3. FORMS OF DOING BUSINESS

3.1. Business entities:

Business may be carried out in Italy through a series of different legal organisations regulated by the Italian Civil Code (CC) which are outlined below:

a) Sole proprietorship (Imprenditore individuale): According to Art. 2740.1 of the Italian Civil Code, the sole proprietor "is liable with all his present and future property for the performance of his obligation"; according to Art. 2740.2, "no limitation of the liability is allowed, except in the cases foreseen by law".

b) Partnerships: Partnership laws in Italy are complex and restrictive. It is not possible to limit the liability of the general partners and corporate bodies cannot be members of a partnership. The tax treatment of a partnership depends on the type of structure: it may be taxed as a separate legal entity or be "tax transparent" depending on the structure. There is a specific form of partnership foreseen by statute called the "associazione temporaneo d'imprese" ( a "temporary association amongst companies") which is similar to a joint venture agreement but is only usable for partecipating in public tenders. The following are the forms of partnership foreseen by the Civil Code:

i. Unlimited Partnership (Società in Nome Collettivo) - All of the partners in an unlimited partnership must be individuals and are jointly and severally liable for all of the debts and obligations of the partnership. Any limitation of the liability has merely internal efficacy and may not be used against third parties (Art. 2291 CC). Art. 2296 CC states that the Articles of Association (and any amendments thereto) must be filed within 30 days from their notarial execution in the Register of Companies in which district the partnership has its registered office. All or any of the partners may be appointed as directors to manage the partnership's affairs. The transfer of a partner's interest is subject to restrictions.

ii. Limited Partnership (Società in Accomandita Semplice) - A limited partnership has both general partners and limited partners. General partners ("accomandatari") are jointly and severally liable for all of the partnership's obligations and are the only partners entitled to manage the partnership. The responsability of a general partner cannot be limited. Limited partners ("accomandanti") are liable for the obligations of the partnership only to the extent of their contribution (Art. 2313 CC). Limited partners who manage the partnership's business without a special power of attorney are liable as general partners and can be removed from the partnership (Art. 2320 CC). The provisions applicable to a general partnership, where compatible, apply to the limited partnership (Art. 2315 CC); in addition, the Articles of Association must mention the names of both the limited and general partners (Art. 2316 CC).

iii. Partnership limited by Shares (Società in Accomandita per Azioni). - The characteristics of a partnership limited by shares are very similar to those of a limited partnership. The main differences between the two are that the equity of a partnership limited by shares is actually divided into shares. Limited partners are liable to the extent of the number of shares subscribed in the capital (Art. 2452 CC). As a general rule, provisions governing joint stock companies are applicable to this form of partnership (Art. 2454 CC). This form is not often used but has been adopted as a form of holding company as a means of ensuring family control over a group of companies.

c) Association in Participation (Associazione in partecipazione) - this is a profit-sharing contractual arrangement which does not involve the formation of a legal entity. It is foreseen by the Civil Code. Broadly speaking it is similar to a silent partnership.It may be defined as a contract by which one party gives another a partecipation in the profits of a business in exchange for an investment of assets, funding or services. The managing partner, which may be a company, is liable for the debts of the J.V., whereas the "silent partners" are liable only to the extent of their contributions. The agreement must be registered at the commercial registry and pay the applicable level of registration tax.

From a taxation viewpoint there can be considerable advantages to using this form for investing into Italy.

d) Branches. - Foreign business entities that do not wish to incorporate an Italian subsidiary may conduct their activities in Italy under the form of a registered branch of their native company. Generally, it is advisable to conduct business activities in Italy through a subsidiary, since the cost of registering a branch is about the same as that for incorporating a new company and, from the standpoint of Italian taxes, it is preferable to separate the Italian activities from those of the parent company carried out elsewhere abroad. However, it might be advantageous to operate through a branch in Italy in the following two cases: (i) if the foreign company expects to incur losses in the initial years of operations in Italy and, under its tax laws, such losses may be immediately offset against the foreign company's profits from other activities (there is, however, some uncertainty as to whether foreign branches are entitled to the normal five-year tax loss carry-forward in Italy); and (ii) for the transfer of after tax profits where there is no satisfactory tax treaty between Italy and the country of residence of the foreign company to reduce the withholding tax on the payment of dividends.

e) Limited Liability Company (Società a responsabilità Limitata or "S.r.L.") - This is the smaller of the two forms of corporate entities with shareholders' liability limited to the paid-up capital in the company. An S.r.L. must have a minimum capital of 20 million lire, divided into quotas having a minimum par value of 1,000 lire each. The quotas are divisible and each holding is registered in a quotaholders' ledger. The S.r.L. cannot issue negotiable certificates and each transfer of quotas becomes effective only upon recording in the quotaholders' ledger.

f) Joint Stock Company (Società per Azioni). - This is a company limited by shares and is commonly referred to as an S.p.A. It must have a minimum capital of 200 million lire represented by share certificates. The liability of a shareholder in an S.p.A. is limited to the amount, if any, unpaid on his shares. The S.p.A. is generally the most suitable form for large enterprises. Among the types of business association that might be used for carrying out business activities in Italy, only the S.p.A. is permitted to raise capital from the market, through listing on the Stock Exchange, or by issuing debentures and savings stock. For these reasons most large business enterprises in Italy take the form of an S.p.A.