Protection against liability

What type of company is typically used in group structures?

While there are two main types of companies used in Italy - the joint stock corporation (società per azioni - SpA) and the limited liability company (società a responsabilità limitata - SRL), unless there are specific reasons that require a subsidiary to be in the form of an S.p.A. (e.g. highly regulated sectors such as banking and insurance) or other specific reasons that the shareholders consider relevant, in Italy the most common type of company used in group structures is the SRL.

What is a "director"?

There is no complete definition of the term “director” in Italian company Law. The director(s) of a limited company (società di capitali) are those person(s) entrusted with the management powers and functions. It is not necessary for a director to be a shareholder.

What are the different types of director?

Directors are regarded as de jure directors if they are validly appointed as such and may be executive and non-executive.

Executive directors are those directors to which the board has delegated part of its functions and powers. They perform managing functions, while non-executive directors carry out supervising activity on executives. In particular, executive directors make sure that the organizational, administrative and accounting structure is adequate in light of the nature and size of the company and they report to the board of directors and auditors, if applicable, in relation to the general management performance and the most relevant operations carried out by the company. Therefore, the entire board of directors, including the non-executives directors, assess, on the basis of the information received by executives, the adequacy of the organizational, administrative and accounting structure of the company; they examine the strategical, industrial and financial plans of the company, if prepared; and they assess the general performance of management as reported to them by executives. Indeed, each director is required to act in a well-informed capacity and, therefore, each director may request that the executives provide them with information related to the management of the company.

A SpA's by‑laws can require that a director comply with specific requirements of integrity, experience and independence, but this is not mandatory. Similar requirements may exist under self- regulatory codes issued by professional associations, or by the companies who manage regulated markets.

According to the Italian Civil Code, the title of director may be extended to someone who is not formally invested of the title but that carries out managing activities typical of directors in a continuative and non-occasional manner. These are regarded as de facto directors. Managing powers may be legitimately exercised only by de jure directors but liability for managing activities may be extended to de facto directors.

Who can be a director?

A director must be at least 18 years old, but there are no nationality or residency restrictions. It is possible to appoint a company as director.

A recent change in Italian corporate law requires any persons assuming the office of director of a limited liability company or of a joint stock company to declare, before their appointment, the absence of any causes of ineligibility stated under article 2382 of the Italian Civil Code and of disqualification from the office of director adopted in a State member of the European Union. Article 2382 states that the following persons cannot be appointed as directors and, if appointed, must cease from their office: (i) persons who are subject to disqualification (interdetti); (ii) persons who are subject to disablement (inabilitati); (iii) persons who undergo bankruptcy; or (iv) those individuals who have been sentenced to a punishment entailing interdiction from public offices or the incapacity to assume managerial offices (uffici direttivi).

. 

Minimum / maximum number of directors

A private company must have at least one director. There is no maximum. The company's by-laws, however, usually specify a greater minimum number and/or a maximum. A public company must have more than one director.

More than one director is needed when a specific management structure is adopted by SpAs:

• In a one-tier (monistic) system, one third of the board must be composed of independent directors and the internal audit committee must be composed of at least two members.
• In a two-tier (dualistic) system at least two members of the management board are required, but the shareholders' meeting can freely determine the maximum number of directors. The supervisory board must be composed of at least three members.

How are directors appointed?

Directors are appointed by way of a decision of the company’s shareholders.

For those SpAs that adopt a two-tier (dualistic) system, except for the first members appointed in the deed of incorporation, the supervisory board (Consiglio di Sorveglianza) appoints the members of the management board (Consiglio di Gestione).

Moreover, in all SpAs it is possible that some directors are appointed by the holders of financial instruments or by public bodies; categories of shares may be assigned the right to appoint a certain number of directors and the state or a public body may have a direct right of appointment without causing the alteration of the participation’s percentages.

Details of the appointment must be filed with the companies’ register within 30 days of the appointment taking place.

Limited liability companies’ by-laws can provide specific appointment rights.

How are directors removed?

Directors may be removed at any time by means of a decision of the shareholders. Directors removed without cause may have a claim for damages deriving from their removal from the board. In the absence of reputational damage related to the manner of removal, damages generally correspond to the compensation that director would have received, had they stayed in office for the residual period of their appointment.

In a two-tier system the supervisory board is entitled to remove directors.

Alternatively, in limited liability companies, specific removal rights can also be set out in the by-laws.

If limited liability companies’ by-laws provide specific appointment rights, the director can be removed at any time by the shareholder who has the appointment right. 

A director may resign at any time.

When a director leaves office, notice must be filed at the companies register within 30 days.

