The Italian legislature enacted new measures , effective from March 27, 2024, to attract new investors to the Italian capital markets and rationalize corporate governance dynamics (the "Capital Markets Law").
The new rules affect the following:
- increased the number of votes allocable in respect of multiple voting shares and loyalty shares
- approved rules for submitting of new board candidate slates by the outgoing board
- increased the capitalization threshold for SME classification from Euro 500 million to Euro 1 billion
- exempted non-PDRM shareholders of listed companies and their closely associated persons from internal dealing disclosure obligations
- permitted by-laws of listed companies to provide that shareholders' meetings are held exclusively through the designated representative
- broadened the scope of what constitutes a "wide-spread issuer" (emittenti strumenti finanziari diffusi tra il pubblico in misura rilevante) and simplified the relevant disclosure requirements
- increased the number of votes allocable in respect of multiple voting shares and loyalty shares.
Multiple voting shares
The by-laws of non-listed companies may now provide for the issuance of multiple voting shares (azioni a voto plurimo) carrying up to 10 votes per share, a substantial increase over the previous limit of 3 votes per share.
While reserved to non-listed Italian companies, multiple voting shares issued before listing can be maintained after listing, although this category of shares cannot itself be listed. In the event a company issues multiple voting shares, it cannot issue loyalty shares.
Loyalty shares
The by-laws of listed companies now can permit holders of loyalty shares to receive up to 10 votes per loyalty share, a substantial increase over the previous limit of two votes per loyalty share.
After an uninterrupted holding period of 24 months, holders of loyalty shares may be entitled to two votes per loyalty share and may subsequently receive one additional vote for each subsequent uninterrupted 12-month holding period, up to 10 votes in total per loyalty share.
While shareholders still do not have any rescission right (diritto di recesso) in the event the by-laws are amended to introduce loyalty shares granting up to two votes per loyalty share, shareholders who do not attend the shareholders' meeting that resolves upon the amendment to the by-laws or do not vote in favor of such resolution, will now be entitled to exercise their rescission rights in the event of an approval of loyalty shares granting more than two votes per loyalty share, at a price based on the average of the company’s shares closing prices over the six months before the shareholders' meeting call2.
The by-laws may also allow shareholders with loyalty shares to irrevocably waive all, or part of the additional voting rights awarded as a result of their uninterrupted holding of such shares.
We note that voting rights acquired through loyalty or multiple voting shares are not exempt from the FDI filing thresholds with respect to share capital and / or voting rights holdings set forth in the Golden Power Law.3 While the relevant shareholder is primarily responsible for the filing, companies themselves are also typically requested to cooperate in the notification process and co-sign the notification.
Approved rules for submitting of new board candidate slates by the outgoing board
The by-laws of listed companies may grant the outgoing board the right to propose to the shareholders a slate of candidates for the appointment of new directors. This slate must receive the approval of 2/3 of the directors in office. It must also include a number of candidates that exceeds the total number of board members by 1/3 and must be published 40 days in advance of the shareholders' meeting. In the event the board slate in its entirety obtains the majority of votes at the shareholders' meeting, each candidate on such list must then be separately approved by the majority of votes represented at the shareholders' meeting.
Specific rules provide for the allocation of board seats to minorities should the slate presented by the board obtain the majority of the votes. Such rules grant the minorities the right to appoint at least 20% of the directors even if the minority slates are voted by 20% or less of the voting share capital.
While approximately 50 Italian listed companies currently provide a process for the outgoing board to propose a slate for the new board in their by-laws, only 15 of them actually implement this practice.
Companies planning to list should consider introducing the board slate in their by-laws prior to listing and listed companies which have already included the board slate in their by-laws should review the relevant provisions in light of the newly introduced rules.
Increased the capitalization threshold for SME classification from Euro 500 million to Euro 1 billion.
The definition of "Small and Medium-sized Enterprise" (SME) under the Consolidated Law on Finance4 has been broadened to include listed companies whose market capitalization does not exceed Euro 1 billion, thus doubling the previous cap of EUR 500 million.
Being designated as a SME carries the following main consequences:
- Different takeover threshold: for the acquisition of SMEs, a mandatory takeover is triggered at 30% (compared to 25% for non-SMEs). SMEs have also the option to set a different takeover threshold in their by-laws, which may range anywhere between 25% and 40%.
- Stake disclosure threshold: for the acquisition of SMEs, the minimum acquisition percentage triggering disclosure requirements is increased from 3% (for non-SMEs) to 5%.
- Disclosure requirements: acquiring SME status requires disclosure to CONSOB and the market.
The acquisition of SME status must be communicated to the market within 5 trading days of December 31 and reported in the corporate governance annual report.
