Startups and Company Law: The Competitive Pressure of Delaware on Italy (and Europe?)

Abstract

US corporate law and, in particular, Delaware law, which leaves ample room to freedom of contract, has been one of the reasons for the successful creation and financing of startups in Silicon Valley. We analyze the Italian attempt to modernize company law in order to promote startup creation within the wider movement of company law simplification and modernization around Europe. In Italy a suitable corporate law statute for early stage startups was missing. Italy is a dual system jurisdiction. The SPA (public company type) has at least part of the required financial flexibility, but it is still burdened by European rules on legal capital and inflexible rules concerning management and controls. The SRL (private company type) offered a lot of leeway as to the management of the company, but left no room for freedom of contract with regard to financing, since it was not imagined as a vehicle for investors. In response to competitive pressure, economic aspirations and social changes, and to general demands from European institutions for some forms of facilitation of firm creation and venture capital, the Italian lawmaker has slowly transformed the SRL and created what is basically a new type of company (the SME SRL), which lies in between the two original types but whose borders are not fully clear. The ambiguous character of this company form makes it a problematic model for venture-funded startups. On the basis of our analysis, we argue that Italian corporate law is under competitive pressure from Delaware rather than from inter-European competition on corporate charters, and that path-dependance and remaining limits to freedom of contract burden Italian company law and prevent economic growth. We make some policy suggestions, among which the introduction of a counter-Satzungsstrenge principle for private companies.

Keywords: company law, innovative startups, private companies, freedom of contract, venture capital, business angels, crowdfunding, financing SMEs, regulatory competition

JEL Classification: K22, L26, M13