CIVIL LAW AND COMMON LAW - Smirne

The notary accompanies a company through its entire business life: together we will see the
creation of a company and of a startup but these are just two key moments in the actual life of a
company. The role of a notary is a public role: he/she is a public official which represents the
state.
Law is linked to a legislator, the state, a juridical system. Business law regulates the way we
organize our businesses. Because this is true, there are different ways businesses decide to
organize themselves. However, the big infrastructure and the immense variety of legal systems
from all around the world can be reduced to two systems: civil law and common law.

Analysis of the differences between the two systems: this will be explained with two approaches:
1. Simplified approach (big picture-exaggerate the differences)
2. Detailed approach (similarities between two systems)

Simplified approach
Civil Law: it’s the system we live in Italy. It has to do with all continental countries of Europe. In
Civil Law countries the importance of the state is great: the fact that we name the state with a
capital letter shows this (in Italian, Italy is written with a capital I). Why is the state so important?
Because historically there was a great importance given to the King, from whom all three powers
emanated (legislative, judiciary and administrative). If everything emanates from the state, then
the organization of the legislative power must be consequent.
Hence, the civil law had to have the following things:
- More formalities
- Written documents (and evidence)
- Written laws and codes
- Notaries as representatives of the state in contracts (seal: the symbol of the state’s authority):
the symbol of Italy is a star and a wheel.
NB: the state’s representative sanctions the total freedom in contracts: “contracts have the effects
of a law between the Parties”: the state grants the right to dictate private rules and makes them
binding: the state grants that peoples’ agreements matter. What is the civil code saying here?
The civil code is a law and it’s saying that contracts are just as strong as the law. This article is the
symbol of LIBERALISM in our society because the state is dictating a few laws (code) and is
allowing the people to add their own rules. It’s not a totalitarian society, it’s a free society.
So the fact that a notary is present in your contract is not to oblige you to follow the state chosen
rules: the state says “you, the people, have to decide your own rules and the notaries help you
reach what you want, they help you obtain it”. The state says that whatever you decide to sign is
as good as a law made in Rome. If you respect mandatory rules, you can create any contract you
want and the state through the notary is there to recognise your decision. So the notary by your
side is not the state “controlling” your contract, but recognizing it.

What happened in Europe at the end of the 18th century? The French Revolution, which
changed a lot of things but it didn’t change this idea of state, the idea that powers emanate from
the state. After the French Revolution, the change was given by the fact that the three powers
had finally been separated from each other (Napoleon). This separation remained over time: all
three powers come from the state but they are separate.
Let’s think about Italy: in the legislative system we have the Camera dei Deputati (lower
Chamber) and the Senate (higher Chamber). The legislative power is of the state because these
two organs belong to the state.
Then there is the judiciary power: judges are the members of this power and judges are
selected with an open state exam (selects the best). It’s a good system to allow people to move
socially. Judges are separate from the legislative power, but in who’s name do they speak? They
speak for the state. It’s the ministry of justice which runs the state exam. So it’s a separate,
democratic power but it’s coming from the state.
The third power is the administrative power: the government which represents the state.
All three power come from the state, the French Revolution separated them but it didn’t change
the fact that these powers are powers of the state. This gives us a more formal legal system,
because coming from the state, it comes “from above”.
People in Civil Law systems believe that it’s efficient to create a system above them called the
state (which is democratic and transparent), so that such system helps us obtain what we want.
Because it comes from above, the law needs to be more formal and written. The law tells us what
is good, what is wrong etc.
All Civil Law countries have a civil code: a wonderful law that summarizes the prosper of
personal and public life of people.

Common Law: related to Anglo-Saxon countries (England is not a continental state, it’s an
island). In the United Kingdom, the King has always had great power, but in 1215 his power was
challenged by nobles with the Magna Carta. The king at the time wasn’t liked by the nobles and
he wasn’t like by the French. The French had invaded him and in order to defend himself from
them, the king needed a big army and therefore asked help to the nobles…but the nobles
didn’t like him and the French were coming. He had to decide what to do and in the end he
sided with the nobles, but to do so he had to give the nobles what they wanted. This is why they
signed this document: the Magna Carta.
This document contains two very modern things:
1. The nobles didn’t want to fight for the king against the French but many of them were taken
by the king. Many nobles lost their lives or were injured without any trial. In the Magna Carta,
the king was forced to sign that nobody would be incarcerated without a due trial. This idea
was extremely modern (it was a roman idea). So the first thing that this document granted
was “habeas corpus” which means that you could have your body preserved. No
incarceration without due trial. So the power of the King was very limited from this point,
because the trial was to be held by judges which would in this way put a stop to the King’s
power.
2. The nobles were not willing to be imprisoned or killed for not going to war and they
obtained that they couldn’t be incarcerated without a due trial. They were also sick and tired
of having to pay for the war and so they obtained a second freedom: “no taxation without
representation”: the nobles wanted an assembly of people to decide what taxes should be
levied. This was another super modern (and roman) idea. This is the role of the parliament.
The king’s power was challenged by giving more power to the judiciaries and to the
parliament. This meant less power to the centralised state, less power to the government and
more to parliament.

