M&A – Main differences between Share Deals and Asset Deals in Italy

• There are no specific restrictions or prohibitions preventing a foreign company from purchasing shares in an Italian company, provided however that the so-called “condition of reciprocity” exists (i.e.: the same rights must be granted to an Italian investor willing to invest in the country of the foreign investor concerned). The need to check the existence of such “condition of reciprocity” in advance is not required, inter alia, if the foreign investor is an entity pertaining to a Member State of the EU or the EEA or an entity of a country that has entered into a specific international agreement/bilateral treaty with Italy. However, the company’s bye-law and/or the shareholders’ agreements may provide for restrictions in relation to share transfers (e.g. pre-emption rights, redemption clauses, tag-along or drag-along clauses, etc.) set forth by the parties on a contractual basis. 
• Parties have a general obligation to negotiate the Share Purchase Agreement (SPA) in good faith, including during the negotiation phase; where the buyer was fraudulently induced by the seller through misrepresentations to enter into a Share Purchase Agreement (which the buyer would not have concluded had it been aware of the true situation), the buyer can request that the agreement be voided; where the buyer would have signed the agreement but on different conditions, the seller is liable for the damages suffered by the buyer. 
• The Share Purchase Agreement needs to be carefully tailored to include appropriate representations, warranties and indemnities provisions specific to the deal at hand. 
• Parties can agree the purchase price of the shares with consideration in kind or exchange of shares, even if it generally consists of cash. The parties can agree on a fix purchase price (locked box price mechanism) or can agree on a price adjustment mechanism based on certain parameters (typically working capital, net debt and cash) to value the company post – closing. 
• Conditions precedent are very common in order to subject the closing at the occurrence of certain event and/or the performance of specific fulfilment (e.g. authorization from public authorities, due diligence). 
• Material Adverse Clauses can be set to protect buyers in the case of occurrence of agreed events which may impact the company value; these clauses entitle buyers to withdraw from the transactions.
• It is common (for tax purposes) that the execution of the SPA is made between the parties by exchange of correspondence.
  

• Italian law classifies asset deals as either:
• purchases of (both tangible and intangible) assets; or
• purchases of a going concern (in Italian going concern can be identified as “azienda” or “ramo d’azienda”).
• In pure purchase of assets deals, the purchaser is liable only for those liabilities that it expressly assumes under the asset purchase agreement, while in transfers of going concerns, the purchaser assumes by operation of law certain liabilities of the seller vis-à-vis third parties. 
• Commercial agreements are assigned by law (i.e. automatically) to the purchaser of a going concern. 
• In a transfer of a going concern all employment agreements will be transferred by law to the purchaser [of the going concern]. 
• In the case the target employs more than 15 employees, it is mandatory to notify or consult with the trade unions in advance of the purchase. The consultation with the trade unions is governed by Article 47 of Law no. 428/90.
• The parties may agree to exclude specific assets or liabilities (except for employment contracts and the relevant liabilities). Failing to do so entails, by law, that the buyer becomes liable for all the debts related to the transferred business. The buyer is also jointly liable with the seller for all the tax liabilities incurred prior the transfer. It is therefore common for the buyer to apply for a certificate from the tax authority stating whether there are any outstanding liabilities: if such certificate states that there are no liabilities the buyer is exempted from the joint liability. 
• Creditors of the seller do not have to be specifically notified of the transfer, nor it is required to obtain consent for the transfer to be enforceable; the transfer becomes effective, with regard to creditors and third parties, on registration of said transfer on the Companies’ Register.
• The transfer of contracts may require the prior approval of the relevant counterparties (change of control or change of ownership clauses are particularly common in financing agreements). 
• The seller must refrain, for a period of five years from the transfer, from starting a new business which purpose, location or other circumstances are likely to mislead customers of the company that was sold. 
• The assets transfer agreement may include clauses typical of the SPA (e.g. conditions precedent, MAC, interim period provisions, price adjustment clauses).
  

Formalities often depend on the form of the companies, even though certain fulfilments are in common, such as buyers who cannot be present personally can be represented by a special attorney appointed by POA.

Articles of Association of the target company may need to be updated based on certain provisions set forth by shareholders agreements; the amendment of the Articles of Association is resolved upon by the general shareholders meeting.

Joint Stock Ccompanies – S.p.A.:

In S.p.A. there are two ways to transfer shares:

• Endorsement of share certificates by the seller in favour of the buyer before a public notary, and subsequent recording by the company of the transfer and buyer's details in the shareholder's ledger. 
• Execution by the seller and buyer of a notarial deed of transfer and subsequent recording by the company of the buyer's name in the share certificate (if existing) and of the transfer and buyer's details in the shareholder's ledger.

Limited Liability Companies – S.r.l.: 

• the transfer of title to quotas is made by executing a deed of transfer before a notary public, and with the subsequent filing of the deed to the Companies' Register for the purpose of the registration. The transfer becomes effective on filing.
  

• Since such contract is subject to registration in the relevant Companies’ Register and the form required for registration is that of a public deed or authenticated private deed, in practice one of the two forms will always be adopted, even if the law does not require such form. Entry in the Companies’ Register must be made within 30 days from the date of the contract by the Notary.
  

Transfer taxes are due by the purchaser (unless otherwise negotiated) and the rates depend on the form of company: 

• As for direct taxation, the capital gain on which the direct taxes will be applied consists of the difference between the sale price and the cost recognised of the shareholding recognized by tax authorities. In corporations, the regime is different depending on whether they fall under the exemption of capital gains - the so-called participation exemption (PEX), i.e. the exemption from taxation, under specific conditions, of 95% of the capital gains realized from the sale of the shares/participation shares - or not. In the first case, only 5% of the capital gain is taxed at the IRES end (with application of the rate of 27.5%), in the second case the entire capital gain is taxed;
• As for the physical persons holding the shareholdings, it is necessary to distinguish whether or not they have a “qualifying” participation, i.e. more than 25% of the capital or 20% of the voting rights. In the case of a qualifying shareholding, 49.72% of the capital gain is taxed, whereas in the case of a non-qualified shareholding, a 20% withholding tax is applied to the capital gain;
• In addition, a registration tax of Euro 168.00 will be due as indirect taxes.
  

Transfer taxes are due by the purchaser (unless otherwise negotiated) and the rates depend on the price of the business: 

• As for direct taxation, it affects the capital gain obtained by the transferor, i.e. the difference between the sale price and the fiscally recognized cost of the company or branch of business, which is subject to IRES (with application of the rate of 27.5%); 
• With regard to indirect taxes on the purchaser, it should be noted that the transfer of a business or branch of business does not fall within the scope of VAT. A transfer of a business or branch of business is subject to registration tax proportional to the value and nature of the assets and, where real estate is also transferred, also to mortgage tax equal to 2% of the value of the property and cadastral tax equal to 1% of this value. It should be remembered that there is the possibility that the financial authority may carry out assessments to establish the correct determination of the value of start-up.