Italian corporate law reform has modified the rules applicable to the structuring and features of a company’s shares. The new rules, effective January 1, will provide much greater flexibility and firms will be able to tailor their equity, stock and financial structure to their needs. The new corporate rules will allow firms to issue shares with different voting and/or dividend rights; shares with veto powers; no-par value shares; tracking stock and non-share instruments.
The reform will facilitate transactions for VCs taking a minority shareholding where the investor might want some sort of dividend preference with a guaranteed minimum return each year. It is now possible to grant a dividend preference to a VC while before this was controversial in Italy.
An investor is now able to receive shares belonging to a class of shares with special rights. For example, an investor may not want to be involved in the day-to-day management of a company, but may want to be informed of any major decisions taken by the management. The by-laws can specify for example that Class B shares (those belonging to the investor) have some form of veto power over the distribution of dividends.
Francesco Portolano of law firm Portolano Colella Cavallo Prosperetti, says: “Certainly there will be some direct effects of the new law for VC firms. It will be much easier to implement all clauses typical of private equity agreements (anti-dilution, tag-along, drag-along, put and call options, dividend preferences, special voting rights, etc.) This is because the legislation becomes much more flexible and there will be much less limit to one’s creativity.”
He adds that the new reform offers a great opportunity to VCs for two reasons. Firstly, there are a lot of transactions in Italy that can now be done more simply rather than using a foreign vehicle. And secondly the shareholders will be able to have a clearer enforcement and implementation of their rights.
Portolano’s words of caution are that to take advantage of the new reform care needs to be taken in drawing up appropriate corporate and contractual documentation, in a field that for some Italian lawyers is as yet unfamiliar territory. The reform, however, would mean more work for Italian lawyers if the VCs take advantage of these reforms.
Portolano says: “If you want to devise two classes of shares with special options to trigger different rights people will have to be very careful as to how they implement these choices. I think that most investors will take a few months to take advantage of the reform. Elements such as the no-par value shares and tracking stock are completely new and will take a bit of time for people to get used to.”
He adds: “Investors [in Italy] have always complained the law is not flexible enough. Now we have the tools, let’s use them. We need to be taking advantage of these new rules, which may be a significant opportunity to further develop the VC market in Italy.”