Social rights are granted to members in proportion to the shareholding each holds (Article 2468, paragraph 2, of the Civil Code).
Unless otherwise provided in the articles of association, the value of the shares is determined in proportion to the contribution (art. 2468 paragraph 2 of the Civil Code).
However, the articles of association may determine the value of the shares in a manner that is not proportional to the contributions, provided that the overall value of the contributions is not less than the overall amount of the capital (Article 2464, paragraph 1, of the Civil Code).
The rights of the members of an LLC are divided into two main categories:
- economic rights
- administrative rights
The right to profits
General principle: each member is entitled to a share of the net profits actually achieved and resulting from a duly approved balance sheet (art. 2478-bis of the Civil Code).
This right arises following two conditions:
- Approval of the balance sheet by the members, which shows a profit for the year;
- The shareholders' decision to distribute all or part of the profits; until the distribution resolution is passed, the profits become part of the company's assets and the shareholder has no claim against the company.
Distribution: In the absence of any other provision in the articles of association, distribution is proportional to the shareholding.
Flexibility: It is possible to provide for a non-proportional profit sharing (see art. 2468, paragraph 3, of the Civil Code), without prejudice to the limit imposed by the prohibition of the leonine pact (art. 2265 of the Civil Code).
Other patrimonial rights of the member
Dissolution of the social relationship limited to the member (through withdrawal or exclusion).
Right to obtain reimbursement of one's shareholding in proportion to the company's assets determined taking into account its market value at the time of the withdrawal declaration (art. 2473, paragraph 3, of the Italian Civil Code).
Liquidation of the company
Right to obtain the distribution of any assets remaining following the liquidation of the company's assets and once the company's debts have been paid, as resulting from the final liquidation balance sheet
NB: Once the company has been struck off the company register, unsatisfied creditors can take action against the shareholders, but the latter's liability is limited to the amount they received based on the final liquidation balance sheet (Article 2495, paragraph 3, of the Italian Civil Code).
The right to participate in social decisions
The core of administrative rights lies in the decision-making power attributed to members.
Article 2479 of the Civil Code establishes that the members decide on matters reserved to them from the articles of association and those submitted for their approval by the directors or by a number of shareholders representing at least one third of the share capital.
In any case, they are reserved for mandatory competence of the members the following subjects:
- Approval of the budget and distribution of profits.
- The appointment of directors, if provided for in the articles of association.
- The appointment of the auditors, the chairman of the board of auditors, or the statutory auditor, in the cases provided for by law.
- Amendments to the articles of association.
- The decision to carry out transactions that involve a substantial modification of the corporate purpose or a significant modification of the shareholders' rights.
Each member has the right to participate in decisions and his vote is valid in proportion to his participation, unless otherwise provided in the articles of association.
The specific rights attributable to the member (art. 2468 paragraphs 3 and 4 of the Civil Code)
The articles of association may provide for the attribution to individual members of specific rights regarding:
- the distribution of profits;
- the administration of the company;
These are special rights attributed by the articles of association directly to the member (the creation of share categories is not permitted).
It is possible to assign specific rights:
- to individual members identified by name (for example, member Tizio);
- to individual members identified by belonging to homogeneous categories (e.g., owners of a specific minority or majority shareholding, members who are legal entities, residents abroad or in certain municipalities, citizens of a specific country, and so on).
General rule
In the event of sale of the share or its transfer mortis causa, the specific rights are not automatically transferred to the purchaser or heir but are extinguished.
Derogable
However, it is possible to freely regulate in the bylaws both the regime for the circulation of shares and the fate of specific rights in the event of partial or total sale of the shares themselves.
The seizure of the share
Case law has also held that, in principle, the intuitus personae characterizing the specific rights of a member pursuant to art. 2468, paragraph 3, of the Civil Code leads one to believe that, in the event of seizure of the share, the exercise of these rights belongs to the member, unless the specific configuration of the right or its statutory provisions, especially regarding its transferability, make it impossible for the custodian to exercise them (Venice Court, 27 June 2024).