Typical management structure

The management body of a joint stock company (SpA) can be structured according to one of the following systems:

• Traditional system. The shareholder meeting will appoint a management body (composed either of a sole director or a board of directors) and a panel of statutory auditors with the function of ensuring that the company is managed in compliance with the law, company by-laws, and standards of proper management. The panel of auditors usually carries out its control activities only towards management. Accounting control activities are carried out by an external audit body appointed by the shareholders’ meeting. However, if certain conditions are met, the panel of auditors may also be required to carry out accounting control activities. The board of directors usually delegates managing powers to an executive committee (comitato esecutivo) or to a CEO (Amministratore Delegato). In this case the managing functions are carried out by executive directors while the board retains supervising and advisory functions.
• Dualistic system (sistema dualistico). This is a two-tier management structure. The shareholders’ meeting appoints a supervisory board (consiglio di sorveglianza) which is responsible for ensuring that the company is managed in compliance with the law, company by-laws and standards of proper management. Except for the first members appointed in the deed of incorporation, the supervisory board must appoint the management board (consiglio di gestione), which is responsible for the company's management. The supervisory board is also responsible for the approval of the annual financial statements. The shareholders' meeting must also appoint an external auditor (usually, an auditing firm) carrying out accounting control activities; such activities cannot be, in any case, carried out by the supervisory body.
• Monistic system (sistema monistico). This is a one-tier management structure. The shareholders' meeting appoints a board of directors (consiglio di amministrazione), which will manage the company. The board of directors will appoint an internal audit committee (comitato per il controllo sulla gestione) from among its independent and non-executive members. The shareholders' meeting must also appoint an external auditor (usually, an auditing firm) carrying out accounting control activities.

If company’s by-laws do not specify the management system adopted, the traditional one applies.

The management body of a limited liability company (Srl) can be structured in one of the following ways:

• A sole director.
• A board of directors.
• Two or more directors acting jointly or severally to manage the company but not forming a board of directors.

In Srls, a supervising body is only appointed if required by the company's by-laws or if the company exceeds specific thresholds regarding the economic results and employment workforce.

How are decisions made by directors?

When the management body consists of a board of directors, decisions are taken collegially with specific procedural rules to be met. The chair of the board of directors is entitled to call the board of directors' meeting, unless the company's by-laws state otherwise. In order for the meeting to be correctly held, the majority of the members of the board of directors or management body must attend the meeting. Board resolutions require the approval of the majority of the directors attending the meeting. The company’s by-laws can set out different quorum requirements, the possibility to attend board meetings in plenary form and/or by teleconference or other rules and notice requirements for the calling of a board meeting.

In limited liabilities companies (Srl), when a board of directors is appointed, it is not mandatory that decisions are taken collegially: if the company’s by-laws allow it, decisions can be taken upon written consultation or on the basis of written acceptance. If more directors are appointed without forming a board of directors and they do not act jointly according to the by-laws, each director can take decisions individually with the exception of decisions regarding the draft financial statements, the drafting of mergers or divisions plans, and the approval of a capital increase.

Authority and powers

If there is a board of directors, the company’s by-laws must specify which directors have authority to act in the name and on behalf of the company and whether they are able to do so individually (firma disgiunta) or if they have to act jointly (firma congiunta). As already outlined, this specification is irrelevant to third parties, unless it is proven that the third parties have acted intentionally to the detriment of the company.

The difference between the power of representation of the company and managing powers has to be noted: representation has to do with the ability of the director to act with third parties on behalf of the company and with the authority to bind the company by entering into contracts on the company's behalf. Managing powers have to do with the internal decisional process: the power to decide about the company’s operations.

Under the law, managing powers belong exclusively to the board of directors and are exercised collegially. It is common however for the board to delegate its powers to individual directors who become executives. The by-laws usually specify that executive directors are also able to act in the name and on behalf of the company providing them with authority to act with third parties.

As far as third parties are concerned, directors are able to bind the company and enter into contracts on its behalf even if there are internal limits on their power to do so. This rule applies to ultra vires acts and both to joint stock companies (SpA) and limited liability companies (Srl) . The internal limits are irrelevant for third parties even if published on a public register, unless it is proven that third parties have acted intentionally to the detriment of the company. A director may, however, be liable for damages resulting from acts carried out in violation of internal limits or acts which are ultra vires.

Delegation

In a SpA adopting the traditional system, the sole director or the board of directors can exercise all the management powers of the company. The board of directors can delegate specific functions and grant the relevant powers to a managing body (comitato esecutivo) or to a particular director (amministratore delegato). In this case the board retains supervisory and advisory functions while executive directors carry out the managing activity.