Exempted non-PDMR shareholders of listed companies and their closely associated persons from internal dealing disclosure obligations
The Capital Markets Law has repealed the obligation of shareholders holding at least 10% of the share capital of a listed company and their closely associated persons to report to Consob and the market their transactions relating to the shares of Italian listed companies. The Capital Markets Law will not affect the obligation to disclose any transactions conducted by "persons discharging managerial responsibilities" and the "persons closely associated with them" required by Article 19 of the Market Abuse Regulation,5 nor the obligation to disclose the ownership percentage on major holdings required by the Transparency Directive6.
The removal of this requirement harmonizes Italian national regulation with the Market Abuse Regulation, which exempts shareholders from such disclosure duties.
Permitted listed companies to provide in their by-laws that shareholders’ meetings are held exclusively through the designated representative
The by-laws of companies listed on a regulated market or MTF may now be amended to provide that shareholders are only permitted to attend shareholders' meetings through a designated representative (i.e. in-person participation may be banned). Following such amendment, the temporary regime established during the Covid-19 pandemic in relation to the attendance and voting procedures of the shareholders' meetings may now be made permanent and mandatory. Nevertheless, it seems reasonable that the by-laws may also be amended to allow the Company to choose between physical attendance (either in person or through a proxy) or the attendance through a designated representative only.
Until December 31, 2024, shareholders meetings may be conducted via a designated representative, regardless of the changes deriving from the Capital Markets Law.
Broadened the scope of wide-spread issuers and simplified the relevant disclosure requirements
The Capital Markets Law has introduced a new definition of "wide-spread issuers" (emittenti strumenti finanziari diffusi tra il pubblico in misura rilevante) in the Italian Civil Code, which now includes issuers that are not listed on a regulated market and are ineligible to prepare simplified financial statements7, and which have more than 500 shareholders excluding any shareholder holding (in the aggregate, including across multiple vehicles) more than 3% of the share capital.
The primary obligations that are no longer applicable to wide-spread issuers are:
- disclosure requirements for price-sensitive information
- need for shareholder approval of share-based management incentive plans
- limitation on the number of positions outside the issuer directors and statutory auditors may hold
- adoption and implementation of related-party transactions procedures.
Wide-spread issuers (of which there are approximately 55 as of January 20248) should re-assess their internal procedures regarding price-sensitive information and related-party transactions procedures.
Other relevant changes in the Capital Markets rules introduced by the Capital Markets Law.
Undertakings as an alternative to Consob sanctions: persons sanctioned by Consob may present undertakings that, if accepted, become binding and replace the administrative sanction, facilitating the reduction of litigation. More detailed regulation is expected to be issued by Consob.
Door-to-door offers: exemption from the rules applicable to door-to-door offers is extended to offerings of a company’s own shares or equity-linked securities by companies listed on regulated markets and MTFs, irrespective of the type and number of addressees, if the minimum subscription / purchase price is at least Euro 250,000. This new exemption implies that (i) such offerings can be made without the appointment of a licensed financial intermediary; and (ii) subscribers do not have rescission rights within the seven-day period following their subscription.
Conclusions
These new rules are principally intended to increase voting power of main shareholders in listed and non-listed companies, enhance the governance of issuers and increase the competitiveness of Italian corporates including by easing their access to the capital markets.
While the potential increase of multiple and loyalty voting rights constitutes a tool conceived by the Italian legislature to increase competitiveness of Italian markets internationally, it is yet to be confirmed if, and to what extent it will be received by the Italian market.
The rules governing the presentation of a slate of new board candidates by the outgoing board of directors contain certain complex mechanics for which we expect clarifications from the regulators.
To the extent listed companies intend to include in their by-laws the mandatory use of a designated representative (rather than direct shareholder participation) at the 2025 annual meetings, they should consider amending the by-laws to provide for this change by the end of 2024. Different approaches to amendment of the by-laws are being discussed with respect to both languages to be included in the by-laws and timing for their approval.
1 Law No. 21 of March 5, 2024
2 Pursuant to the Italian civil code, the issuer is under the obligation to repurchase any withdrawn shares remained unsold not purchased by the market.
3 Law Decree No. 21/2012, converted into law by Law No. 56 dated May 11, 2012), as amended to date.
4 Legislative Decree No. 58 of February 24, 1998.
5 Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014.
6 Directive 2004/109/EC of the European Parliament and of the Council of 15 December 2004
7 Companies are ineligible to prepare simplified financial statements if, in each of the last two financial years, they exceeded at least two of the following thresholds: (i) total assets greater than Euro 4.4 million; (ii) revenue greater than Euro 8.8 million; (iii) average annual FTEs greater than No. 50 employees.
8 Source: Consob official website (see https://www.consob.it/web/area-pubblica/elenco-emittenti-titoli-diffusi for further information).
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