The role of Financial Markets and how they can influence Corporate law
Oreste Cagnasso. Professore ordinario f.r. di Diritto commerciale presso l’Università di Torino; Professore straordinario di Diritto commerciale presso la Link Campus University di Roma.
Translation by Pietro Borsano, Lawyer associate with AdvisingAsia – Business Law e Venture Management Professor at Shinawatra International University (www.siu.ac.th). Report held at Workshop: “Important Issues of Business Law” (Company Law, Artificial Intelligence & Intellectual Property Law) for Business People - Shinawatra University - 16 March 2018.
Il diritto societario, e in particolare il diritto delle società di capitali, e la disciplina dei mercati finanziari sono strettamente correlati. Recentemente si è verificato nell’Ordinamento italiano un fenomeno opposto al fine di favorire il finanziamento delle P.M.I.
Corporate Law, in particular corporate law of listed corporations, and securities law are deeply related and interconnected. Recently, in the Italian legal system, a different approach has been adopted, in order to enhance SME financing.
SMEs – limited liability company – crowdfunding
1. Corporate Law and Securities Law
Corporate Law, in particular corporate law of listed corporations, and securities law are deeply related and interconnected. A public company is essentially a firm characterized by its equity divided per shares, which can be exchanged (sale and purchase) on the stock exchange. Furthermore, any public company can issue debt (corporate bonds), which are also traded in the financial markets. Financial markets regulations heavily rely and depend on corporate governance of listed companies and on their corporate law. At the same time, the regulatory framework of listed firms is influenced by financial markets regulations and securities law.
Recently, in the Italian legal system, a different approach has been adopted, in order to enhance SME financing. On the one hand, the capacity of Italian SMEs to borrow money has dramatically decreased over the latest decade, due to the strengthening of financial regulations (Basel 2 and 3) and the tighter control by the European Central Bank. Also, on the other hand, the leverage of Italian SMEs has worryingly increased, thus preventing Italian lenders to borrow money without enough collaterals to guarantee the capability of SMEs to pay back the loans. The Italian regulator has tried to solve this credit crunch, also considering the past financial crisis that has affected both firms and financial organizations, by introducing an innovative tool: the equity crowdfunding. Essentially, equity crowdfunding represents a new financial market, without having a stock exchange involved. The mechanism behind equity crowdfunding nevertheless is pretty much similar to that which governs a regulated financial market. Consequently, in 2017 the Italian Parliament set forth a new type of company. To put it very simple, this new type of company complies with all the essential characteristics of a private firm, but at the same time it is allowed to publicly trade its stock on this innovative financial market, the equity crowdfunding market.
The aim of the Italian government was clearly to strengthen the capital structure of Italian SMEs, preventing them from requiring further and expensive corporate loans from lenders.
As per Italian rules, SMEs can be considered the following legal entities:
– No more than 250 employees, or
– Yearly revenues which shall not exceed the limit of 50m Euros, or alternatively
– Assets (current assets, fixed assets, financial assets, and intangible assets), which shall not exceed the limit of 43m Euros per year (https://www.investopedia.com/terms/a/asset.asp).
3. The Italian Corporate Law
The Italian corporate law includes two main categories of legal entities. Under this aspect, the Italian corporate framework is close to the French and to the German one, the two major civil law systems from which the Italian civil and commercial code has been borrowed, mixing principles coming from each of these legal systems.
Going back to the categories of companies:
– Companies whose partners are personally liable for corporate debts, despite being the company a separate juristic person
– Companies whose partners (more specifically, shareholders) are not personally liable for corporate debts.
In this second category, a further distinction is needed:
– Private limited companies, whose capital is constituted of a comprehensive stock, which cannot be divided into shares. Meaning that the stockholder owns only a percentage of the equity of company, which he has previously subscribed
– Private limited companies, whose capital is constituted of singular shares. Meaning that the shareholder can own one or more shares of the company. All the shares he owns, considered together, represent the part of the equity belonging to that shareholder.
Traditionally, the very first one (so called s.r.l.) was only a private limited company.
The second one (so called s.p.a.) could be both private and public company.
Before 2017, the s.r.l. was a private limited company conceived to fit the needs of its ‘owners’. Essentially, the s.r.l. can be designed by its business owners through their counsel, when they draft the memorandum of association, thus being a tailor-made legal entity, with a customized corporate governance, provided that it complies with the regulatory ..