The causes of exclusion of the shareholder of S.r.l. must be specifically indicated in the By-laws – tax implications of the exclusion

With the recent ruling of 23 March 2022, the Naples Business Court declared void and null the shareholder exclusion clause contained in the By-laws of an S.r.l. according to which “serious breaches of the obligations deriving from the social contract” constitute just cause for the exclusion of the shareholder.

In its explanation of the grounds of the decision, the Court first of all recalled that, in the context of the s.r.l., art. 2473-bis of the Italian Civil Code grants shareholders wide autonomy in indicating causes for exclusion of the shareholder other than those specifically provided for by law. This faculty is undoubtedly revealing the importance that the person of the shareholder holds within the s.r.l., but it also encounters limits. In particular, the same art. 2473 – bis of the Italian Civil Code provides that the non-standardized exclusion of the shareholder must in any case be supported by “just cause”.

Given the vagueness of the expression “just cause” contained in art. 2473 – bis of the Civil Code, the Court of Naples recalled that, in order to be considered legitimate, the exclusion clause of the shareholder of s.r.l. must meet two different requirements.

The first is the specific content of the shareholder exclusion clause, which entails that the clause must regulate in detail the procedure to be followed to adopt the exclusion resolution. The clause must therefore indicate, by way of example, the competent body, the required majorities, the communication to the excluded shareholder and the deadline for the latter’s opposition.

The second requirement, on the other hand, concerns the substantial description of the non-fulfillment of the shareholder which leads to his exclusion. In order to be legitimate, the clause must in fact provide for specific cases of non-fulfillment, with exclusion to any reference to the generic breach of corporate obligations.

On this last point, the ruling in question makes an interesting comparison between the rules of exclusion in the s.r.l. and the discipline of exclusion in partnerships. In the latter, art. 2286 in fact grants greater flexibility in the drafting of the shareholder exclusion clause. This is because in partnerships the so called intuitus personae is crucial, with the consequence that any serious breach of the social contract can irreparably harm trust between the shareholders.

On the other hand, in corporations like the s.r.l., the intuitus personae is of very limited importance with the consequence that the shareholder must be made aware of the potential causes of exclusion that he could run into.

The ruling in question conforms therefore with the largely prevalent Italian case law that does not admit clauses of exclusion of shareholders characterized by excessive indeterminacy and, on this premise, has excluded that the failure of the shareholder to timely notify the company that an injunctive relief against the same company was served could constitute legitimate grounds for his exclusion.

It is worth remarking that the shareholder’s exclusion will normally be relevant from a tax perspective too, representing a discontinuity in the shareholding relationship.

Following the mentioned cold case referred to the shareholder’s exclusion from a limited risk liability company or a corporation, art. 47, par. 7, of the Decree no. 917/86 (“IITC”) provides that the excluded shareholder shall be taxed on the gain – no matter if in cash or in kind – determined as the difference between the amount received or the fair value of the assigned assets, from one side, and the tax cost from the other side, normally based on the purchase cost and/or the amount of the equity injections. Such rule does not address the fact that the company may assign or not equity contribution reserves or retained earnings. The capital gain shall be taxed according to the rules from time to time effective, currently a 26% withholding tax.

The above is enforced to the extent that we mention an individual shareholder holding participations outside of any going concern.

When, on the opposite, the excluded shareholder is a corporation or a limited liability company, then the gross amount of the gain shall have to be apportioned between equity contributions reserves and retained earnings, so that the net gain may be either taxed as a business gain or as a dividend.

More complex tax rules, to be analysed on a case by case basis, may be relevant when the shareholder, individual or corporation, is holding interests in a partnership.
 

Contributing Advisors