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Italy: Law on Public Participation Companies

(Dec. 23, 2016) On September 23, 2016, new legislation establishing the consolidated text of the Public Participation Companies Law entered into effect in Italy. (Law No. 210 of August 19, 2016, Public Participation Companies Law (Law No. 210), GAZETTA UFFICIALE, No. 210 (Sept. 8, 2016), NORMATTIVA (in Italian).)  The purpose of the new legislation is to allow public agencies to participate in forming “Public Participation Companies” (PPCs) and other corporate structures.  (Id. art. 1(1).)  According to the new legislation, participation in a PPC includes the purchase, maintenance, or management of the PPC by a public agency, whether directly or indirectly, in full or in part.  (Id.)

Public agencies must perform an annual analysis of the performance of the companies in which they take part directly or indirectly.   The analysis is aimed at evaluating whether to streamline, consolidate, transfer, terminate, or liquidate their participation.  (Id. art. 20(1).)

Types of Companies that Can Be PPCs

Public administration agencies may only participate in companies (including consortia) constituted as stock corporations, limited liability companies, or cooperatives. (Id. art. 3(1).)  Public agencies may not, directly or indirectly, take part in companies whose objective is to produce goods and services that are not strictly necessary for the pursuit of their own institutional purposes or is to acquire or maintain participation, even minority interests, in such companies.  (Id. art. 4(1).)  PPCs may have the following purposes:

  • the production of services of general interest, including the management of digital networks and functional systems;
  • the design and construction of public works based on a framework agreement between public agencies;
  • the design and construction of public works or the management of a public service through a public-private partnership contract;
  • the production of goods or services that are instrumental to the functioning of the participating public agencies; or
  • the purchase of services, including auxiliary purchases, provided to not-for-profit entities and to other public entities. (Id. art. 4(2)(a)-(e).)

For the sole purpose of optimizing and adding value to the use of their real estate, public agencies may acquire shares in companies whose sole social purpose is the increase of the public patrimony’s value by transfering that real estate to such companies and using the profits for further investment. (Id. art. 4(3).)

PPCs Controlled by Local Entities

PPCs that are controlled by local entities are not permitted to constitute new companies or to acquire new participation in companies. (Id. art. 4(5).)  Such a restriction does not apply with respect to companies whose sole purpose is the management of participation of other companies formed at the local level, with several exceptions.  (Id. art. 4(5).)  The participation of local public agencies is also permitted in

  • companies whose social purpose is the management of trade fairs or cableways for tourism and sports transportation in mountainous areas (id. art. 4(7)) and
  • spin-off or startup university companies and companies of entities similar to research institutions. (Id. art. 4(8).)

The President of the Council of Ministers may lift existing restrictions in certain circumstances. (Id. art. 4(9).)

When companies with participation by local administrative entities present a negative annual balance sheet, the local entities participating therein must set aside a special restricted fund for the next balance period to cover the negative result, in an amount proportional to their share in the company in question. (Id. art. 21(1).) 

Procedure for Establishing a PPC 

The creation of a PPC must be preceeded by an administrative resolution issued by the interested public agency attesting the need for the participation of that public agency in a PPC. (Id. art. 5(1).)  The administrative resolution must be sent to the Court of Auditors for information purposes and to the relevant antitrust authorities.  (Id. art. 5(3).)  

Operations aimed at acquiring participation in existing PPCs, whether by an increase of capital or through other extraordinary operations carried out by public agencies, must comply with the administrative requirements established for the constitution of a new PPC. (Id. art. 8(1).)  These provisions also apply to the acquisition by public agencies of participation in listed companies, but only when the operation involves the acquisition of a capacity as a shareholder.  (Id. art. 8(3).)

Management of Public Participation in PPCs

The Ministry of the Economy and Finance exercises shareholder rights pertaining to national public agencies that own participation in PPCs, in conjunction with other ministries with jurisdiction over the industry in which the PPC operates. (Id. art. 9(1).)  The participation of regional entities in PPCs is governed by regional legislation and the representation of these regional entities in PPCs  is exercised directly by the respective regional mayors or other regional leaders or their delegates.  (Id. art. 9(2)-(3).) The Ministry of the Economy and Finance must approve the institutional mechanisms and structure created at the national, regional, and local levels to monitor, manage, and coordinate the activities of PPCs.  (Id. art. 15(1).)

Other New Company Structures

The new legislation also creates three additional types of companies that may have participation of public agencies: in-house companies; mixed public-private participation companies (MPPPCs); and companies subject to public control (PCCs). (Id. arts. 6, 16, & 17.) 

In-house companies receive public contracts directly from the public agencies that control them.  (Id. art. 16(1).)  The bylaws of in-house companies must provide that at least 80% of their invoicing be carried out in the performance of tasks entrusted to them by their participating shareholding public agencies.  (Id. art. 16(3).)

In MPPPCs, private participation may not be less than 30% of the total company stock.  (Id. art. 17(1).)  The duration of the participation of a public agency in an MPPPC may not be longer than the duration of that company’s contract or concession.  (Id. art. 17(3).)

A PCC is a company that is controlled by a public agency pursuant to specific or exclusive legislation and that must adopt a separate accounting system for the economic actitivies that it performs and draw up specific programs for the evaluation of corporate risk.  (Id. arts. 6(1) & 6(2).)  PCCs must undertake a series of actions aimed at enabling them to better perform their activities, including securing the approval of the relevant regulatory control agency control of corporate organizational documents (internal regulations and bylaws), creating internal control offices, adopting internal codes of conduct, and establishing corporate social responsibility programs.  (Id. art. 6(3).)

Members of a PCC’s administrative and auditing organs must comply with the criteria of honorability, professionalism, and autonomy established by regulation.  (Id. art. 11(1).)  The administrative board of a PCC is composed, as a general rule, of a single administrator.  (Id. art. 11(2).)  The gender equilibrium principle must be followed in the selection of PCC administrators.  (Id. art. 11(4).)