Choosing a start-up company form, advantages and benefits

This is the first in a series of articles by Studio Trotter addressing various topics related to the regulatory, legal, financial, and corporate structure of start-ups. Articles will be published regularly on the pages of Startupbusiness over the coming weeks

Introduction

For aspiring entrepreneurs wishing to start a start-up, the choice of the most suitable company form plays a crucial role. Start-ups can take different legal forms, each with its own characteristics, advantages and facilities. In this article, we will focus mainly on a particular type of company: the innovative start-up, to which the Italian legal system grants various benefits in corporate, tax and labour law matters.

Company forms for innovative start-ups

In Italy, innovative start-ups can be established in the form of joint-stock companies (S.p.A.), limited partnerships per azioni (S.a.p.a.), limited liability companies (S.r.l.) or cooperative societies. There are no specific limits on share capital, allowing even simplified limited liability companies to benefit from the facilitated regime, provided they meet the requirements.

Requirements for registration in the Innovative Start-up Register

Innovative start-ups must meet specific requirements. Among these, the main ones are:

• Be established for no more than 60 months;
• Headquartered in Italy or in another EU country, but with a production site or branch in Italy;
• Have an annual turnover of less than EUR 5 million;
• Do not distribute profits;
• Having as its exclusive or predominant corporate purpose the development, production and marketing of innovative products or services with high technological value;
• Not to be formed by company merger, demerger or as a result of the transfer of a company or branch of business.

In addition, innovative start-ups must meet at least one of the following criteria:

• To incur research and development expenditure of at least 15 per cent of the higher of turnover and annual costs;
• Employ highly qualified staff (at least 1/3 PhD, PhD students or researchers, or at least 2/3 with master’s degrees);
• Being the owner, custodian or licensee of a patent or registered software.

Advantages and benefits for innovative start-ups

Innovative start-ups enjoy a number of advantages and facilities to foster their birth and growth. Prominent among them are:

1. Exemption from Chamber of Commerce fees: innovative start-ups are exempt from paying stamp duty and secretarial fees for registration with the Companies Register.
2. Special labour regulations: innovative start-ups can benefit from a favourable tax and contribution regime to incentivise employees through stock option plans.
3. Exemptions from bankruptcy law: innovative start-ups may benefit from exemption from ordinary bankruptcy law.
4. Tax benefits: tax deductions are provided for individuals and IRES deductions for individuals investing in the capital of innovative start-ups. Individuals can benefit from an IRPEF deduction of 30% of the sum invested (extendable up to 50% under certain conditions).
5. Special rules on the raising of venture capital: the legislation provides for specific rules on the raising of venture capital by innovative start-ups, with the aim of facilitating access to finance (crowdfunding).
6. Facilitated finance: several calls for tenders and guaranteed loans stipulate registration in the register of innovative start-ups as a subjective requirement.

Il regime “work for equity” per le startup innovative

An interesting opportunity for innovative start-ups to align the interests of their stakeholders is the so-called ‘work for equity’, which allows them to remunerate employees and external collaborators with share-based incentive plans. This allows the employee or supplier to become a shareholder or holder of participatory financial instruments of the company, enjoying a favourable tax regime. The value of shares, units and participatory financial instruments issued as consideration for works and services is not included in the recipient’s total income.

To apply ‘work for equity’, the statutes of the start-up company must specifically provide for it. The start-up may regulate the terms and conditions of the ‘work for equity’ in a specific agreement to be concluded with suppliers or employees.

Dalle startup innovative alle PMI innovative

Innovative start-ups can benefit from the facilities for a limited period, remaining registered in the special section of the Companies Register for a maximum of five years. After this period, the company is no longer eligible for the facilities reserved for innovative start-ups. However, a natural progression for these companies is the move to the innovative SME register.

The transition from innovative start-up to innovative SME allows the company to continue to benefit from certain concessions, such as IRPEF and IRES deductions on capital increases, which offer an advantage in terms of company valuation. In addition, innovative SMEs can access subsidised forms of finance and participate in specific calls for tenders, enjoying preferential treatment.

Nevertheless, it is important to emphasise that innovative SMEs are not eligible for all the facilities provided for innovative start-ups. In particular, innovative SMEs do not benefit from exemptions from chamber of commerce fees, special labour provisions and specific rules on business crisis and bankruptcy. These measures remain solely for the benefit of innovative start-ups, recognising their special nature and the challenges they face in their early stages.

The transformation from innovative start-up to innovative SME is, therefore, a natural step in the life cycle of these companies, allowing them to continue to grow and develop in a context of facilitations and support, albeit with some limitations compared to the initial phase. This transition reflects the evolution of the company and its progressive consolidation in the market, while maintaining its innovative character and significant growth potential.

Requirements for innovative SMEs: cumulative and alternative requirements

Unlike innovative start-ups, innovative SMEs must meet the following cumulative requirements:

• Have fewer than 250 employees and an annual turnover of less than EUR 50 million or a balance sheet total of less than EUR 43 million;
• Based in Italy or in another EU country, but with a production site or branch in Italy;
• The latest balance sheet and the consolidated balance sheet, if any, must be certified by an auditor or auditing company entered in the Register of Auditors.
• Not to be listed on a regulated market;
• Not being registered in the special section of the Companies Register dedicated to innovative start-ups.

In addition, innovative SMEs must meet at least two of the following alternative requirements:

• Incurring research and development expenditure of at least 3% of the higher of turnover and annual costs;
• Employ highly qualified staff (at least 1/5 PhD, PhD students or researchers, or at least 1/3 with master’s degrees);
• Being the owner, custodian or licensee of a patent or registered software.

Conclusion

The choice of company form for a start-up requires a careful evaluation of the different options available and the associated benefits. Innovative start-ups can benefit from a number of simplifications and advantages, but it is crucial to verify and maintain the requirements of the regulations over time.

It is important to bear in mind that subsidies for innovative start-ups are limited in time. Subsequently, the company can transform itself into an innovative SME while retaining only some of the benefits and facilities provided for innovative start-ups.

A judicious choice of company form can contribute significantly to the success and growth of the innovative enterprise, allowing it to take full advantage of the opportunities offered by the Italian start-up ecosystem. (Photo by Israel Andrade on Unsplash)

Fabio Venegoni and Roberto Todisco

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