State in the Italian language is written with a capital “S”, whereas in English it’s not. This gives us
the idea that since language and state reflect the people, something happened to society. There
is a different idea of state between civil and common law. People value the idea of sate more in
Italy than they do in England: in Italy we believe that we have created a system above us which
helps us be happy; in England that system above has been stopped at an early stage.
There is one word that the English write in capital letters that Italians don’t: the word “I” (myself).
The individual has a capital letter. So if we put these things together, on one side we have “State”
with a capital letter and on the other we have the individual, “I”, with a capital letter. It’s a totally
different idea of how the society should be and this is because the Magna Carta changed the
history of the UK.
Because of this, there are some logical consequences:
- Less centralized power
- Fewer formalities: lawyers have to convince the jury, this is typically American or English.
- No written laws decided by the state, but there are binding Court’s decisions: precedents. For
example, let’s consider divorce. After divorce is filed, what rights do the parents have to see
their children? In the civil law system this is determined through the laws; in the common law
system you go to court, the judges will decide and issue a decision and that decision
becomes a “precedent” and all future similar cases will have to be answered to follow that
precedent.
- No notaries as representative of the state in contracts: notaries are the guardians (even
physically protection) of written documents, but there are no written laws in this case.

The common law system is wonderful but it’s very different from ours. It was changed from the
Magna Carta. Our system was changed by the French Revolution which made it a democratic
system but it didn’t eliminate the fact that all three powers come from the state.
In common law, you don’t become a judge with an exam, you are elected. The advantage of this
is that it’s very democratic and if you are chosen you have a democratic legitimization. Both
systems have pros and cons.

Realistic Vision
The two systems also have much in common.
1. Civil Law: importance of Court’s decisions, which is normal for Common Law. In Civil Law it’s
also important to understand and know what the court has decided. In order to really
understand the civil law system you need to know this as well, but there is a theoretical
difference: in common law judges CREATE the law for a case and this law then becomes a
precedent. It’s more logical. In civil law it’s important to understand what the court says, in
order to have detailed answers, but in theory civil law judges don’t create the laws, they
APPLY them. So in civil law, laws are made by parliament and applied by judges. In common
law, some rules are created by the courts. Summary: also in civil law it’s important to study
Courts’ decisions.
2. Common Law: the typical element of civil law are written laws, which happen to be present
in common law as well. They don’t have as many, but they are present. An example is the
Companies Act 2006: in the UK if you want to study company law, you don’t just study courts’
decisions, you must also read the Companies Act. They don’t have civil codes in common law
countries because the idea of civil codes go against their ideas. Summary: common law
countries have written laws, they just don’t have as many as we do because they rely on
precedences.

IMPORTANT: The most important written law is the Constitution. How is the English
Constitution? Is it well written? The answer is neither yes or no. The answer is “there is no British
constitution”. In Italy, the most important law is the Constitution. In Great Britain they don’t have
it. In civil law countries written laws are more important than in common law countries.
How is the American Constitution? There is an American constitution: the USA are certainly one
of the most important common law countries, maybe THE most important. So if you think about
it, the key element of civil law, which is the constitution, is present in the key country of common
law. All the countries which had to detach themselves violently from someone else have all
written a constitution, only England had the privilege of not having some traumatic moments.
When you suddenly become independent, you need written documents.

This is to say that fortunately the two systems have much in common.
THE CREATION OF A COMPANY - Smirne
Law is linked to people and it’s the answer to what people need. Law is a different set of lenses
through which you see reality.

Notaries: state officials. They are selected through the state but after having been selected by
the state, they organize their work in a private way. Obviously they are subject to rules. The
meaning of notary is different with respect to where you are:
- Continental Europe: civil law notary
- Anglo-Saxon countries: different
Common law and civil law are two systems which compete with each other but the Civil law
system, even though it’s not the system of the leading economy, has been the most vital system
is the last 30 years (even if the leading economy is the USA which is a common law system). The
Civil law system has been chosen by many young countries. Also China is getting closer to civil
law. In China, in fact, there are also notaries. China is approaching a civil code and written laws.
So Civil Law isn’t a dead system and the role of notaries must not be underestimated.

An aspect of company law is the creation of companies.

Creation of a company
Two documents. This idea of two documents is true basically everywhere in the world. It answers
a need which is the need of logic. The names of the documents can vary from state to state.
English is a language which is used not only in England, but in the entire UK. It’s also used in
Ireland, Malta, USA, Canada, Australia, New Zealand etc. Because there are so many different
countries that use English, the terminology can be differentiated from state to state. This is why
documents might change names. In common law country there are less written laws and
therefore it’s easier to create different terminologies.
1. Deed of incorporation (Atto costitutivo): photo of what happened that day in front of the
Notary: loses importance after some time: it remains a mere historical document. You need a
notary to create a company. The role of the notary is present mostly in Civil Law system
countries. The document created by the notary is a document of state authority. This
document has date, place, name of the people and the story of what happens that day and
what the people present have decided. It will also have a name which usually reflects the
name of the company being created (Alfa s.r.l (Italy); Alfa l.l.c (USA); Alfa L.t.d (UK)). The
document will also have a specific object, which explains what the company does. It loses
value after a bit only because as we’ve said, it’s the picture of what happens that single day…
things can change a few days later (the name, the company might close, people might
change). After some time, the deed doesn’t reflect the correct situation anymore.
2. Bylaws/Articles of Association/Operating Agreement (Statuto): rules of the company: made
to last. They are also called articles of association. The metaphor of the bylaws is a “film”. It’s
not a single photo like in the deed, it’s a “film”. Bylaws are the rules of a company and they
are made to last, because they can be changed. Something is made to last when you can
change it. If you can’t change it, it’s dead. If you want something to be alive, it must change.
Because the bylaws are the updated rules of the company, it means that every time the
company changes, the bylaws change. Example: Fiat is not FCA and the bylaws have
changed since the day it was established.
Notarial documents are like evidence because no one throws them away and they remain in
time. It’s more than just a written document: it’s very formal, reliable, it lasts a long time and it’s
typical of systems which use written evidence.
The first document takes a photo of what happens in one day. The second document shows the
situation of the company. These two documents are written by a notary: this is true in civil law
systems and not even in all of them. The two documents complete each other and the bylaws
prevail in case of conflict. The two documents are physically united and act as one. This means
that physically I staple the two documents together but they remain two separate documents
(for example, I print them on two different kinds of paper).