In particular, executive directors make sure that the organizational, administrative and accounting structure is adequate given the nature and size of the company and they refer to the board and auditors in relation to the general management performance and the most relevant operations.

The board of directors assess, on the basis of the information received by executives, the adequacy of the organizational, administrative and accounting structure of the company, they examine the strategical, industrial and financial plans of the company and they assess the general performance of management as reported by executives. However, the board of directors cannot delegate certain specific functions, such as: preparing the annual financial statements and the management report, the decision about an increase or a reduction in corporate capital; or the drafting of a merger plan.

What are the key general duties of directors?

As a general principle, the Italian Civil Code provides that the directors must comply with the duties provided by law and by the by-laws with the diligence required by the nature of the office held as well as in consideration of the specific competence of each director. The directors are jointly and severally liable towards the managed company for damages arising from the breach of their duties, except for those competences which have been delegated to the executive committee or which have been otherwise delegated to one or more directors.

The Italian Civil Code further provides that “in any event […] all directors are jointly liable if, despite being aware of facts prejudicial to the managed company, they have not done whatever is in their power to avoid the occurrence of such facts or, otherwise, to exclude or limit the prejudicial consequences of such facts.”

General duties binding each director are, for instance:

• Duty to act in order to pursue the company’s purpose.
• Duty to set out an organizational, administrative and accounting structure adequate given the nature and size of the company and functional to the timely detection of a business crisis. Directors also have the duty to act promptly to adopt one of the preventative restructuring frameworks for the overcoming of a business crisis, and to ensure the viability of the company.
• Duty of care. Directors must act with the diligence required by the nature of their office, taking into account their specific skills.
• Duty to inform the other directors. Executives must report to the board, at least once every six months, on the general management performance and on the most relevant operations.
• Duty to act advisedly. Directors may ask executives to report about the company’s management.
• Duty to monitor the executive directors. Directors may be held jointly liable if they fail to take the necessary measures to prevent damage to the company (if they are aware about facts that may adversely affect the company) . Non-executive directors must supervise and be informed about company’s business; on the basis of information received by executives, they asses the adequacy of the organizational structure of the company, they examine industrial, strategic and financial plans and they assess the general management performance.

• Duty to inform the other directors and statutory auditors, of any existing conflict of interest in a specific company transaction. If the director is a managing director they  must refrain from the transaction and defer the matter to the board which must make the decision about the transaction.

• Duty to keep the corporate books and to draft the annual financial statements and submit them for approval to the shareholders' meeting within 120 days from the financial year end (or within 180 days, in certain specific cases provided by the Italian Civil Code). Once the shareholders’ meeting approves the draft financial statements, the board members have to file them with the Companies' Register, within 30 days from the date of approval.

• Duty to call the shareholders’ meeting without delay in case of losses exceeding one third of the corporate capital.

• Duty to comply with all filing requirements with the Companies’ Register, for example, once the shareholders’ meeting appoints or removes a director, or approves the company's financial statements, the board members have to make the relevant filing with the Companies' Register within 30 days.

The extent of these duties and responsibilities and the standard of care required for each director depend on the director's office and specific expertise.

What are directors' other key obligations?

Directors are also responsible for ensuring that the company complies with its other statutory and legal obligations, for example under environmental and health and safety laws, employment laws, consumer protection laws, competition laws and bribery/anti-corruption laws.

Under the Italian Civil Code and other legislation, directors have the duty to adopt all measures necessary to preserve and guarantee the health and safety of employees. These measures include: to make an assessment of hazards for employees; to implement a programme of preventative activities; to reduce or, where possible, to eliminate hazards; and to monitor sanitary conditions of employees.

Directors must also adopt and efficiently implement an organizational and management model which is adequate to prevent the commission of crimes. If such a model is not adopted, and efficiently implemented, the company may be held liable for crimes committed by its directors or employees.

In case of financial imbalance, directors must also operate a "solvency test" before proceeding with a legitimate repayment of shareholders’ loans.

Transactions with the company

The main restrictions on directors’ transactions with the company concern the operations that can give rise to conflicts of interest (i.e. the circumstances in which an interest of directors and/or their connected persons (broadly, family members and connected companies or trusts) is in conflict with that of the company), which require directors, in general terms, to comply with certain requirements and obligations (such as disclosure to the board and abstention from the vote to implement the transaction).

Breach of general duties

The extent of directors’ duties and responsibilities and the standard of care required for each director depend on the director's office and their specific expertise. In certain circumstances, directors are jointly liable to the company for damages that result from a failure to fulfil their duties or for failing to take the necessary measures to prevent damage to the company (if they are aware about facts that may adversely affect the company).

