabilità limitata (S.r.l.)
  • Simplified società a responsabilità limitata (S.r.l.s.)

Both types can have a single shareholder.
The main difference between S.r.l. and S.r.l.s. is that S.r.l.s. are required to adopt the standard Memorandum & Articles of Association provided by a Ministry Decree and the shareholders can be only physical persons.

Capital and Shares

There are no minimum and maximum legal capital requirements for the formation of a S.r.l. or S.r.l.s. However, if the company’s capital is less than Euros 10,000.00 a number of restrictions apply including:

  • no contributions in kind of any assets other than cash are allowed;
  • for the purpose of creditor protection 20% of the profit for the business year shall annually be put aside as a legal capital reserve until the net asset of the company has reached Euros 10,000.00. Such reserve can be used only to increase the capital or to cover losses.
  • S.r.l.s. capital cannot be higher than Euros 9,999.00.
  • At least 25% of the company’s capital shall be paid up prior to incorporation. If the company is single member or becomes single member, capital shall be fully paid up prior to incorporation or immediately after the company has become single member.
  • Each S.r.l. shareholder holds only one “quota” of the company which represents a varying portion of subscribed capital. In the case of a single member company, his/her “quota” represents the whole share capital.

Unless otherwise specified in the Memorandum of Association, the value of each quota is calculated proportionately to the value of the shareholder’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 shareholder holds 60% of an S.r.l. or S.r.l.s. 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 quota-holders’ resolutions.
Nevertheless, shareholders may establish – either in the Memorandum of Association or, subsequently, in the Articles of Association – shares not proportionate to the value of the contribution to the company, and may also establish special rights for specific shareholders.

Shareholders’ Meetings

Shareholders may take decisions provided for by law or company’s Articles of Association in the collegial 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. and S.r.l.s. management is entrusted to one or more directors appointed by the shareholder(s) themselves.
As such, S.r.l. and S.r.l.s. may be managed by a sole director or by multiple directors. In the latter case, the company may adopt one of the following management systems:

  • Board of Directors;
  • Several Management;
  • 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.

Control Body and Audit

S.r.l. and S.r.l.s management control and accounts auditing are entrusted to a Board of Auditors (Collegio Sindacale) or a Sole Auditor (Sindaco Unico).
Control Body is mandatory only if:

  • the company is required to keep a consolidated balance; or
  • the company controls or is controlled by a company which is subject 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.

The Statutory Audit will be carried out by the Control Body, unless the shareholders’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.