The creation of a company is a procedure.

Procedure: series of coordinated acts that have the purpose of creating the company. In order to
have a creation of a company, I need all the steps. There are 3 main steps in this procedure:

Execution (=fi rmare) of the deed and bylaws in front of the Notary. It’s the signing of the two
documents: deed and bylaws. When we hear the word execution we think about cutting
someone’s head. It’s interesting because it also means to sign a document. These two meanings
have a common echo: cutting someone’s head is atrocious (death penalty), it’s something very
serious. It’s interesting that the same terminology is used for signing a deed. It shows us how
much importance is given to signing a deed. Even if a deed is signed on paper, which is often
more convenient, all the steps that come after the execution are digital nowadays. Some of the
digitalisation of notaries notes to like 20 years ago. The documents are digitalized, copied and
sent to the Public Administration. This particular procedure run by notaries in Italy is one of the
most advanced in the world.

Control: it’s better to have a control before rather than later. In the U.S there is the idea that the
law is made in court. The court will stop behaviours that are not appropriate and incentivise
those that are. The same thing happens with documents: document can be stopped if they are
not according to the law. The American idea is that it’s signed before and it’s checked later if
problems arise and at that point the Court will give indications for other situation because your
situation becomes a “precedent” and other Courts will stick to that precedent. The civil law
mentality instead is an ex-ante mentality. Before you create a company, you check all the deeds
and the bylaws, hoping not to go to Court. Here in Italy everyone is entitled to go up to the
highest level in Court, whereas in the US for example going to the Supreme Court is almost
impossible. This means that in America, even though so many cases could actually arise, the
system is capable of fi ltering the cases which actually arrive to the high levels of court, because
it’s not open to everyone. This isn’t the system that Continental Europe wants or has: we have a
previous check of deeds and bylaws so theoretically we have less reasons to go to court
because everything is checked offi cially before. In the US everything is checked offi cially later.

Regularity of documents (for instance authorisation to trade in gold): we are checking the way
thing are done (method) but not the actual clause. First we check the “wrapping”, the way the
box is assembled, then I check what’s inside. So if the regularity of the document isn’t there, I
stop and I can’t go to the next stop. Checking the regularity of documents isn’t so easy. The first
duty of the notary is checking the id of the people coming in (not so easy because ID doesn’t
give me distinctive treats if not photo, eye colour and height). Secondly, we must check that
people are juridical capable of acting. This means checking that people are of age. You also
have to check if the person has been recognised as mentally ill or not by a court: this is not easy
to understand. These checks must be performed by notaries or judges. There are 3 kinds of
authorisations that are sometimes needed when creating a company:
1. The first one is needed to validly sign the deed: if you don’t have it you can’t sign.
2. The second one is the authorisation that you don’t need to have the day of the signing
of the deed, but you need to have it when the notary is later controlling the regularity of
documents.
3. The third kind of authorisation is one you need to register the company.

These are needed in the 3 steps that we are analysing. The third step is also needed after the
company is created, once you start working

