«They say things are happening at the border, but nobody knows which border» (Mark Strand)
by Jacopo Paoloni – Madjid Tavana
ABSTRACT: The group of companies is the subject of studies of business sciences as well as legal ones; the two sectors in fact analyze the factual phenomenon of the “Group” under different aspects, drawing different conclusions. In the Italian legal system there is no definition of the group of companies but, however, both the ties – of a participatory or contact nature – that can give rise to it, and the effects of the activities of a holding company, are slavishly regulated, as well as safeguards for companies submitted to the management of others.
Summary: 1. Foreword; 2. The concept of control ex art. 2359 of the Italian Civil Code; 2.1. The case of control in the Civil Code; 2.2. Internal control; 2.2.1. Internal legal control; 2.2.2 Internal “factual” control; 2.3. External control; 2.4. Indirect control; 2.5. Control ex art. 2359 of the Italian Civil Code for types of companies different from joint-stock companies and for particular forms of governance; 3. Subjects required to draft the consolidated financial statements ex art. 26, D.Lgs. 127.91; 4. The activity of management and coordination of companies (arts. 2497-2497-septies of the Italian Civil Code)
1. As is known, the economic and business sciences investigate corporate groups as unitary and long-lasting economic institutions. Therefore, they analyze the activities of direction and coordination carried out in a centralized way by the economic entity of the group (parent company) concerning the many companies that constitute the group for the pursuit of common purposes. Secondarily, they investigate the organizational and financial issues deriving from mixed management of companies that formally maintain their independent legal subjectivity.
Even if the law is exclusively directed to corporate groups – which are aggregates whose components are corporations or, more rarely, persons – it favors the individual enterprises making up the group, that is to say, their interests as well as the interests of all the subjects that gravitate around them. Only later, it takes into consideration the aspects related to the fact that these companies are part of a superordinate business group.
Some significant consequences of these obvious differences of orientation can be seen in the identification of the overriding interests and related responsibilities. From a legal point of view, the primary interests are those of the individual companies constituting the group, which have to be made compatible with and protected from the interests of the entire group. From an entrepreneurial point of view, the objectives and expectations of the superordinate group have to be favored and adapted to the several specific interests that converge in it.
The differences between the entities that make up the group and its economic unity, make the corporate group a very peculiar socio-economic phenomenon not regulated by the national legislator. Unlike countries such as Germany or Portugal, in Italy, a corporate group’s general organic and united legal framework does not exist yet and, even its definition is still an open problem on a regulatory level. So, to try and define the phenomenon and its operating principles, it is necessary to refer to sectoral and collateral regulations, which are not very coherent with each other.
In this regard, it is interesting to note that the legislator in its following declarations (from the first drafting of the Civil Code in 1942 to the Company Law Reform in 2003) and while being well aware of the existence and importance of corporate groups in the Italian industrial economy, it has showed a consolidated “reluctance” in elaborating specific definitions, unlike what usually happens in economic and business practice. The term group is indeed never mentioned in any law (except for the provisions concerning cooperatives, article 2545-septies of the Italian Civil Code) and can only be found in the accompanying reports or schemes of enabling acts (leggi-delega).
On the one hand, the absence of organic and articulated regulations regarding corporate groups, as well as the absence of a clear definition, is justified by the aim of favoring the development and competitiveness of the economic-productive fabric through generic and “flexible” legal schemes. This is because it is not appropriate to bind the concept within the inevitably narrow limits of any defining space. In fact, any definition would prove to be inadequate to the unceasing evolution of the social, economic, and legal reality, risking to undermine the main advantage of the group – its slimness – and therefore creating harsh rejections. On the other hand, the peculiarities and different forms of the phenomenon make it inappropriate to create a precise framework, which in any case would not be able to regulate the changing aspects of corporate groups. This is also due to the constant legislative interventions carried out by the legislator over time.
Moreover, legal experts have repeatedly expressed their opposition towards the development of general and unitary regulations regarding this phenomenon, aimed at formalizing its elusive and often insinuating infiltrations into the complex economic fabric that characterizes this phase of capitalism. The group, as a company based on unitary management, that can be sure or uncertain, obvious or hidden, cannot be represented by a single structure, since its vitality is in its purely entrepreneurial behavior. Therefore, it is necessary to abandon unrealistic tendencies to legislate on it and it is appropriate to apply both common laws in its areas of competence and specific antitrust, labor, insolvency, tax laws, etc., assessing “…the intensity of the manifestations typical of the unitary management and thus providing a diversified discipline for the various cases”.
