Investment in Italy

Investment in Italy1.2.4 Typical issues facing Italian medium-sized companiesBroad variety of legal formsItalian law offers a variety of legal forms (e.g. corporations, partnerships), which are subjectto specific tax rules and corporate laws.The legal form of a medium-sized company may reflect the development stage of abusiness, in that partnerships are typically used for very small or family run businesses andare converted into corporations when they grow larger or new shareholders arrive. Changesin Italian tax regulations and the degree of personal risk assumed by shareholders/ownersalso have an impact on the choice of legal form.Separation of operating and holding companiesIn Italian medium-sized businesses entrepreneurs tend to keep their business assetsseparate from other assets such as financial investments or real estate assets: different legalentities and holding companies are used. These structures are often tax driven, although riskmanagement also plays a role. Potential investors should give careful consideration to thefact that targets of potential acquisitions may or may not include, for example, real estateassets or companies, and that the capital requirements may therefore vary significantly.Main shareholder/owner involved in the businessItalian medium-sized companies are commonly family owned and run businesses: as such,they are often reliant to a significant degree on the involvement of the shareholder/owner.Certain ‘discretionary’ transactions are not infrequent, whilst future operating results maybe strongly linked to the continued presence of this key person.Requirements for audited financial statementsThe audit requirement is subject to the size of the company (by equity, assets, sales andnumber of employees): therefore, the financial statements of a large number of Italianmedium-sized companies are not audited. In addition, the accounting of medium-sizedcompanies is frequently tax driven in a constantly changing tax scenario.Potential investors should always obtain a thorough financial, tax and legal due diligencereview and make use of tax structuring assistance to ring fence contingent liabilities.LanguageFinancial, legal and tax information is generally prepared in Italian and based on Italian GAAP.A potential investor should consider that the financial information may differ if reportedunder the GAAP of other jurisdictions.Employee issuesEmployees are generally highly knowledgeable, experienced and skilled as a result of theItalian system of in-house apprenticeships and vocational studies. Employee remunerationis commonly subject to collective bargaining agreements enforced by strong trade unions.A potential investor should be fully aware that certain company or group restructurings aresubject to an agreement with the relevant trade union.© 2012 KPMG S.p.A., KPMG Advisory S.p.A., KPMG Fides Servizi di Amministrazione S.p.A., KPMG Audit S.p.A., Italian limited liability share capital companies, and Studio Associato Consulenza legale e tributaria, anItalian professional partnership, are member firms of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.15