ITALY Law and Practice Contributed by: Silvia Bordi, Emanuele Bosia, Federico Dettori and Rodrigo Boccioletti, Gianni & Origoni
3.4 Documentation In Italy, the key documents typically involved in a financing round for a growth company include the following. • Term sheet: this non-binding document out - lines the preliminary terms of the investment, including valuation, investment size, investor rights and other key provisions. It serves as a foundation for final agreements and is often used as a basis for negotiations. While not universally binding, it helps set expectations and guide the drafting of final legal docu - ments. Templates provided by industry asso - ciations like AIFI (Italian Private Equity and VC Association) are commonly used, particularly in seed and early-stage deals, though cus - tomisation is often required. • Due diligence report: this report is prepared during the due diligence process and helps investors assess the risks and opportunities of the investment. It covers legal, financial and technical evaluations of the company. • Investment agreement: This binding agree - ment finalises the terms of the investment, including investor commitments, liabilities, and other specific conditions that apply to the investment. • Shareholders’ agreement: a legally binding document that outlines the rights and obliga - tions of shareholders, governance, decision- making processes and exit strategies. In Italy, it must comply with the Italian Civil Code, specifically regarding shareholder voting rights and exit mechanisms. The agreement also addresses pre-emption rights, allowing existing shareholders the first opportunity to buy additional shares before third parties. • Articles of association: this constitutional document governs the company’s operations, shareholder rights and internal rules, and must align with Italian law.
The S.r.l. structures allow the creation of either quotas conferring special rights or different classes of quotas, each with distinct rights. Investors typically receive preferred quotas, which provide rights such as liquidation prefer - ences (ensuring investors are paid before com - mon quotas in the event of liquidation), prefer - ential dividends (usually on a cumulative basis) and anti-dilution protections (eg, full ratchet or weighted average provisions). Voting rights for preferred quota holders are often limited but may include veto powers over significant cor - porate decisions. The flexibility of the S.r.l. struc - ture makes it a common choice for VC-backed companies, enabling tailored governance and investor rights. In addition to equity-like instruments, quasi- equity instruments are increasingly used, espe - cially in early-stage financing. SAFEs allow investors to provide capital without determin - ing an immediate valuation. These agreements convert into equity when certain conditions are met, such as a future funding round. SAFEs are particularly popular for seed-stage investments because they simplify the investment process. While KISS (Keep It Simple Security) agreements are also an option, in Italy they are less common than SAFEs. Another widely used instrument is the convert - ible loan, which allows investors to provide funds that can later be converted into equity, typically at a discount or with a valuation cap. These instruments are common in early-stage financing, providing flexibility and rewarding early-stage risk. These structures help investors secure preferen - tial rights while providing start-ups with flexible funding options.
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