Moreover, the awareness that the grouping of various companies around a single entity that directly or indirectly controls them all is a typical phenomenon of modern economy, brought the legislator – as previously mentioned – to repeatedly discuss the phenomenon over the years. This shows awareness about the importance of this type of aggregate in the national economy. And even though it does not offer a formal and organic definition of the group, in three cases it has drawn up a legislative structure that unfortunately is fragmented and episodic:
The original version of the Civil Code introduced in 1942 which, although lacking in an explicit definition of the company group, acknowledges the existence of regulations (innovated at a later time with Law no. 216/74 and with Legislative Decree no. 127/91) that control the concept of subsidiary (art. 2359 of the Italian Civil Code), which has always been considered as a sign of the existence of this type of business aggregate;
The Legislative Decree no. 127 in April 1991 that dedicates Chapter III to the consolidated financial statements (arts. 24-43) in implementation of EEC Directive No. 349/83, contains indirect references to the concept of corporate groups and its elements in addition to many special provisions (mainly adopted for the granting of tax, credit, and other types of benefits);
The Company Law Reform (Law no. 366/2003), which, to increase the degree of protection guaranteed by the national law to minority shareholders of companies subject to the control of other companies, introduces, within the framework of Chapter IX of the Civil Code (art. 2497 and following), the concept of management and coordination of companies different from that of control standardized by art. 2359 of the Italian Civil Code.
According to the legislator of 1942, the phenomenon of the group was intended to take place in the development of an initial production core that then develops in other subsidiary activities which, for organizational reasons, are best suited for autonomous management. In the consequent regulatory intervention, the legislator had only outlined the case of the control of one company over another (art. 2359 of the Italian Civil Code), only defining the concept of a controlled company and not that of the group, and laying down rules to prevent some “pathological” aspects of the phenomenon, such as in particular the risks of watered stocks and “off-market” relationships between subsidiaries and parent companies (art. 2360 of the Italian Civil Code). The legislator has systematically avoided any formal definition of the phenomenon, as well as any discipline concerning the difficult coexistence between economic-entrepreneurial integration and the legal autonomy of the various grouped companies (this will be regulated with the Company Law Reform of 2003 in art. 2497-2497 septies).
In that initial legislative approach, the corporate group was important almost exclusively for its more static aspects, that is to say, how the parent company exercised control over its subsidiaries. It intended to prevent, and if necessary to repress, any abusive behavior while the dynamic and more properly entrepreneurial aspects of the company group were not affected, if not indirectly and in an absolutely marginal way.
However, the importance of profiles concerning not only the ownership structure but also the concrete management dynamics of the group and the particular business perspective has progressively emerged to the point that the legislator, even if in a fragmentary and inorganic way, has ended up taking note of it in many laws linked to the Civil Code and in special specific regulations: from the provisions concerning the drafting, publication, and control of the consolidated financial statements (Legislative Decree no. 127/91, implementing the VII EEC Directive of 13/06/1983) to the rules concerning extraordinary administration of large enterprises in crisis (Law no. 95/1979, later integrated with Legislative Decree no. 270/1999), with which the concept of unitary direction, as a qualifying datum for group form, is introduced into our legal system; from the discipline of banking groups (Legislative Decree no. 385/1993) to that addressed to groups of companies authorized to carry out financial intermediation (Legislative Decree no. 58/1998), as well as the regulations on corporate mergers for the protection of competition and the market (which established the Antitrust Authority in Italy).
It is clear that the several regulations created for individual practical needs that emerged over the years, which are lacking an organic and unitary vision of the phenomenon, did not allow the interpreter to outline precisely the legal boundaries of the corporate group. For this reason, at the beginning of the millennium, the legislator developed a legal system to prevent and penalize the distorted effects that could be produced by this structure and to meet the needs for knowledge and understanding of such entrepreneurial organizations. This was done by providing qualitative and quantitative information adapted to the market’s needs and subjects involved (concerning the links between companies, the contractual relations between groups, the wealth and economic-financial situation of the group, etc.). This legal system also had to restore the natural aim of pursuing the same objectives regarding the interests related to the use of the corporate instrument, essentially belonging to the shareholders outside the control group and to the corporate creditors of the individual companies participating in the group (whose expectations are related to the results of these companies and could be undermined by operational choices dictated by a wider superordinate interest).
