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Italy: new rules for small limited liability companies

Background
With the large-scale reform of the company law from the year 2003, Italian legislators had simplified the regulations on the Governance of limited liability companies. The declared goal was to open the possibility of "streamlining" the management of an LLC (Srl) as far as possible, making it similar to a partnership, and thus giving a number of "simple" companies the benefits of limited liability.

In order to be able to recognise the signs of a company crisis at an early stage prior to insolvency, with the law no. 155 dated 19/10/2017, legislators have now turned the wheel slightly backwards and forced the government to adopt a series of implementing provisions on 14 November 2018, which will lead to a significant tightening of the internal control mechanisms.

The reform content
According to the legal situation before now, an internal control committee was only required in an Srl if at least two of the following three size criteria were met:

  • Total assets in the balance sheet of EUR 4.4 million
  • Total annual turnover of EUR 8.8 million
  • Average number of employees: 50
  • These size criteria allowed a variety of smaller Srls to get by without an internal control committee and the associated costs.
  • In the course of reform, the introduction of the internal control committee is now mandatory if even one of the following criteria are met:
  • Total assets in the balance sheet of EUR 2.0 million
  • Total annual turnover also EUR 2.0 million
  • Average number of employees: 10.

The obligation to appoint a controlling body (board of statutory auditors – collegio sindacale or single auditors – revisore unico) only applies if the specified limits are not achieved for three consecutive years.

The failure to appoint a controlling body in spite of the specified conditions being met represents a case of the managing director’s liability; in addition, it is now a reason for initiating liability proceedings before the competent court according to Art. 2409 codice civile [Civil Code], also in the case of an Srl which until now only applied for the joint-stock companies (Spa). If the company itself fails to appoint the above body, this can alternatively be done at the initiative of the commercial register office.

Evaluation of the reform
The drastic reduction in thresholds will, in practice, force a whole series of smaller Srls, which had until now been run more like partnerships, to create a significantly more rigid internal structure. Whether the legislative goal of creating a more intensive preliminary control with regard to a crisis or insolvency in the smaller Srls, or rather, of making the legal form of the Srl less attractive, will only become apparent in the coming years. In any case, many companies will be forced to react to the new legal situation and to review and adapt their partnership agreements. Merely in order to choose between having a controlling body or individual investigators.

Author: Valentina Montanari