How to Succeed in Business while really trying

Italian enterprise from the ground up

Paolo Necchi
February 23, 2006

Tired of your boss’s constant nagging, hopeless mental capacity and unbearably bad breath?  Have you got a brilliant business idea plus some time and money to spare? Then you can become your own boss, especially in Italy. Because Italy is the land of the small and medium-sized companies. If you do not fall into the above-mentioned category, but you live or are planning to live in Italy, you might find this article useful anyway. Because, sooner or later, you will have to buy a house, order a piece of furniture or get your car repaired and knowing what kind of business company you are dealing with will be helpful.

 

Choosing the right form of business is crucial to the success of an entrepreneurial project. Though the choice is reversible, sometimes the price to pay to reverse the decision is not only purely monetary, but can also be measured in terms of the lost momentum of the whole project. In Italy, the simplest form of business is called Impresa individuale (Sole Proprietorship). A sole proprietor has no partners and is entitled to all decisions and profits, but has unlimited liability for business debts as well.

 

A viable alternative to the Impresa Individuale is the Società a Responsabilità Limitata Unipersonale (Single-Shareholder Limited Liability Company). The sole shareholder enjoys complete control over the company and receives all the profits, while his responsibility for company debt is limited to the amount he/she has invested. Nevertheless, the Società a Responsabilità Limitata Unipersonale entails more costs and bureaucratic requirements than the Impresa Individuale.

 

Shareholder liability is the most important feature used to classify companies. Limited liability usually translates into a more expensive and complex business structure and does not always reduce shareholder risks. In fact, unless the company capital is deemed adequate, limited liability shareholders must offer securities and personal guarantees to allow their company access to bank credit. In 2004, a sweeping and long-awaited reform of Italian corporate law went into effect improving radically both the flexibility and the transparency of Italian companies. These are the main forms of business currently available:

 

Società in Nome Collettivo – SNC (General Partnership):general partners have unlimited liability for partnership debt and all their personal assets can be targeted in case of insolvency. Their responsibility is mutual, that is creditors, in case of insolvency, can force any of the partners to advance the whole sum owed by the company and only later the debt burden will be redistributed among the other partners.

 

In a general partnership, where members share management, profits and losses, harmony and affinity are essential. A general partnership is not a legal entity and is not liable to pay tax (partners must claim their share of profits or losses on their personal income tax returns). No minimum capital is required.

 

Società a Responsabilità Limitata – SRL (Limited Liability Company): its owners’ liability is limited to the amount invested. SRLs have a minimum capital requirement of Euro 10,000.  25% of the company capital must be deposited in cash to a bank account at the time of incorporation. Their bonds can be subscribed only by institutional investors. Shareholdings are not represented by share certificates and cannot be listed on stock exchanges. SRLs are legal entities and are subject to taxation.

 

There are no predetermined compulsory structures for the management of an SRL and a board of auditors is mandatory only when the capital exceeds Euro 120,000 or in accordance with given assets, profits and labour force benchmarks.

 

SRLs benefit from a simplified decision making process and board members may consult each other and adopt resolutions in writing without holding meetings.

 

Società per Azioni SpA (Corporation):  it is similar to an SRL, but is designed to fulfil the needs of larger enterprises and requires a series of checks and procedures to protect investors and shareholders. Under the new corporate law auditing is carried out by external certified accountants.

An SpA has a minimum capital requirement of Euro 120,000 and its capital is divided into shares. The initial minimum percentage cash contribution is 25%.

 

As far as corporate governance is concerned there are three alternatives:

 

· the “Latin system”, which is based on a Board of Directors and a Committee of Auditors, both named by the shareholders;

 

· the “German system”, with a Supervisory Board, appointed by the shareholders, which in turn appoints a Management Board;

 

· the “Anglo-Saxon system”, managed by a Board of Directors, named by the shareholders, which in turn appoints, amongst its members, a Management Control Board.

 

The new corporate law offers to SpAs the possibility to create a separate fund, distinct from the company’s assets and liabilities, in order to achieve a specific project. The new law has also introduced “tracking shares” (linked only to a sector of the company), eased the procedures to issue bonds and more than doubled the previous bond-equity ratio.

 

Società in Accomandita Semplice SAS (Limited Partnership): an SAS is made up of soci accomandatari (general partners), who manage the business and have unlimited liability, and soci accomandanti (limited partners), who are not directly involved in the business and are liable only to the extent of their investments.

 

Società in Accomandita per Azioni SAPA (Partnership Limited by Shares):  its capital is represented by shares. While an SAS is a hybrid between an SNC and an SRL, this form of business combines the characteristics of an SAS and an SpA, but it is rarely used.

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