Snc: flexibility and risks for merchants

Are you ready to become entrepreneurs? If you want to embark on this adventure with at least one other person, the solution for you could be to open a company in collective name (Snc) . This type of company does not need any share capital and involves slightly lower foundation and maintenance costs compared to other company forms (for example compared to a capital company). In fact, to open a Snc, you just need to draw up a deed of incorporation and file it with the Companies Register.

Even in daily management, the Snc offers some advantages. Unless otherwise stated in the articles of association, all shareholders can actively participate in the management of the company and have full decision-making power. Furthermore, if the revenues do not exceed a certain threshold, a simple accounting regime can be adopted.

Index

  1. Birth of the company in a collective name
  2. What is a Snc?
  3. Who can profit most from the opening of a Snc?
  4. Characteristics of a Snc in short
  5. What do you need to open a Snc?
  6. The management
  7. Accounting, taxes and profit distribution
  8. What are the responsibilities of the members?
  9. Dissolution of a company in a collective name
  10. Advantages and disadvantages of a company in a collective name

Birth of the company in a collective name

The origin of the term company in a collective name dates back to French commercial terminology which, at the end of the seventeenth century, had already introduced a corporate form called société en nom collectif. Although with some differences compared to today, it was a first way to regulate the existence of a company managed by several people.

Today, issues relating to the foundation, management and dissolution of an Snc are governed by company law, a branch of commercial law.

What is a Snc?

A Snc is a type of partnership , that is, a company founded and managed by at least two legal and / or physical persons who are jointly and severally liable for all social obligations. To govern its management is the Civil Code in the paragraphs between Articles 2291 and 2312. We remind you, however, that this is not the only possible form of partnership. In fact, there are also simple and limited partnerships .

Definition: Snc

A collective name company (Snc) is a form of partnership with at least two partners. You can decide to register the company regularly in the Register of Companies or not to formalize it. In both cases, its members are jointly and severally liable for all social obligations. The management and internal organization of the company do not follow too strict guidelines and adapt almost completely to the entrepreneurial wishes of the members.

The Snc is one of the preferred solutions in our country, chosen by small or medium-sized companies for its flexibility. In fact, you can decide whether or not to register the company with the Chamber of Commerce. This choice has important consequences and determines the birth of:

  • company in a regular collective name : the company is registered in the Company Register and therefore the articles of association were stipulated by public deed or private deed authenticated by a notary;
  • irregular collective company (or de facto collective company): in this case, the company is not registered in the Company Register and its existence is based on the relationships between two or more people who have not authenticated the deeds of the notary.

Enrolling the company in the Company Register guarantees the possibility for third parties to be able to know the essential elements of the social contract and the events most relevant to the life of the company. Not registering it means that the relations between the company and third parties are not governed by the rules that guide the management of a Snc. So we will face a situation similar to that of a simple company that is less favorable to shareholders.

In addition, a Snc, compared to other corporate forms, has less expensive costs and can adopt a simple accounting regime if the revenues do not exceed the turnover threshold of 400,000 euros for companies carrying out service activities or 700,000 euros for companies that carry out activities other than services. In general, however, simplified accounting is the natural accounting regime for Snc, sole proprietorships and SAS. Although expensive, it has lower costs than ordinary accounting and focuses mainly on VAT obligations and the recording of invoices.

Who can profit most from the opening of a Snc?

Given the relatively low costs, the Snc is an excellent solution for small and medium-sized enterprises . Furthermore, its foundation does not require compliance with too stringent criteria or having an initial share capital. The biggest costs are those of legal advice and notary, if you decide for a company in a regular collective name, as well as management costs.

The Snc also guarantees a lot of flexibility to its members. They are the ones who make all the business decisions and take over their management. How the tasks are divided among the partners must be formalized by the articles of association.