For limited companies, civil liability may be incurred by directors towards:

• The company or individual shareholdeers (on behalf of the company) for damages caused by a failure of one or more directors to perform the specific duties and obligations under applicable law and the by-laws with regard to the management of the company. If the board of directors has delegated specific functions to certain directors, then only those directors will be liable for the delegated functions. However, the board of directors will also be held liable if a court finds that the board of directors has breached its duty of supervision and control.
• The company’s creditors if directors have breached the specific rules regarding the preservation of the corporate assets.
• Individual shareholders or third parties for damages directly caused by directors' fraudulent or negligent action.

An action for damages can be filed by the company or by the shareholders (as per SpA, only if they own one fifth of the stock capital or another share, in any case not exceeding one third, set forth in the by-laws and if they can show that the damage was caused by actions exclusively attributable to the director.), or by company's creditors. The contractual nature of the liability means that the plaintiff has the burden to prove the breach of the duty of diligence, the damages and the causal nexus.

The action for liability towards the director can be exercised by the company only after a resolution of the shareholders’ meeting. The action of liability may also be brought upon a resolution of the board of statutory auditors, adopted by a two-thirds majority of its members. The action may be brought within five years of the director's termination of office.

The law provides a general duty of supervision over the management, which persists even if competence is delegated to the executive committee or to one or more directors. The breach of this duty entails a joint liability of all the members of the Board of Directors, unless one of them proves that the conduct of the other directors did not allow the supervision to be performed.

Such joint liability is owed to the company only and therefore not to creditors and third parties.

The liability of the director must be also connected with the violation of the general duty of diligence in making management choices, therefore, the good business conduct of the director is sufficient to exclude the default, notwithstanding the result of the choice made.

In relation to criminal liability, as well as the general rules that apply to all, specific rules of criminal corporate law apply to directors. They mainly concern the following:

• accounting documents
• shareholders' contribution
• distribution of profits and reserves
• corporate assets.

Liabilities on insolvency

Additional personal liabilities may arise for directors if the company is insolvent or nearing insolvency. 

Directors have criminal liability if they commit offences during either:

• Ongoing insolvency proceedings.
• The period before a company is declared insolvent, under certain specific circumstances.

The main insolvency crimes include:

• Bankruptcy (bancarotta semplice).
• Fraudulent bankruptcy (bancarotta fraudolenta).
• Illegal applications for loans (ricorso abusivo al credito).
• Declaration of non-existing creditors (denuncia di creditori insesistenti).

In general terms, the board members are liable towards the company's creditors if they fail to comply with the obligations related to the preservation of the integrity of corporate assets. The relevant liability action can be exercised by the creditors when the company's assets are insufficient to satisfy the debts owed; should the company waive its liability action, this shall not influence the creditors' right to bring an independent claim.

In case of bankruptcy or other “procedura concorsuale” the actions for liability are filed by the “curatore fallimentare, commissario liquidatore or commissario straordinario”. The actions for liability owed to the company  and owed to the creditors  converge in a unitary action, filed by the official receiver. Accordingly, the creditors lose the right to sue the director directly.

In that case, the director’s liability to the company creditors is of an extra contractual nature and arises when the director does not comply with  duties concerning the preservation of the capital stock integrity and the action can be filed only when such stock capital is insufficient to pay off their debts. The requirements to bring an action against the director are:

• Their unlawful conduct (contrary to the duties established by the law or by the by-laws).
• A prejudice for the creditors represented by the insufficiency of the stock capital in order to satisfy their debts (and the insufficiency does not mean insolvency: there can be insolvency when there is not liquidity, but the assets could however be sufficient).
• A causal nexus between the prejudice and the conduct.

The Italian Civil Code imposes on directors of all types of business that act as corporations or in collective form a duty to take the necessary steps to adopt an organizational, administrative and accounting structure that is adequate given the nature and size of the company, to promptly detect a situation of crisis and the loss of going concern status and to  adopt and implement without delay those instruments provided by the regulations to overcome the state of crisis and restore the company as a going concern.

Alongside this innovative duty to monitor the evolution of financial dynamics from the perspective of the company’s going concern status, the law also sets out a more traditional duty to verify the static situation of the corporate assets, with aggravated liability deriving from requirements for the directors to limit management solely to the conservation of the company’s assets after the occurrence of a cause of dissolution (including the erosion of net equity for losses not followed by recapitalization: so called “recapitalize or liquid rule”).

Other key risks

Personal liability for directors may, in certain circumstances, arise under Italian legislation including that relating to environmental and health and safety, employment, consumer protection and bribery/anti-corruption. In certain cases, criminal liability may arise.