Regularity of legal abidance (= if all provisions are respectful of the law). It used to be done by
the Courts, now notaries do it and in case of notarial refusal it’s possible to ask the Court’s
pronunciation (= omologa). Here we are asking ourselves: how did you use your method? To
abide means to respect, therefore here we must check that all the bylaws are respected. It
means to check that each individual bylaw and all of them together respect the law. An example
of this is the use of the word “bank”: this word can’t be used by any company unless that
company is actually a bank, but even this clause isn’t so obvious. For example “data-bank” is
synonym of database. It’s impossible to confuse a bank with a company which sells databanks.
There are many examples, every line of the bylaws can be an example because everything that
we’ve learned is hard to change in bylaws. Some rules are mandatory rules, which means you
can’t change them. Company law speaks about economic needs of people, which are often left
to the people and not to the state: binding mandatory rules of the state are rare. All other rules
are mandatory (can’t steal, can’t kill). In private laws (company law) rules are open for
negotiation. Control of legal abidance also has to do with the understanding of whether laws are
mandatory or not mandatory.
Other examples have to do with a company’s object: an object clause can’t be too vague, it must
be very broad. Some objects are too delicate and so the legislator doesn’t want you to act in a
wild way but wants you to act in specific ways. Some companies can have an exclusive object
(for example, Intesa San Paolo has different companies for different objects: banking, vita,
investing, etc.). This is done to mitigate the risk that a company could have in different “objects”,
so for example if Intesa San Paolo banking is going down, it does’t necessarily take down the
investing company with it.
In an S.p.a one can’t have a unanimous principle: you can’t force shareholders to all agree on
one principle. In an S.r.l (l.l.c) you can introduce a unanimous decision because they are closer to
partnerships, and partnerships are based on unanimous decisions.
So checking the regularity of legal abidance means checking clause after clause of the bylaws
and seeing if they are or not legal according to the clauses of the law. If they are, you’re ok, if
they’re not you have to check if legal provisions can be changed. The criteria for this is to check
whether such clauses are mandatory or not and therefore if they can be changed or not. In
certain fields of the law, everything is mandatory, in other fields of the Law, it’s not.
Every aspect of a company inserted in the bylaws can have possible problems. When they ask
me to create a company, I ask them to possibly use my own bylaws and then maybe add
changes. Otherwise I would have to check every line of the bylaws. It’s not a small job but for us
it’s the most interesting part.
This control used to be done by the court, but now in Italy it’s a job for notaries, in order to allow
courts to do their real job.
Notaries check, but in case of a notarial refusal, it’s still possible to ask for a court’s pronunciation
(omologa in Italian). The parties can accept my judgements or, when I refuse their requests, they
can appeal my decision, go to court and at that point it’s the court’s problem. Notaries are
issuing guidelines nowadays and this creates a “standardisation” process. The control of legal
abidance by notaries is an essential way of controlling documents for the continental way to
create a company. In common law, this check isn’t performed because there are no notaries.

In the US or the Uk, the system tells you to bring the company to court and you are rich enough
to do so, you can bring it to court and check your bylaws there. If you can’t afford this, there’s
nothing you can do.
In Continental law, the system is set to be accessible to everybody.

The American system is quicker but it’s only for some people. The Italian system is slower but it’s
open to anyone. Our system, although it requires 3 steps, can last 3 to 4 days but also 24 hours
sometimes. The American system can be a matter of two hours.
Can we say that in the American systems it’s all telematic and here it’s not? Absolutely not
because clients actually prefer signing on paper than with an electronic signature. In the US it’s
easy to forge a document, whereas here it’s much more difficult as of today.
So we can say that common law is quicker, but not that civil law is slow in general. In Italy,
notaries have been using digital deeds for ten years now, so nowadays everything can be done
digitally (even if people prefer working on paper). Our system is even more telematic because it
can be fully digital and it has certified copies, not just normal pdfs.

Registration of the company: deposit of the deed at the Register of Enterprises. The Register
of Enterprises is also know as the business register. What’s the meaning of “deposit of the deed
at the Register of Enterprises”? It means that the notary will have to fi ll out a number of telematic
forms that allow the system to create a digital and bridged version (synopsis) of the company’s
life. I’m preparing a short version of the text of the deed and the bylaws.

The Register of Enterprises is a big telematic database where all the businesses of the state are
collected and where the information regarding these businesses is collected and organized in a
way that makes it easy for people to extract the right information. It has very low costs to
download what you want.
The information is reliable because the input of the information is filtered by notaries. The risk of
forged documents is very low. This system is pretty safe.

Effects of registration:
1. Constitutive Notice (pubblicità costitutiva): The company is born only after I finish the three
steps. Without registration, the company doesn’t exist yet because I need all three steps. In
the Anglo-Saxon system it’s not like this, the company there is born after the document is
signed. Why do we have something more formal? Why do we have to wait for all the three
steps? It’s quicker to consider the company born after step one, but it’s not a safe solution.
When you gave a formal system such as ours, once your company is created it’s done and
you can’t hide from it: it’s public. When instead it’s more informal, it’s not easy to understand
if the company has really been registered. These systems both have pros and cons but they
are very different. The effect of registration is CLARITY: if I’m registered I exist as a company,
if I’m not registered, I don’t.
2. Constructive Notice: relevant aspects of the company cannot be legally ignored by third
parties. A relevant aspect of the company can be for example “who is the manager of this
company?”. If I’m creating a company with a shareholder that is itself another company, the
problem of the notary is to understand if the person coming in is truly representing this
other company. With the Italian system I know who comes and spends the name of an
American company. If it were an Italian company creating another Italian company, I’d never
find it difficult to understand who must represent company number one because I would
read it in the Register of Enterprises. If instead, company number one is American, can I find
the same things in the American business register? No, because in the American business
register step 1 is not a problem of the notary, the technology is different, there is a pdf so
even step 2 is not checked. Step 3, yes you register but the business register does’t have
constructive register. In Italy the input is safe and therefore the output is safe to step number
3 has a great value. In the American system, no one checks the input that you insert and so
the output isn’t safe and no one is sure about whether its true or not. Summary: in the USA
relevant aspects of a company CAN be ignored by third parties because the business
register is not reliable or filtered so yes, you can read it but it’s not safe. This system works
because other checks and balances are in place. This lowers transactional costs, which are
the costs needed to reach an agreement: they are lower because with the click of a mouse
you have all the information you need on the company you are contracting with. The Register
is available on-line and is kept with data-processing systems so that it is accessible to
everyone.