Special rights attributable to the member regarding the administration of the Company
- The right to appoint one or more administrators;
- The right to appoint the entire administrative body. This is evident from the combined provisions of Articles 2479, no. 2, of the Italian Civil Code (according to which the appointment of directors is reserved to the shareholders only "if provided for in the articles of association") and 2475 of the Italian Civil Code (according to which the administration of the company is entrusted to one or more shareholders, appointed by decision of the shareholders, only "unless otherwise provided in the articles of association");
- The right to determine the "rose"« within which the assembly must carry out the choice of administrators;
- The right to hold the position of administrator, it being possible to foresee that the single member is the sole director or, in the case of multiple members, a director (possibly president of the body or with specific powers);
- The right of veto on certain decisions concerning the administration of the company;
- The right to perform specific management acts (such as the sale of real estate or business branches);
- The right of appointment of one or more mayors or auditors;
- The right, in the presence of a constitutive act which provides for written consultation, to request the adoption of the assembly method.
NB: It is controversial whether the right to remove directors can be attributed, since, if this is not supported by just cause, the company would be required to compensate the director.
Special economic rights
- The right to a percentage of profits in an amount different from that which would be due proportionally to the participation quota;
- The right to fixed-rate profits, provided they are achieved, and within the limits of the prohibition of the leonine pact pursuant to art. 2265 of the civil code;
- The right to mere priority in the distribution of profits;
- The right to receive the profits regardless of the shareholders' resolution regarding the distribution of dividends, i.e. as a result of the mere approval of the financial statements;
- The right to the distribution of profits relating to the performance of a specific branch of the company, as well as for actions related to Article 2350, paragraph 2, of the Civil Code (in this case, it is appropriate to adopt specific accounting methods).
The right of control of the non-managing partner
Individual Power: A qualifying right for members who do not participate in the administration is the power to control the company's management, established by Article 2476, paragraph 2, of the Civil Code, namely:
- receive information from the administrators on the progress of the company's affairs;
- consult, even through trusted professionals, the company books and documents relating to the administration.
Function of the member's right of control over the company's management
Information: ensure informed participation in corporate decisions, allowing members to vote in an informed manner, for example when approving the budget. .
Preparatory to Protection: it constitutes a tool for satisfying the member's interest in the proper functioning of the management activity, for gaining knowledge of the progress of the company's management and for ascertaining any management irregularities with a view, if necessary, to promoting liability action against the directors.
Limits on the exercise of the shareholder's right of control
Good faith and fairness: the exercise of this right is limited by the principle of good faith and fairness, as it cannot be used for extra-social purposes or to harm the company's business.
Confidentiality needs: the exercise of the member's right to information must also be balanced with the Company's confidentiality requirements, whenever the requesting member enters into a competitive relationship with the Company itself and the right of inspection is therefore exercised instrumentally and for purposes other than those of control, taking into account the specific position of the member himself.
Member Responsibility as a Counterweight to Management Powers
The expansion of the partner's powers in an LLC is counterbalanced by the provision of their potential liability for management actions.
Article 2476, paragraph 8 (formerly paragraph 7), of the Civil Code establishes that: "The shareholders who have intentionally decided or authorized the commission of acts harmful to the company, the shareholders, or third parties are also jointly and severally liable with the directors, pursuant to the previous paragraphs.".
This provision introduces a form of managerial liability of the non-managing partner, which arises when three conditions occur:
- A decision or authorization by the member;
- The commission of an act harmful to the Company;
- The subjective element of intentionality, which implies the awareness and will of the member to carry out an act that he knows to be prejudicial.
Social Responsibility Action (Notes)
The corporate liability action against the administrative body can be exercised by any member (art. 2476, paragraphs 3 and 7, of the Civil Code).
In the event of serious irregularities, the member may request the dismissal of the directors through precautionary measures.
If the application is accepted, the Company, without prejudice to its right of recourse against the directors, will reimburse the plaintiffs for the legal costs and those incurred by them in ascertaining the facts.
The prevailing opinion in jurisprudence and doctrine also admits the possibility for the Company to exercise social liability action.
The Right of Withdrawal (Notes)
The articles of association determine when a member can withdraw from the company and the related procedures.
In any case, the right of withdrawal applies to members who:
- they did not allow the change of the object or type of company,
- to its merger or split,
- upon revocation of the state of liquidation,
- to the elimination of one or more causes for withdrawal provided for in the articles of association, and
- to the completion of transactions that entail a substantial modification of the company's purpose as set out in the articles of association or a significant modification of the rights granted to members pursuant to Article 2468, fourth paragraph.
In the case of a company with an indefinite term, the partner has the right to withdraw at any time and may exercise this right with at least one hundred and eighty days' notice; the articles of association may provide for a longer notice period, provided it does not exceed one year.
Content edited by Avv. Claudio Bonora and Lawyer. Daniele Giombini
