Incentive Plans and Exit Strategies for Key Personnel of the Target Company
In the context of private equity and venture capital, incentive plans for key personnel (key men) play a strategic role, aiming to align the interests of these individuals with those of the investors. These plans often include the opportunity for key men to purchase or subscribe to shares in the company where they are employed.
A central issue concerns the management of the exit from the shareholding structure of those shareholders who terminate their employment: how can the majority investor be protected and the reallocation of shares ensured?
Italian Supreme Court Order No. 18891/2024 ruled on the legitimacy and validity of a clause contained in the bylaws of a limited liability company (S.r.l.), aimed at regulating the exit mechanisms applicable to key men upon the termination of their employment.
In particular, the clause stipulated that upon termination of the employment relationship with the company, former employee-shareholders holding minority stakes were obliged to sell their shares to the other shareholders at a price equal to the corresponding net equity value.
The ruling emphasizes the statutory autonomy in regulating the exit of key men, confirming the validity of clauses that protect the interest of the investor (often the majority shareholder) in maintaining control over the capital and ensuring that shares are reallocated to individuals who are strategic for the company’s growth.
Transfer of Shares at a Nominal Price
The determination of the purchase price in a share transfer is a complex and frequently debated matter, particularly when the shares are sold for a nominal amount or for a price significantly below their market value.
Under the Italian legal system, the principle of contractual freedom under Art. 1322 of the Civil Code allows parties to freely determine the price and content of agreements. This autonomy is further confirmed by Art. 1474 of the Civil Code, which allows for a price different from market value—even symbolic or nominal.
Unreasonably Low Price vs. Nominal
- Unreasonably low price: a real but below-market price, still indicating a burdensome transaction.
- Nominal price: merely apparent, potentially casting doubt on the presence of real consideration.
In the context of share transfers, the price may be of secondary importance compared to the commercial and strategic rationale underlying the transaction. Italian case law has recognized that shares may be transferred for a nominal price — even as low as one euro — where justified by specific economic conditions, such as the transferee undertaking significant liabilities or obligations as part of the deal.
Are Negative Shareholders’ Resolutions Challengeable? The Supreme Court Opens New Scenarios
A court may annul an unlawful negative shareholders’ resolution and order that a new general meeting be convened to reconsider the proposed resolution. However, this form of legal protection may prove ineffective if the shareholders’ meeting simply reiterates the same irregular decision, potentially resulting in a deadlock.
To overcome this, it is possible to request that the court ascertain the positive resolution that would have been adopted if unlawful votes had not been taken into account (e.g., votes cast by shareholders with a conflict of interest or who abused their voting rights). In such cases, the court does not substitute its own judgment for the will of the shareholders’ meeting; rather, it declares the actual will of the shareholders’ body, purified of invalid or illegitimate votes, with retroactive effect.
This approach ensures equal protection for both positive and negative resolutions, consistent with the constitutional principles of equality and access to justice (Articles 3 and 24 of the Italian Constitution).
Nevertheless, Italian case law maintains that courts cannot broadly substitute themselves for the majority’s will. The court’s role is limited to restoring the shareholders’ meeting’s effective and legitimate intent.
“Simul Stabunt Simul Cadent” Clause Applicable to the Supervisory Board in the Dualistic System
With Order No. 14268/2025, the Italian Supreme Court extended the application of the “simul stabunt simul cadent” clause (they stand or fall together) to the Supervisory Board under the dualistic corporate governance model, where provided for in the company’s bylaws—even in the absence of an explicit legislative reference.
The case: Three members of the Supervisory Board were dismissed without just cause; a fourth member lost their position under the statutory clause. The Court denied compensation, clarifying that such termination does not amount to dismissal without just cause.
The clause serves to preserve the overall balance and internal cohesion of the collective body and is compatible with the functioning of joint-stock companies (S.p.A.) even within a dualistic system.
The Court rejected the argument that the clause is invalid due to its absence from Article 2409-duodecies of the Civil Code, reaffirming instead that its application is permissible where provided by the bylaws, even without an explicit legal reference.
Legislative Decree 88/2025: New Flexible Rules for Hive-Down Spin-Offs
Legislative Decree 88/2025, effective as of July 8, 2025, introduces significant clarifications and simplifications to the rules governing corporate transformations, mergers, and demergers, with particular regard to hive-down spin-offs (scissione mediante scorporo).
Key developments include:
- A hive-down spin-off may now involve the transfer of the entire assets of a company to one or more beneficiary companies, with the spin-off company receiving shares or quotas of the beneficiaries, thus becoming their shareholder.
- Unlike a full demerger (which extinguishes the demerged company), in a total hive-down, the spin-off company continues to exist, though it changes its corporate purpose and becomes a holding company owning shares in the beneficiary companies.
- The hive-down is no longer limited to the formation of new companies; it may also be carried out in favour of existing companies.
STAY UP TO DATE WITH THE LATEST LEGAL NEWS. CLICK HERE TO FIND OUT MORE!