The same 3 steps that we studied to create a company are the same needed to modify the
company’s bylaws:

1. An extraordinary General Shareholders’ meeting is called for and a Notary takes minutes.
This is just like the first point on execution of the document.
2. The Notary performs the formal and substantial control (and Courts play a residual role in
case of notarial refusal). Identical to what we studied earlier.
3. If the Notary believes that all legal conditions are met (by both controls), he then registers
the decision taken by the shareholders’ meeting in the Register of Enterprises.

After registration, the decision cannot be legally ignored by third parties. Example: if my
company modifies the bylaws by moving from Milan to Torino and this has been inserted in the
bylaws, no one can then say “oh I didn’t know that it had moved”.
INNOVATIVE STARTUPS - Smirne
We will study the creation of Innovative Startups, under Italian law. Italian law has been the first
law in the world to fully regulate the phenomenon of innovative startups.

Innovative startups, as we know them today, the largest birth rate probably happened in the
Silicon Valley in the USA. USA is a common law system, so the propulsion of a legislator to
regulate things is smaller, so in common law systems it’s more common for Courts to intervene
after the problem has been raised.
One of the reasons why it was actually Italian law that fully regulated this phenomenon was that
American law is lighter (fewer laws) and it relies more on jurisdictions.
The second reason also had to do with the government we had at the time (Mario Monti-2012).
Monti understood the importance that the regulation of startups would bring and Italy was in a
moment of economic crisis so resistance to change was easier to overcome.
The third reason has to do with a strong openness toward invention: Italian ingenuity has been
know throughout the world, it’s not a coincidence that the law was approved in Italy because
innovation and invention characterise the Italian productive system.

These three main reasons all lead to Italy being the first country in the world to fully regulate
innovative startups. What does this mean (fully regulate)? It means that other countries, such as
the USA or France, have introduced and spoken about innovative startups, but Italy was the first
to regulate the entire phenomenon: it did not just introduce fiscal incentives (this is what
happens most of the times). The element of originality of the Italian approach was that it was the
first to have a comprehensive approach, because under Italian law you find fiscal aspects, state
interventions but also company law aspects, labor law aspects (more flexible rules to hire
people), immigration laws (you can join an easy visa program if you intend to create an
innovative startup in Italy).

“Innovative” Start-ups - the Phenomenon: a startup is a company which has been created
recently. We aren’t speaking about regular startups, we are talking about innovative startups.
There is a difference. The laws that speak about this phenomenon speak about innovative
startups, which are specific companies which will bring innovation to society. The choice of Italy
has been to go with innovation in the technical field. It could have been different, and, maybe it’s
not the best approach, but that’s how it is.

Startups in the Italian legislature must follow some definitions and pre-requisites:
- An innovative startup is a company, not a partnership.
- The shares of these companies can’t be listed in any stock exchange. We aren’t speaking
about listed companies: it’s not easy for an innovative startup to be listed right away, but even
if it were listed, it would stop being a startup. You can’t be an innovative startup and be listed,
because this kind of legislation provides special help for innovative startups and the
legislature believes that if you are listed, you’re strong enough and don’t need such help.
- When am I a startup? How “old” does my company have to be? No more than 60 months (5
years).
- The company needs to be resident in Italy or in another country of the EU but with at least a
secondary office or productive site in Italy. The law can’t discriminate between Italian or non
Italian companies if Italian companies are created under other states.
- It must be a company that doesn’t have total value of production that is above 5M€.
- It must’t distribute profits, dividends.
- It must have an object that has characteristics, so the object is the exclusive development,
production and commercialisation of products and services that are innovative and have a
high technological added value. So the object of an innovative startup under Italian law is
quite specific because it must be exclusive or at least there must be a prevalence of the
innovation characteristics, which regard the technological field.
- It must be a company that has not been created by merging or dividing already existing
companies (anti-fraud provision).
- The company must have at least one of these requisites: Research&Development investments
that are above 15% of the total production value; the company hires people that have a
degree or a PhD (foster innovation by having qualified people); have at least one patent or
other Intellectual Property protection, usually normal patents or protection of software (not
trademarks because trademarks protect names and names don’t bring innovation).

General Data: how many innovative startups do we find in Italy? Roughly 11200 in Italy, but the
number is growing.
- Lombardy has 3000 startups and it’s the 1st region in Italy
- Piedmont has 600 startups and it’s the 6th region in Italy
- Lombardy is followed by: Lazio, Emilia Romagna, Campania and Veneto
- Milan is the main Province, followed by Rome, Napoli, Torino and Bologna.

The wide gap between Lombardy and Piedmont is given by the fact that Lombardy has double
the population and it already has 4 times as many regular companies that Piedmont. It’s also due
to the fact that Lombardy has a higher density of companies…add this to the fact that it’s more
populated and it all makes sense (2 x more because it’s twice as populated; 2x more because
the density is double). The real gap between the two is 600/2400.

If one considers not the size and population of the Province, but the percentage of SUs related
to the overall number of companies incorporated into the Province: Trento, Trieste and Milano
are the first.