Characteristics of a Snc in short

  • Legal form : partnership
  • Foundation rules : from articles 2291 to 2312 of the Civil Code
  • Partners : at least two natural or legal persons
  • Management : very flexible organization according to the business needs of the members
  • Representation : partners and / or employees in charge
  • Articles of incorporation : drawn up by public deed or private deed authenticated by a notary
  • Object : exercise of a commercial activity
  • Company name : it must contain the name of at least one of the two partners and an indication that it is a Snc
  • Registered office : Italy
  • Registration in the Register of Companies : voluntary but recommended
  • Accounting : simple accounting regime if the revenues do not exceed the turnover threshold of € 400,000 or € 700,000
  • Advertising obligation : reporting function
  • Share capital : no minimum amount is required
  • Legal personality : no
  • Legal capacity : yes
  • Employees : maximum variable number depending on the type of Snc
  • Liability : subsidiary (creditors can act on the personal assets of the members after having acted without success on the corporate assets)
  • Tax obligations : Single Model, VAT return, Irap, Spesometro
  • Foundation costs : the cost of the notary amounts to € 1500 plus VAT and withholding tax 20% (including stamps), that of the accountant instead will be around € 350 plus VAT.

What do you need to open a Snc?

To open a Snc you have to make some legal and bureaucratic steps. First of all, you must request the VAT number, write and transmit the articles of incorporation to the business register, declare the start of the activity to the Chamber of Commerce and carry out all the paperwork at the INPS.

What can not miss in the articles of association

Writing a charter is not easy. Therefore, if you do not have legal skills, we recommend that you contact a professional. In any case, what can never be missing in the articles of association are the general details of the members, the company name containing at least the name of one of them and the indication of the social relationship (Snc). In addition, it is necessary to specify which functions the members will hold in the company (including the contribution of each shareholder and its value, as well as the shareholdings).

Other important aspects that should not be forgotten are an indication of where the company is located and the corporate purpose. In addition, it is advisable to indicate how the profits will be distributed among the members.

The last important aspect is that of the duration of the company. Some issues are already regulated by existing law on the matter. For example, if one or more partners are missing and you find yourself managing a Snc by yourself the most common practice is to transform it into an individual company (unless you can find another partner within six months). Other matters relating to the duration of the business relationships can be specified in the contract. The more specific your act, the less likely you are to have problems during the management or in the event of the dissolution of the company.

NB

The ban on competition prohibits shareholders from starting their own business or from participating in other competing companies in the same type of business. If the consent of the other shareholders is obtained or if the activity pre-existed the social contract and the other shareholders were aware of it, the ban on competition can be circumvented.

Initial capital and reporting obligations

You don’t need any minimum initial capital to open a company in a collective name . For the foundation of the company you will have to rely solely on your financial resources and you will be jointly and severally liable for all social obligations as established by article 2291 of the Civil Code.

The company name is used to indicate the name and type of company. In our case, the company name must contain the name of one or more of the members and indicate the company relationship (or a Snc). So, for example, a company in a collective name opened by Mr. Mario Rossi and Antonio Bianchi can be called Rossi Snc or Bianchi Snc or also Rossi and Bianchi Snc and so on.

After ratifying the articles of association with the help of a notary, your Snc will be officially registered in the commercial register and at the Chamber of Commerce. This will ensure that you are in compliance with Italian law.

NB

In all legal acts, the company will be referred to with its company name regularly registered in the commercial register.

The management

In a company in a collective name all the partners are required to take part in the management of the company, unless the act establishes otherwise by entrusting the management to one or more specific shareholders excluding the others or to a third party extraneous to the company.

As we have already mentioned, the assets of the company and that of the shareholders keep confusing themselves so that the company itself tends to identify itself in the person of the shareholder. In fact, in the case of a Snc we speak of subsidiary liability , that is to say where the creditors can act on the personal assets of the shareholders after having acted without success on the company’s corporate assets.

At the bureaucratic level, the management of a Snc is simpler than that of an Srl, but the members are still required to pay the IRPEF and IRAP. In addition, decisions are made on a majority basis when dealing with business management issues (e.g. appointment or dismissal of a director). If it is a question of decisions relating to the organizational structure of the company, it is necessary to have unanimity.

Accounting, taxes and profit distribution

Most of the Snc are subject to the simplified accounting regimewhich allows them to adopt an optional accounting regime and to benefit from facilitations in the keeping of accounting records. With Legislative Decree 193/2016, in 2017 important innovations were introduced for the keeping of the mandatory accounting records for minor companies. Specifically, companies that adopt this accounting regime no longer pay on the basis of the accrual principle but on the collection principle, that is, on the basis of what they have earned. The accounting records must always follow the chronological criterion of the date of collection and of payments made or received. The same rule in article 18 of Presidential Decree 600/73, however, allows you not to adopt the chronological registers in the event that the same data is then transcribed on the VAT registers. If, on the other hand, your revenues exceed the turnover threshold of 400.

