5 minute read | December.03.2024
Italiano: Italy Founder Series: Costituisci la tua Startup
When founders in Italy set up a startup, they must make decisions that can have long-term effects, especially when it comes to raising capital.
Creating a company establishes responsibilities to employees, customers and suppliers. Avoiding mistakes at this stage, including about legal documentation, can help founders navigate subsequent phases of growth, capital raising (including due diligence) and potential exit.
What are the most common legal questions a founder must answer when setting up a startup? Let’s take a look.
Shareholder status: Parties that enter into a partnership agreement become members of the newly formed organizational structure and acquire shareholder status. This status confers rights and obligations that are:
Italian law permits founders to choose among various types of companies within the broad category of capital companies for conducting commercial activities. The law considers capital companies legal entities distinct from shareholders. That allows individual shareholders to limit their liability for the company's obligations, which are met by the company with its assets.
Limited liability: As the most common choice among capital companies in Italy, the limited liability company(Società a responsabilità limitata or S.r.l.):
SPAs: To meet formal and governance requirements, investment funds may require an S.r.l. company to transform into an SPA during more structured capital raising rounds, such as a Series A. Companies can do this within the round. It is not particularly burdensome for the entrepreneur.
Explore the differences between SRL and SPA.
Founders do not have to travel the growth path on their own. A variety of professionals can help at various stages of the startup’s life, including by optimally structuring the company to raise capital.
Notaries: For most founders, notary fees are the first costs to consider when setting up a company. The costs typically amount to a few thousand euros.
Accountants: An accountant’ssupport is fundamental for operational activities such as identifying the ATECO code (classification of economic activity), opening a VAT number and obtaining a digital signature.
Lawyers: Attorneys are equally indispensable.
During the incorporation phase, founders will sign the deed of incorporation and adopt corporate by-laws, which will govern relationships among shareholders. Given that the by-laws are subject to frequent changes and negotiations throughout the company's life, startups should enter the market with a document that aligns with established practice.
Founders must decide how to allocate the corporate capital at the time of incorporation. They can base the division on a simple criterion: participation in business risk.
An S.r.l. can be administered by a sole director, a board of directors or one or more directors (without constituting a board) with joint or separate powers.
A sole director or board of directorsare most common. However, investors may request the right to appoint representatives to the board of directors, necessitating a review of the startup’s administrative body structure.
We recommend a lean governance structure that allows the company to make operational decisions swiftly and efficiently.
Intellectual property, such as patents, trademarks, copyrights and trade secrets, makes up some of a startup’s most valuable assets, especially in tech and innovation. Founders should protect IP and register it in the company’s name. Proper management safeguards innovations and enhances the startup’s attractiveness to investors.
Employees form the backbone of a company. Founders should establish clear and transparent working relationships with well-defined contracts that protect the company and its IP. That can prevent future legal and organizational problems.
Additionally, a clear division of roles among co-founders from the incorporation phase prevents conflicts and ensures efficient operations. Co-founders can choose to be company directors, focusing on strategy and management, and/or take on operational roles as employees. If a founder opts for both responsibilities, a company should clearly divide competencies between the employment relationship and the administration relationship.
Incentives like stock options or profit-sharing can motivate employees and align them with company goals. Implementing these tools early also can help attract talent.
A company completes incorporation by filing a deed of incorporation and by-laws with the competent Companies’ Register. Upon registration, the company comes into existence.
Those who carried out transactions in the company’s name before registration are unlimitedly liable vis-à-vis third parties. Therefore, for transactions conducted by the company’s future directors, the administrative body should approve such transactions post-registration.
Founders can register eligible companies with a section of the Companies’ Register dedicated to “innovative startups” to access fiscal and non-fiscal benefits. We’ll address that in a future article in this series. In the meantime, founders can find out if their company qualifies as an “innovative startup” by answering some questions from the Ministry of Enterprises and Made in Italy (Ministero delle imprese e del made in Italy).
Our Tech Team is at your disposal to provide advice on incorporating your startup and support you with administrative requirements so you can focus on growth. If you would like more details, please contact one of the authors.
Are you considering raising capital for an established startup? Our Startup Health Check Italia can help you identify the next step for your startup.