Italy: a step back on online incorporation of innovative startups

Italian courts (the “Consiglio di Stato”) have ruled in favor of the National Council of Public Notaries, putting an end to “online” incorporation of innovative startups: a benefit which had been extensively publicized by the Italian Ministry of Economic Development and characterized by a growing trend of use in recent years. According to the 18th edition of the quarterly report of MiSE (Italian Ministry of Economic Development), in partnership with Business Registers, as of December 31, 2020, 3,579 innovative startups were set up by means of an online simplified incorporation procedure. In the fourth quarter of 2020, 388 new innovative startups established online were registered, the highest number since 2016, higher even than the record set in the previous quarter (292).

On the action of the Italian National Council of Public Notaries, the Consiglio di Stato expresses a clear and rigorous view: innovative startups in the legal form of S.R.L. (limited liability company, a form used by 89.1% of innovative startups[1]) will no longer be able to draft their memorandum of association and the bylaws by means of a standard typified model, validating its content with a digital signature, by means of an online procedure. It will be (again) mandatory to incorporate them by means of a public deed, before a Public Notary, as for the other corporate vehicles.

Rather than on the merits (i.e. on the efficiency of a “digital” incorporation procedure), the decision was about a conflict in the hierarchy of the law, as the Consiglio di Stato affirmed that “the power exercised by the Ministry through the contested decree could not have any innovative scope in the legal system, that is, specifically, it could not affect the type of [public] deed necessary for the incorporation of innovative startups, as provided for by the primary law (i.e. the Italian Civil Code)”.

Further, the Italian judges found that the “online” incorporation procedure, as regulated by current legislation, was in violation of Article 11 of Directive 2009/101/EC as well as Article 10 of Directive 2017/1132/EU according to which the memorandum of association, the bylaws of the company and their amendments must be in the form of a public deed if national legislation does not provide for prior administrative or judicial control at the time of incorporation. In Italy, however, the activity carried out by the Offices of the Company Register is “eminently formal“, as opposed to the activity aimed at ascertaining the actual existence of the legal conditions for the incorporation of a company in the Register itself, which is carried out by a Notary Public.

[1] Established as of December 31, 2019, according to InfoCamere data.