The only tax on profits earned by a Snc is the IRAP (which has different rates and can reach a maximum of 4.25%). To this is added the tax burden on the members which is declined in the payment of the IRPEF according to the proportion of the shares owned by the individual member, the 130 euro fee for registration in the Chamber of Commerce, Industry, Crafts and Agriculture) , the contribution due to INPS , INAIL and VAT .

NB

According to the estimate of PrinceWaterhouseCoopers (Pwc) which takes into account taxes on profits, those on work and other charges, the overall tax burden in Italy for companies is 65.4%.

But how can profits be shared equally among members? The difference lies in the participation fees of each individual member. So if, for example, Mr. Rossi, Mr. Bianchi and Mr. Verdi decide to found the company Rossi & Co. Snc and to pay respectively 28,000, 17,000 and 15,000 euros for a total of 60,000 euros, the respective shares will be 46%, 28% and 25%. So the contribution of Mr. Rossi will be 46%, that of Mr. Bianchi 28% and that of Mr. Verdi 25%.

What are the responsibilities of the members?

The main responsibility of the shareholders is naturally that of the company’s creditors. As we have already mentioned, we speak of subsidiary liability , that is, creditors can act on the personal assets of the shareholders after having acted without success on the corporate assets of the company. Hence, members have unlimited liability to creditors, who can redeem their assets, including real estate, cars and valuables. However, the principle of unlimited liability does not apply in relations between shareholders regardless of the title of the action.

Any pact that limits members’ liability for social obligations is unenforceable against third parties. As for the Ss, the principle of preventive enforcement of the corporate assets applies. However, it is not the shareholder who must indicate the assets of his assets on which the creditor can refer, but the creditor himself must identify the assets.

It may happen that the members decide, for example, to transform the company into a Srl, if the business grows and the members decide to protect themselves more, or that the transformation into an individual company becomes necessary if the members fail and you find yourself managing the company from only. If there are no debts, the transformation takes place quite easily. You will need a new public document that specifies the new legal form adopted and the consent of the majority of the shareholders according to their share of capital and profit sharing. This does not mean that the shareholders get rid of the past and therefore also of the debts. The unlimited liability for the social obligations that arose earlier is not canceled.

In the event that one or more members leave the Snc and you find yourself alone, you have six months to find substitutes and reconstitute the plurality of members . If a new partner is not found, one of the most common possibilities is to transform the company into an Sas, transferring a small share to a family member without taking on responsibility if he does not intend to participate in the management. Another possibility is to continue on your own by transforming the company into a sole proprietorship.

Advice

If your company grows or you intend to invest large amounts of money, you should consider other legal forms (such as joint-stock companies that can protect your personal assets and that allow you to have limited liability towards creditors.

Dissolution of a company in a collective name

Businesses don’t always work. There can be several reasons why you decide to dissolve your company, the most common are:

  • willingness of members to terminate the working relationship
  • lack of reconstitution of the plurality of members within six months
  • the achievement of the corporate purpose
  • the start of the term as established in the articles of association
  • the failure of the business

In addition, the death of one of the partners requires the others to liquidate the shares of the deceased involving their family members or trying to rebuild the balance by transforming the company if necessary.

The liquidators are responsible for the dissolution of the business , which may be the shareholders themselves or third parties appointed by the president of the court in case of disagreement. Liquidators must sell all the company’s internal assets to settle debts with creditors. Once all the debts have been paid, the remaining assets will be divided among the shareholders.

Advantages and disadvantages of a company in a collective name

The Snc is a widespread legal form in our country that allows entrepreneurs to implement a business idea quickly and with lower costs than a capital company. The registration in the business register and the possibility of adopting the simplified accounting regime make it an excellent alternative if you do not intend to invest large amounts of capital or if you want to open a small family business. However, this legal form also entails risks, especially due to the subsidiary liability of the shareholders towards creditors. We summarize all the advantages and disadvantages mentioned in this article.

ADVANTAGES DISADVANTAGES
No initial capital required However, opening a Snc has some costs because the company must be registered with the business register
The shareholders (at least two) can choose to manage the company independently Subsidiary liability of members
Flexibility in drafting the social contract Unlimited liability
Possibility to take advantage of the simplified accounting regime Obligation to use the ordinary accounting regime exceeded a certain threshold

 

by Abdullah Sam
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