In Italy startups are not subject to any specific regulation and they do not consequently have any legal definition. However, Legislative Decree no. 179/2012 – converted by Law no. 221/2012 – introduced an ad hoc regulation that applies only to the so-called “innovative” startups.
Such regulation has been implemented and extended by Legislative Decree no. 3/2015 – converted by Law no. 33/2015 – and further governmental provisions, providing for an autonomous legal framework on innovative startups.
Pursuant to Article 25 of Legislative Decree no. 179/2012, “innovative” startups are private corporations, including cooperatives, meeting all the following requirements:
- they shall be newly incorporated companies or companies that have been incorporated in the last sixty months;
- they shall have their registered office in Italy or in another EU State or in a State which is party to the Agreement on the European Economic Area, provided that in the latter case they shall have at least a production office or a branch in Italy;
- the annual turnover shall be lower than EUR5,000,000;
- they shall not distribute profits;
- their exclusive or prevalent business purpose shall be represented by “the development, production and marketing of innovative products or services having high technological value”;
- their incorporation shall not be due to any merger or demerger transaction, and/or sale and purchase of business or business units as going concern.
In addition to the above, a startup must meet at least one of the following additional requirements:
- at least 15% of the greater amount between sales and annual costs shall be attributable to R&D activities;
- at least 1/3 of the total workforce shall be represented by PhD students, or PhD holders or researchers, or, alternatively, at least 2/3 of the total workforce shall be represented by people having a master degree;
- the startup shall be the owner or licensee of, at least, one registered patent or shall have deposited the relevant request of registration of a patent, or it shall be the owner of an original registered software, provided that such patent or software shall be strictly related to the activity and scope of the startup’s business.
Innovative startups may enroll in a special section of the competent Register of Companies reserved to them. Companies already established when Law 221/2012 entered into force, and meeting the above said requirements, may enroll in the special section of the Register of Companies and benefit from the specific regulation of innovative startups for the following period of time: 4 years, if the company has been established within the previous 2 years from the enactment of said Law; 3 years, if it has been established within the previous 3 years; 2 years, if it has been established within the previous 4 years. New companies may enroll in the special section and benefit from the relevant regulation for a maximum term of 5 years.
2. Are there any specific formalities or other requirements to be met to maintain the status of innovative startup?
The maintenance of the requirements mentioned in the above paragraph must be yearly ascertained only in relation to the qualification of innovative startup. Specifically, within 30 days from the approval of the annual financial statements and, in any case, within 6 months from the end of each fiscal year, the company’s legal representative must certify the maintenance of all of the mandatory requirements by means of a self-declaration to be filed with the competent Register of Companies.
Should the companies lose one of the mandatory requirements or the annual self-declaration not be submitted, the startups shall be automatically cancelled from the special section of the competent Register of Companies, loosing its special regime as innovative start up, within 60 days from the occurrence of one of such circumstances, while they will continue to be enrolled with the ordinary section of the same competent Register.
3. What legal form may a startup have?
When one or more founders intend to form a start up, they need to decide on the legal structure for it and they may choose any of the for-profit corporate types governed by the Italian civil code to this aim, i.e. under the form of a partnership such as società di persone: società in nome collettivo, società in accomandita semplice, or of a corporation such as società in accomandita per azioni, società per azioni, società a responsabilità limitata and società a responsabilità limitata semplificata. Innovative startups must necessarily be incorporated as one of the above form of corporations.
4. What would be the most appropriate corporate vehicle to set up a startup? And why?
Joint-stock or limited liability companies (in Italian respectively società per azioni and società a responsabilità limitata)are the most common corporate types used to set up a startup, whether or not innovative.
Indeed, although on the one side incorporation costs and formalities, as well as maintenance costs, for partnerships are lower than those provided for joint-stock or limited liability companies, on the other side, however, partnerships do not have the so-called “corporate veil” (autonomia patrimoniale) as joint-stock or limited liability companies.
