The present memorandum sets out a brief illustration of the discipline of the “innovative start-up company” introduced by the so-called “Decree Growth 2.0”, namely Decree Law, October 18th 2012, n. 179, “Further urgent measures for the development of the Country”, converted into Law December 17th, 2012, n. 221 and published in the Official Gazette on December 18th, 2012, n. 294 (1).
The recent reform, inspired by the aim to innovate the range of tools designed for new businesses and enterprises, with the declared target to make them more competitive and “flexible”, has provided and disciplined the “innovative start-up company” in order to promote the development of an economic and entrepreneurial environment favorable to innovation, research and development, able to support a larger social mobility and to attract new investment and capitals.
From a general point of view, the new legislation provides a relevant series of advantages and benefits – of civil and fiscal nature – in favor of the companies that decide to adopt such corporate form, provided that (i) are satisfied certain procedural and substantive requirements compulsory for the establishment of the innovative start-up and (ii) the company is registered in the dedicated special section of the Registrar of Companies.
2. Definition of “innovative start-up” and compulsory requirements.
The second paragraph of art. 25 of Decree Law October 18th, 2012, n. 179 (as modified by the law of conversion) includes a number of formal and substantive requirements necessary for a company to be qualified as innovative start-up.
First of all, under a formal profile, it can be established as innovative start-up the corporation (and thus: public limited company, limited liability partnership, limited liability company – also in the form of simplified Ltd or 1 Euro Ltd), also established in the form of cooperative company, governed by Italian law, or the European Corporation (SE), resident in Italy, whose shares or stakes representing the capital stock are not listed on a regulated market or on a multilateral trading facility.
Under a substantive profile, the discipline requires the presence of a number of requirements necessary for the company to be qualified as innovative start-up.
- the company shall be established and carry out business activities by no more than 48 months;
- the company shall have its principal place of business and its interests in Italy;
- starting from the second year of activity, the total value of the annual production, resulting from the latest balance sheet (approved within six months from the end of the year), shall not exceed 5 million Euros;
- the company shall not distribute profits;
- the company shall have as corporate purpose (exclusive or predominant) the development, production and marketing of innovative products and services with high technological value;
- the company shall not have been formed by a merger, by a demerger, or as result of the sale of the business or business. In addition to these requirements, the innovative start-up shall also meet at least one of the following additional substantive requirements:
- the expenses on research and development sustained by the company shall be higher than or equal to 15 percent of the major value between the costs and the total value of the production. On this regard, expenses and costs for the purchase and lease of real estate are excluded from the calculation of the amount of the expenses on research and development. Moreover, in addition to the general provisions of accounting standards, shall be considered as expenses in research and development: expenses related to pre- competitive and competitive development, such as experimentation, prototyping and development of the business plan; costs of incubation services provided by certified incubators; gross costs of internal staff and external consultants employed in research and development activities, including shareholders and directors; legal fees for the registration and protection of intellectual property and licenses;
- the company shall employ, as employees or consultants, in a percentage equal to or higher than one third of the entire workforce, persons that hold a PhD or that are currently working on a PhD in an Italian or foreign university, or persons in possession of a degree that have worked, for at least three years, in research activities in certified private or public research institutes, in Italy or abroad. Alternatively, the company shall employ, in a percentage equal to or higher than two-thirds of the total workforce, persons that hold a master’s degree;
- the company shall be the holder, or licensee, or custodian, of at least an industrial invention’s patent relating to an industrial biotechnology, a topography of semiconductor product or a new plant variety, or shall be the holder of the rights relating to an original processor program registered in the special public register for processor programs, provided that such patents are directly related to the corporate and business activities.
The previous formulation of art. 25, second paragraph, of Decree Law October 18th, 2012, n. 179 provided that, in the innovative start-up, the individual shareholders were required to hold, at the time of the establishment of the company and for the following 24 months, the majority of the shares or stakes with voting rights in the ordinary shareholders’ meeting. Such provision, introduced with the aim of ensuring the personal aspect of the start-up’s corporate structure in its initial phase, nevertheless, was repealed by art. 9, sixteenth paragraph, lett. a), of the so-called “Decree Work” (i.e. Decree Law June 28th, 2013, n. 76, converted with amendments into Law August 9th, 2013, n. 99). Therefore, in force of the abrogation of the aforementioned constraints on the composition of the stock capital of the start-up in the first 24 months after its establishment, investment funds and venture capital funds are now allowed to investment, without restrictions of any kind, in the capital of companies constituted as innovative start-ups.
3. Certified incubator of innovative start-ups.
In addition to the figure of the innovative start-up, the legislative framework also provides the figure of the so-called “certified incubator of innovative start-ups”, defined as the corporation, also established in the form of cooperative company, governed by Italian law, or the European Corporation (SE), resident in Italy, which offers services to support the creation and development of innovative start-ups. In particular, in order to be qualified with this form, the company shall meet the following requirements:
- must be holder of facilities, including real estate, adequate to accommodate innovative start-ups, such as spaces reserved to install the equipment necessary for testing, verification or investigation activities;
- must be holder of appropriate equipment, adequate to the activities of innovative start- ups, such as systems for ultra-broadband network access, meeting rooms, equipment for tests or prototypes;
- shall be administered or directed by persons of recognized competence in the field of business and innovation and shall be provided with a permanent technical and management structure;
- shall cooperate and work regularly with universities, research centers, public institutions and financial partners that carry out activities and projects related to innovative start-ups;
- shall have an adequate and proven experience in the support activities for innovative start-ups.
The possession of such requirements is self-certified by the incubator for innovative start- ups itself through a statement signed by its legal representative, at the time of registration in the special section of the Registrar of Companies.