A startup can remain a startup only for 5 years, so there is a limit to the number of startups that
Italy can have: after 5 years, a company isn’t considered a startup.

- The annual growth rate of innovative startups (SUs): 10075 SUs at the end of 1st trimester
2019 and 11206 at the end of the 1st trimester 2020: +1131 SUs = +11.23%
- Total share capital invested in startups in Italy: roughly 650 million€. 650million are the shared
capital, then there are the other resources put into this startup. We are speaking about
numbers that aren’t huge but they aren’t irrelevant.
- More or less 65000 people work in startups. A little bit more that 14000 employees in
innovative SUs and in addition to this, one should count the shareholders (more or less
50000) that are directly involved providing work and services for their SUs. It’s a niche but we
are talking about qualified jobs which have created other qualified jobs.
- The overall income of Innovative SUs was negative by 80 million€ at the end of 2018. This
means that is you take the balance sheets of all the innovative startups in Italy, they collectively
lost 80 million€ by the end of 2018.
- Total value of production was, by the end of 2018, a little more than 1.1 billion €.
It should be noted that by law a company loses the status of innovative SU after 5 years:
therefore, all the above mentioned data must be read bearing in mind that the most performing
companies (and typically that happens only after some years) cease being part of the SU
phenomenon (and enter the world of innovative Small and Medium Caps).
Startups are starting to contribute to the total national profit and they are creating a new
entrepreneur class. After 5 years you stop being a startup but the government keeps following
you to understand if you remain innovative. From there you can become Small and Medium
Caps (PMI).

2018 saw a record amount invested in Italian innovative SUs: 560 million Euros; in the first
semester of 2019 the trend had consolidated: roughly 400 million (of which roughly 25 million
were raised thanks to crowdfunding, the importance of which is also increasing).
This sum shows a high increase over the 2017 results.
As of today, the mortality rate of Italian Innovative SUs is not elevated: this may however not
necessarily indicate a high level of vitality. Startups die quickly, however it’s also true that in Italy
the mortality rate isn’t so high.

The civil law jurist asks himself: “where do I find the proper sources of law?”. Legal provisions for
SUs have been modified many times because it was a new subject. The Italian legislation for SUs
was the first to be written, it has become an example, and so it’s normal for there to have been
many changes. The recent changes are the following:
DL 135/2018 has changed the schedule about periodical disclosure about corporate
information regarding innovation: from every six months to yearly.
Law 30 December 2018 n. 145 has increased tax deductions for investments in innovative SUs.
Very recently, DL 34/2020:
- prolonged (due to COVID pandemic) from 5 to 6 years the maximum duration of the special
startup regime, but only for non fiscal purposes: so there should from now on be a double
duration regime: 5 years for the fiscal incentives to the SUs, 6 years for all the other aspects. In
theory the law that is written now says that you can be a startup for 6 years and not 5. This is a
law decree, which is an urgent law that can be immediately validated by the government for
maximum 60 days, then it needs to be approved by parliament. It’s very frequent that the
parliament changes the decree a bit before transforming it into law. So now they last 6 years
but the fiscal incentives only last 5 years.
- Introduced a new fiscal regime for investments in SUs: they have introduced a new article
where they introduce incentives “de minimis” state-aid. This regards small incentives from the
states, forms of help.
- Created a technology transfer fund: this fund helps investments grow and therefore helps
technology grow.
Secondary legal sources are even more numerous: f.i. ministerial memorandums (like ministry of
economic development is in charge of startups). All the checks of the characteristics that are
needed to be a startup are done by this ministry. Tax agencies clarify the aspects of financial
incentives needed to be a startup.
Then there are some isolated legal provisions, such as the one about turistical SUs.

Main characteristics:
Company’s Creation:
- no more than 5 years old
- Company with residence in Italy or with productive seat in Italy if the company has its main
seat within the EU.
- Yearly production value no more than 5 million euros: this characteristic and the next one are
strange because they seem to be weights imposed upon the innovative startups and which
prevent them from becoming profitable organizations. It seems to be counter productive. This
first rule means that the state will be helping small companies which need help to develop. If
you have more then 5 million euros, you are strong and therefore no longer need the state’s
help. The idea is that we help you if you are young and fragile.
- It does not distribute profits: ratio: the idea is that the state spends public resources to help
you capitalise your resources and develop your ideas. When profits come, they are all yours,
the state asks nothing in change of its help, but at least if the state helps you, you (the
shareholder) must believe in the startup. If you don’t distribute profits, it means that you keep
it in the company and once you are no longer a startup, you can distribute it as you want. This
is not a rule to punish, it’s a way to incentivise you to keep profits in the company.
- It is a real SU (and not merely a reorganisation of pre-existing businesses)
- One of the three: R&D or personnel with high qualification or Intellectual Property Rights.
- Innovative object clause: “the exclusive or main object being the development, production
and commercialization of innovative products or services, with high technological value”.
These startups are good at coming up with an idea, setting up and starting the activity.
Usually, they ask for help in production, services and commercialization.
- Exclusive or main
- Also commercialization (that for products is actually often skipped)
- Products or services
- High technological value