Amongst corporations, a limited liability company is the corporate type that is considered more appropriate and efficient by commentators and the main players. This type of company may be incorporated with a corporate capital ranging from EUR1 to EUR10,000 and it usually ensures a greater flexibility in terms of corporate governance.
On the contrary, a joint-stock company requires a minimum share capital of EUR50,000 and, inter alia, the mandatory presence of a Board of Statutory Auditors for fulfilling supervisory duties.
5. Are there any incentives in case of an incorporation of a startup?
Specific tax benefits and administrative incentives have been set forth only for the establishment of innovative startups. Same benefits and incentives are not provided by law for non-innovative startups.
First of all, incorporation costs have been significantly reduced. Innovative startups are exempted from payment of the stamp duty and any other administrative fees due for enrollment within the Register of Companies, as well as from payment of the annual fee due to the Chamber of Commerce.
Starting from the fiscal year 2017, individuals and companies investing capitals in innovative startups could respectively take advantage from an IRPEF (individual income) deduction and an IRES (corporate income tax) deduction of 30%. This tax relief is subject to two conditions: (i) a maximum investment limit for each tax year, equal to EUR1,000,000.00 for individuals and EUR1,800,000.00 for taxable IRES entities, and (ii) the obligation to keep the investment in innovative startups for a period of at least 3 years.
From an administrative and formal stand point, as of July 2016 innovative startups in the form of a limited liability companies (società a responsabilità limitata) can be incorporated remotely by electronic means, by signing the Articles of Association and By-laws through an electronic or digital signature, as an alternative to hold a meeting before a Notary Public for the execution of the notarial deed. As a result, the incorporation has been simplified and costs relating to notarial services are no longer needed.
In addition to the above, the incorporation procedure has been further simplified by the introduction of a simplified standard form of the Articles of Association and the By-laws, drafted by the Ministry of Economic Development (“MISE”), to be used by the shareholders or quotaholders (as the case may be) who want to set up the company digitally.
6. Is there a specific legislation governing the incorporation process of a startup?
The regulation applicable to the incorporation process of a startup depends on its corporate type. In case of incorporation of a joint-stock or limited liability company, it is necessary to (i) execute the Articles of Incorporation before a Notary Public, and (ii) enroll the company within the competent Register of Companies by the same Notary, notwithstanding new provisions for innovative startups.
For innovative startups incorporated as limited liability companies (società a responsabilità limitata), Legislative Decree no. 3/2015 has introduced the possibility of setting up the company also in digital form, thus replacing the notarial deed with a document signed digitally, in compliance with the standard form prepared by the MISE. The document must be filled out and signed digitally by the shareholders (or quotaholders) and submitted electronically to the competent office of the Register of Companies. At the end of validation procedures required by law, such office will enroll the company within the relevant special section.
7. Are there specific rules for startups with reference to corporate governance?
The corporate governance regulation slightly varies between non-innovative and innovative startups.
While the Italian Civil Code provides for the general body of law governing corporate matters, innovative startups are subject to Legislative Decree no. 179/2012 which sets forth a set of specific rules partially deviating from the provisions of the Italian Civil Code on limited liability companies. Such rules refer to:
- provisions for equity losses;
- creation of different classes of stocks having with different voting and patrimonial rights;
- public offering and transactions on its own stocks;
- issuance of alternative equity instruments in favor of company’s employees/directors (so called work for equity).
In the event of equity exceeding 1/3 of the outstanding corporate capital of the company, the mandatory term to reduce such losses is postponed to the end of the second fiscal year (rather than to the end of the first fiscal year). In the event of losses exceeding the minimum level of the corporate capital required by law, the Board of Directors, as an alternative to the immediate reduction of the outstanding corporate capital and its simultaneous increase, may resolve upon the authorization of the postponement of such resolution to the following financial year. Until that time, moreover, the dissolution of the company for reduction of capital below the minimum level required by law cannot be triggered.