4. Registration in the special section of the Registry of Companies and exemption from starting fees and charges.
In order to take advantage of the various benefits provided by the law, the innovative start- up and the certified incubator of innovative start-ups shall be compulsory registered in the dedicated special section of the Registrar of Companies.
Moreover, from the time of registration in the special section, the innovative start-up incubator and the certified incubator are exempt from the payment of stamp duties and administrative fees due for the execution of the formalities related to the registration in the Registry of Companies, as well as from the payment of the annual fee due to the Chamber of Commerce. These exemptions are, however, conditional on the maintenance of the legal requirements necessary for the status of innovative start-up or certified incubator and last up to four years from the date of registration.
5. Exceptions to corporate law.
In order to promote innovative start-ups and certified incubators, the legislation provides various derogations and exceptions to civil and corporate law. In particular:
- in the event of losses major than a third of the value of the capital stock, it is possible to postpone until the second year of activity the compulsory shareholders’ resolution for the reduction of the capital stock, notwithstanding the specific requirements of art. 2446, second paragraph, and art. 2482-bis, fourth paragraph, of the Italian Civil Code;
- in the event of a reduction of the capital stock below the legal minimum required, the shareholders’ meeting may postpone to the end of the following social exercise the compulsory resolution necessary to reduce the capital and simultaneously increase it up to an amount not minor than the legal minimum capital, as provided by art. 2447 and 2482-ter of the Italian Civil Code;
- the act of incorporation of the innovative start-up established in the form of Ltd, notwithstanding the provisions of the Italian Civil Code, can provide classes of stakes that do not confer voting rights or which grant to the shareholder voting rights not proportional to the participation held, or voting rights limited to particular topics or subject to the satisfaction of certain conditions;
- the stakes of innovative the start-up established in the form of Ltd may be subject to public offerings of financial products, notwithstanding the express provision of 2468, first paragraph, of the Italian Civil Code;
- in the innovative start-up established in the form of Ltd, the prohibition for the company of operations on the company’s own stakes, as set forth by Article 2474 of the Italian Civil Code, does not apply if the transaction is carried out in execution of incentive plans that provide the allocation of shares or stakes to employees, collaborators, members of the board of directors and providers of work or services.
- Finally, the act of incorporation of the innovative start-up or certified incubator may also provide, as result of the contribution by shareholders or third parties, including contribution of work or services, the issuance of financial instruments with economic rights or even administrative rights, excluding the vote in the shareholders’ meeting, pursuant to art. 2479 and art. 2479-bis of the Italian Civil Code
6. Financial and fiscal advantages.
In addition to the issues stated in the preceding paragraphs, the new legislation has introduced several incentives for the establishment and development of innovative start-ups, as well as important benefits of financial and fiscal nature.
In particular, the reform introduced a facilitated taxation and contribution regime with specific regard to stock options and incentive plans based on the allocation of stocks, shares or similar securities to directors and also to employees. In addition, the legislation provides privileged channels for the access to tax credit related to the hiring of highly qualified personnel.
With the express aim of promoting financial investments for the establishment and development of innovative start-ups, the reform also offers significant tax incentives, through the provision of tax deductions and reductions for such investments. Moreover, in order to facilitate the raising of venture capital, it is also allowed the use of equity crowd-funding systems, with the possibility of facilitating the entry of new shareholders through the subscription of capital via online portals on which the company can present its business and activities.
Finally, in order to guarantee a faster and more efficient solution of the company financial crisis, the reform provides a simplification of insolvency proceedings: the innovative start-up cannot be subject to bankruptcy proceedings (and, therefore, cannot be declared bankrupted), with the exception of the alternative regime of resolution for over-indebtedness crisis and proceedings of liquidation of assets.
7. Pros and cons of the innovative start-up.
In favor of companies established as innovative start-ups the reform provides: (i) relevant facilitations for the establishment of the company and its registration in the specific dedicated section of the Registrar of Companies; (ii) significant exceptions to civil and corporate law; (iii) favorable taxation regime with regard to stock options and incentive plans; (iv) expressed simplifications in employment law and labor relations; (v) access to equity crowd-funding systems; (vi) simplification of insolvency proceedings. In the light of this favorable legal regime, the innovative start-up may represent a new corporate structure able to support the establishment and development of companies that have as corporate purpose the creation, development and commercialization of innovative products with high technological value.
Moreover, thanks to the latest modifications introduced to the start-up discipline, the shares or the stocks representing the company’s capital are freely transferable on the market, with a relevant opening to investment funds and venture capital funds interested in financing these types of starting enterprises.
Nevertheless, to maintain the corporate denomination of innovative start-up and take advantage of all the benefits provided by this special figure of company, granted up to a maximum of 4 years from the date of registration, it is necessary to maintain all the requirements provided by the law: if the innovative start-up do not comply with all of such requirements, the company loses the application of the favorable legal discipline.
Some of these conditions and requirements may be limiting for the interest of the shareholders or for the company itself. In particular, (i) the innovative start-up company shall meet all the compulsory requirements provided and at least one of the alternative requirements provided by the law with regard to expenses on research and development, employees and consultants qualifications or industrial invention’s patents; (ii) the innovative start-up company cannot distribute profits; (iii) starting from the second year of activity, the total value of the annual production, shall not exceed the amount of 5 million Euros.
Finally, from a practical point of view, it is interesting to notice that, according to the last data released by the institutions, updated to March 17th, 2014, from the creation of the special section in the Register of Companies, approximately 1800 innovative start-up companies were established in Italy and many others are in process of foundation and development, with previsions of an increasing number of new companies and enterprises willing to adopt this corporate structure.