Single member private limited liability company and personal responsibility for company’s liabilities
Compared to partnerships, limited liability companies are autonomous legal entities, totally distinct from the shareholders. It implies that their financial resources are totally separated from the one of their shareholders.
Therefore, the shareholders are not liable with their assets for the debts of the company, as well as to the personal debts of other shareholders. In Italy this situation is referred as “perfect patrimonial autonomy”.
The above principle finds a partial exception following the 2003 great company law reform which provided for the possibility to set up unipersonal limited liability companies (in the past not allowed because they were considered to be in conflict with the spirit of an association contract, like the founding contract of a company in force of art. 2247 of the Italian Civil Code).
The single member private limited liability company, within certain limits and under certain conditions, contains an exemption of the perfect patrimonial autonomy. This exemption is a guarantee that the legislator provides in favor of the social creditors.
In practice, the legislator provides for a penalty against the unipersonal company that does not comply with the codified obligations provided for it.
More precisely, if the company is insolvent the single shareholder is liable with his own personal assets when the share capital has not been fully paid and also when a declaration containing the identification data of the single-member is not filed with the company register.
It would be interesting to evaluate in more detail the meaning attributed by the legislator to “insolvency“. In fact, the above exemption would have a different application depending on whether “insolvency” is referred to bankruptcy insolvency (which has an absolute and definitive nature), rather than to a relative and less rooted type of insolvency.
In any case, the personal liability of the single shareholder is limited for the period in which the wholly shares belonged to him.
The information about the single shareholder has to the filled with the company register in order to inform third parties that the company with which they are dealing is not governed by the dialectic that characterizes the relationship between majority and minority shareholders.
For single member limited liability companies, strangely not for single member public companies, a further publicity requirement is provided: the correspondence of the company has to clearly show that the company is a single member one.
In any case, the past Court decisions have underlined that the sole shareholder is personally responsible for the companies’ liabilities, but the company remains the only owner of its obligations and rights.
Moreover, the Courts have always disposed that the personal responsibility of the shareholder is only subsidiary to the company’s one. From this point of view, it would be interesting to evaluate whether or not the subsidiary responsibility of the shareholder follows or not the rules provided for personal responsibility of the members of a partnership (art. 2268 and 2304 of the Italian Civil Code). The main issue regards whether or not there is a benefit of prior enforcement of the company’s asset.
The personal liability of the single shareholder is a sort of penalty for not fulfilling the disclosures and capital requirements. Therefore, probably, the single shareholder is jointly and severally liable with the company without the benefit of prior enforcement of the company’s assets.
In the absence of specific legislative indications, the professionals have also to evaluate if the above principles are also applicable to all those factual situations in which a shareholder, formally not alone, is in fact the only shareholder of the company.
In other words, the question is whether it is possible to refer to another conception of “ownership” of the company’s share capital, and so if the lack of plurality in a formal sense can be compensated by uniqueness in the economic sense.
Normally it is not possible to extend the single member company regulation to similar cases, with the exception of the case in which there is a fraud intent of the single shareholder and the minority shareholder(s) is a mere agent of the majority shareholder.
Finally, it could be wondered if, by analogy, the above principles could be extended to the sole Italian shareholder of a foreign company. On this point, the Courts have always ruled in order to apply the above mentioned principles only to Italian single member companies and never in relation to the Italian nationality of the single shareholder.