The Articles of Association of innovative startups incorporated as a limited liability company may provide for different classes of stocks with special rights within the limits set forth by the law (for example, it is possible to provide for classes of stocks without voting rights, or attributing non-proportional participation, or limiting the voting rights to some particular matters).
Innovative startups incorporated as limited liability companies may also carry out transactions on their own stocks, issue equity financial instruments and offer financial products, as well as equity instruments, directly to public throughout crowdfunding platforms.
8. What are the financing instruments for startups?
Main financing sources for a startup are the investments made by venture capital founds,, business angels or professional investors, since they inject capital in the company allowing the development of the business project and the growing of the startup (reference is made in particular to venture capital transactions).
Innovative startups are more attractive for investors than other startups thanks to the particular corporate provisions such as by way of example the ability to issue different categories of stocks or make public offering of financial products – that increase the chance of the company to raise financings. Market trading is also facilitated by the existence of dedicated channels of fundraisings, such as the crowdfunding platforms, accessible by innovative startups.
9. Can a startup go bankrupt? Is the liquidation/dissolution of a startup subject to specific provisions?
Non-innovative startups can go bankrupt and be subject to the bankruptcy proceedings prescribed by law.
Innovative startups, instead, are subject only to the procedures provided by Law no. 3/2012, namely, the proceedings for over-indebtedness which allow the company (i) to reach a settlement agreement with debtors, or (ii) carry out the liquidation of assets.
Such alternative proceedings are more efficient and faster than traditional bankruptcy proceedings and help to avoid the consequences of bankruptcy in terms of reputation.
10. What does “innovative SMEs” mean? Are there any differences with startups? Is it possible for startups to be transformed into “innovative SMEs”?
The Legislative decree 3/2015 defines innovative small and medium enterprises (“innovative SMEs”) as small and medium companies having less than 250 employees, an annual turnover of less than EUR50 million, or an annual balance sheet of less than EUR43 million pursuant to the EU Recommendation No. 2003/361/EC, established as no-listed corporations and meeting the following requirements:
- fiscal domicile in Italy or in one of the EU Member States;
- last approved financial statements duly audited;
- not already enrolled as innovative startups within the competent Register of Companies.
- In addition to the above, innovative SMEs shall meet at least 2 of the following additional requirements:
- at least 3% of the greater amount between total costs and total value of production allocated as R&D and innovation costs;
- total workforce consisting of at least 1/5 of PhD students, PhD holders or researchers, or at least 1/3 of holders of a master degree;
- ownership of at least one intellectual property right relating to a computer software, provided that this IP right is related to the corporate purpose and business activity.
In terms of turnover, the maximum annual turnover of startups shall be EUR5 million or lower, while for innovative PMI it shall be EUR50 million.
In addition, in order to be qualified as “innovative”, SMEs do not have the 5-years’ time limit, which applies to startups instead. Due to this reason, as of 2015, innovative startups are allowed to become innovative SMEs and transfer their registration into the relevant special section of the competent Register of Companies upon expiration of the 5-year time limit on the assumption that said companies meet the legal requirements provided for innovative SMEs. As a result, they will be subject to the regulation provided for innovative SMEs and, in particular, the relevant tax benefits, deductions and exemptions shall apply, such as: payment exemption of stamp duty at the Chamber of Commerce, tax breaks (only accessible, however, to innovative SMEs operating on the market for less than seven years from their first commercial sale), derogations from some corporate law provisions (with the exception, inter alia, of bankruptcy law and labor law provision which do not apply to innovative SMEs).
Finally, Legislative Decree no. 50/2017 – converted by Law 96/2017 – has extended to all SMEs set up as limited liability companies, even if not qualified “innovative”, the following derogations to corporate law provisions: (i) creation of different classes of stocks with different rights, both of administrative and patrimonial nature; (ii) public offering and transactions on its own stocks.