Deed of incorporation: you can create your startup through different objects:
- Free notarial “simplified Ltd”=srls : here you don’t pay but you don’t get a full service.
- Notarial srl. (l.l.c): you pay your notary and you get full notarial service.
- On-line website + Chamber of Commerce: pre-set model which composes an automatic
deed for you and those are your bylaws.
N.B: the notarial deed can be fully digital; and anyway physical attendance is required also at
the Chamber of Commerce.
Which is the best option? There are three different possibilities for three different needs. If you
want something free, number 1 and 3 are free. Number 1 is very essential and down to earth
and it’s entirely free because the notary is doing an entirely free service. Number 3 is free for you
but not for society because the Chamber of Commerce gets paid through taxes. All three of
them work. A few comments:
1. The state says that if you use option 3 you are saving on notarial costs, but this is not true
because although notaries cost, they aren’t as expensive as one might think.
2. Some clients come to notaries after the chamber of commerce. The chamber of commerce is
free but this means that sometimes they aren’t as efficient as they should be.
3. The advise you can get online is pretty standard: you choose and create your own bylaws.
The chamber of commerce is not there at your full disposal.
4. It’s not true that the chamber of commerce is always better just because it’s digital. Notarial
documents are becoming digital as well.
So to summarize, the three options are very different because they answer different needs.
Functioning: in innovative startups it’s possible to create special categories of shares. When we
studied PLC (spa) we learned that there can be different categories of shares, whereas when we
studied LLC (srl) we learned that it Italy this wasn’t possible: all the shares of srl gave you the
same rights. With innovative startups there is the possibility to create categories of shares. These
are the main characteristics of an innovative startup’s functioning:
- Possible categories of shares: more flexible law
- More time for mandatory share capital reduction (in case of losses): share capital has to be
adjusted to the resources that you have. With an innovative startup you have one extra year to
adjust, because there is more risk.
- Possibility to issue financial securities: securities are pieces of paper that the company issues.
A typical security is a bond. An SRL can’t make proper bonds, but as a startup you can make
other financial securities, similar to bonds.
- Agreements in the bylaws or out of the bylaws (Patti parasociali): up until now we have
studied rules written within the bylaws. Some shareholders sometimes sign a separate
document, outside of the bylaws.
- Startup a vocazione sociale: startup with a social vocation (ex. A startup producing games for
the blind).

Fiscal Incentives:
- investments in innovative startups are partially detaxed. If I invest in a startup I get 30% from
Irpef and Ires, now 40% or even 50% in case of stable control acquisition.
- Work for equity detaxed: paying its employees partially with shares. You can’t pay your
employees fully with shares but you can partially pay them that way. It’s good for workers
because they might become your shareholders and therefore be incentivised in working
better.
- Rules for companies incurring in systematic losses are not applicable.

Labour Law: employment law. The rules that apply to innovative start-ups are more fl exible.
Short term contracts can be used more freely from innovative startups. Innovative startups are
more fl exible because they can keep you on a short term contract for a longer time than normal
companies. This is because it’s more diffi cult for them to hire people and so this incentives
workers to go there.

Public incentives for easy access to credit: for instance the Smart&Start program in which a
governmental body guarantees that you go and ask the bank for loans: the state will guarantee
80% of what you are asking the bank. Start up Visa.

Certified technological incubators: they follow characteristic in order to be certified by the law.
The law provides for all the characteristics they might have. Technological incubators can filter
projects well, help you in finding business opportunities etc.

The legislation that exists in Italy is an excess. It’s rare that the state gives you money directly, but
by giving you a tax reduction in the money that people pay to allow the market to work, you are
making it much more attractive to invest. The number of start ups is increasing and the number
of investments as well. Without innovation a country goes down.
The main example of a startup which has worked is Satispay. The headquarters is in Milan and
they now have a seat in Luxembourg.
A lot of competition is coming from within the EU. In other EU countries there are fewer taxes to
be paid and this is also one of the reasons for which satispay has opened another seat in
Europe.
Satispay never went through crowdfunding, only through rounds of investments. Crowdfunding
means that you ask many shareholders to enter the business with tiny shares, and that’s not easy
to mange because meetings become too big, there are too many ideas and you might not make
too much money. With a big project, it’s easier to get investors who directly invest a large
amount of money.

TAKEOVERS - Smirne
Takeover is a mechanism through which companies gain control of other companies. It’s the
phenomenon through which one company (the bidder) acquires sufficient shares of another
company (the target) to result in the purchases obtaining control over the other company.
We are considering a civil law and so the law itself is the first source. We must check what the
law says.

Sources of law: in direct source of law we speak specifically about takeovers; in the indirect
source of law we speak about an area in which takeovers can take place.
EU Legislation:
a. Directly: TFUE (treaty under functioning of the European Union): articles 101 and 102
(Antitrust) speak about antitrust. Antitrust legislation deals with excessive concentration of
economic power in the hands of one business only; 13th Directive about company law
speaks only about takeovers and it’s very important because it regulates the phenomenon at
a higher level.
b. Indirectly: TFEU: freedom of establishment and freedom of movement of capital. This means
that any of us can establish themselves freely, move freely and move capital freely in the EU.
These two freedoms also speak about takeovers because they are absolutely one way
through which you move capital and money through the EU. I can freely establish companies
in other countries.
Italian Legislation: TUF written by the director of the finance ministry which at the time was Mario
Draghi (Legislative Decree 58/98).

Economic advantages and disadvantages of take-overs: the idea of one company buying
another company is very interesting. If we think that this company buying another company is an
element of growth for the company and for the country, then takeovers should be favoured. If
we think that it’s a mechanism that destroys wealth, we should try to prevent it.
Before we regulate takeovers, we must understand the effects.
The European Union thinks that there is a political advantage: EU integration which is
documented by takeovers. This means that takeovers can happen freely and nationally.
Allowing listed companies to join forces is an element of integration for the EU.
Advantage: Integration.
Disadvantage: exploitation of the target’s resources and the destruction of competitors. I can
buy a competitor to try to destroy it. It’s not always perfect, that’s why antitrust laws say that these
operations need to be supervised by commissions.
Economically speaking, if a company is willing to buy another company, there is probably a gain
somewhere. If company A buys company B, company A is buying shares from the shareholders
of company B. If A is able to buy control over B, it means that A was able to convince the
shareholders of B to sell. They offered shareholders a price that is higher than the actual market
price. This incentivises shareholders of B to sell to A. If company A is willing to pay more, it’s
because they think they can run B in a more efficient way. If a market conducts such an
operation, it’s because it’s replacing inefficient elements of a target with something efficient.
There is a market where the best offeror gets to win control over the target. Are takeovers good
or bad? They have to be judged case by case.

There can be Legislative barriers, obstacles to overcome:

- Golden shares/golden powers: powers that the state has to protect their most precious assets
(energetic companies, high-tech companies etc). States typically have this possibility to block
certain choices or acquisition. They can be a way to block takeovers. They were introduced to
protect our predators from outside. They are good but they are also a barrier to takeovers.
- Local government ownership of shares.

Some countries favour takeovers (UK), some are more suspicious: very difficult to reach a
compromise: 13th directive: for the British, it has been watered down.

Mandatory Bids: a key aspect of takeovers. Mandatory means compulsory and bid means offer.
One way through which a company can acquire shares of another company is by making a
public offer through the stock exchange, which is an offer made to everyone. OPA is an offer
concerning money, OPS uses exchange of shares without having to use cash.
These bids are usually a mixture of the two. Why are these bids mandatory? Bids can be
mandatory or non-mandatory.
- Mandatory: different mentality from the European. If company A wants to buy control over a
listed company B, we could say that A must buy 50% + 1 of B. In the stock exchange, often
you gain control of a company more easily than that: often with something like 30% you
control the company. Normally there are many many small investors (our parents invest with
low amounts). But if we consider that there are millions of small investors, individually they are
irrelevant but put together they are relevant. Because these small shareholders are not
incentivised to participate in the company’s life, because they have such a tiny percentage of
shares, what happens is that you have a lot of small shareholders that don’t participate to the
company’s life, so when there are meeting, usually 50% of the shareholders don’t even come.
If this is true, you can control a company with less than 50%. A mandatory bid is an offer that
company A makes over the shares of company B and it’s mandatory: company A goes to the
biggest shareholder and asks to sell. If with 30% I control the company, economically it counts
just as must as 51%. This means that all the shareholders that have a tiny percentage count
even less, because they are very irrelevant. The American approach is that the bidder speaks
with the leading shareholders and pays him 51%. All the other shareholders don’t have
enough shares and so they don’t get the majority bonus. You, the bidder, are forced to offer
all the shareholders the same price that you offered the leading shareholder. The threshold
that has been chosen for this kind of bid is 30%. The idea is that if you say that the threshold is
too high, I can gain control of a target company easily without needing a mandatory bid and
then I’m not incentivised to do it. If it’s too high, the small investors are not protected. If the
threshold is too low, if I were to say that bids become mandatory after company has bought
for example 10% of company B, this would create problems because it would become
extremely expensive to buy shares in other companies. A threshold that is too low isn’t ok
because if mandatory bids become too expensive, no one would buy shares in companies
anymore.
- Non Mandatory: you make bids outside the cases where the law forces you and these bids are
made to the general public. If I buy more than 30% not through a bid (outside of a market) but
still in a legal way, in that case if you go above 30% the law forces you to make an extra act of
transparency and it forces you to offer to buy 100%. If the bidder starts operating through the
market by acquiring control totally by a public offer, the law does’t force you to buy all the
shares. So you have two ways of coming out: totally transparently (and the law doesn’t oblige
you to offer to buy 100%) or you can move more secretly and if you go above 30%, the law
will oblige you to offer to buy all the remaining shares at the same price.

There are two aspects of Takeovers that aren’t mandatory:

1. Board Neutrality Rule: what does the directive say about the board of a target company?
When the target company knows that there is a deal coming, the board will try to stop the
takeover. The Board Neutrality Rule says that the board can do nothing to try to stop the
takeover, because there is a conflict of interest. Does the directive say that this rule is
compulsory? No, but it’s advised. It’s not mandatory. In Italy this rule can be opted out by the
single companies.
2. Breakthrough Provisions: after the deal has been made public, what about certain rules
inserted in the bylaws that can make the rules more difficult? When a bid is made, if member
states want to make these provisions compulsory, they can, but they can also not make them
compulsory. In Italy, you have to read the bylaws but if nothing is written there, these
provisions must be applied also at the time of the bid.