With the regulations on management and coordination of companies issued with the Company Law Reform (Law no. 366/2003), the organizational structure of this aggregate received legal recognition and regulatory issues have been handled, including the relationship between the management of the parent company and the autonomy of the individual companies, in an attempt to create a balance between the functional needs of the group as a whole and the protection of the external interests.
However, Chapter IX of the legislation in question does not precisely define the subject matter of this study, nor does it claim to provide a legal framework of the group valid for all areas of law. In fact, it is an interesting integration of the general and sectoral disciplines already introduced, but it is still not the much-awaited general discipline of corporate groups. Therefore, the choice to continue not to outline a precise and exhaustive definition, which inevitably burdens the interpreter, shows the desire to create a framework that continues to essentially focus on the interpretation of the concept of control and the activity of management and coordination of companies by a different entity, clearly considering it preferable to start from the typical external manifestation of the implementation of a group logic rather than from an abstract definition of which its elements would then have to be concretely verified.
Therefore, the abovementioned cases have legal importance for the analysis of the group structure, as they generate situations worthy of protection by the national legal system, regulating the systems of the relations among various companies and therefore assuming a position of centrality in many disciplinary areas of corporate law (the integrity of the authorized capital, accounting information, etc.) and special legislation (antitrust regulations, financial market regulations, supervision of banking groups, etc.). For this exact reason, they are affected by the multiplicity of contexts in which they are applied and the plurality of interventions of the relevant economic legislation which “…have considerably affected, although not always consciously, how the case has been managed”, so much that they remain in an inflexible polymorphism.
2. The concept of control ex art. 2359 of the Italian Civil Code
2.1. Having ascertained that a clear definition of the corporate group is absent in the Italian legal system, the legal theory and the dominant case law approach have identified an implicit substitute of this definition in the notion of corporate control ex art. 2359 of the Italian Civil Code (modified by Law No. 216/1974 and then by Legislative Decree No. 127/1991), where it is stated that a subsidiary is a company “…which is directly or indirectly under the dominant influence of another company, which is, therefore, able to direct its activity as desired”.
The Civil Code article mentioned above states:
“The following companies are considered subsidiaries:
companies in which another company has the majority of the votes that can be
exercised at the ordinary assembly;
companies in which another company has sufficient votes to exercise a dominant influence at the ordinary assembly;
companies under the dominant influence of another company due to particular obligations (the so-called external control).
For the application of numbers 1) and 2) of the first subsection, the votes belonging to subsidiaries, trust companies, and interposed persons have to be taken into account.” This is the so-called indirect control, which we shall see does not constitute a type of control in itself but rather a method of exercising the abovementioned internal control. “Votes on behalf of third parties cannot be taken into account.”
The basis of any control relationship is the “dominant influence” exercisable by one company over another. However, this form of influence is explicitly mentioned only in the aforementioned points 2 and 3 of the first subsection of art. 2359 of the Italian Civil Code. The dominant influence is the power that a company has to “impose” its own decisions on another company and on the shareholders who belong to it. This ability can be exercised at the ordinary assembly (given the powers conferred on it by the Law regarding the approval of the financial statements, the allocation of profits, the appointment and withdrawal of the members of the administrative and control bodies, etc.) of the subsidiary (so-called internal control) or directly on the administrative body of the subsidiary in such a way as to affect its work (so-called external control).
2.2. Internal control
2.2.1. This type of control means that the parent company holds a joint interest in the subsidiary (internal control) to such an extent as to give it, by law, an absolute majority (“legal” control) of the votes that can be exercised at the ordinary assembly at the first convocation, or of the highest fraction established by the corporate contract.
Normally, the parent company gets legal control of the subsidiary by owing shares or capital shares of the subsidiary, as mentioned above. However, the case of internal control (both “legal” and “factual”) is based on the concept of the availability of votes. The votes have to be sufficient to allow to exercise a dominant influence on the ordinary assembly of another company. It is not based on the ownership of shares that give the right to vote at the assembly. Therefore, internal control subsists even if a subject has the right to vote thanks to a partial right on the share, which deprives the actual holder of the relative power: typically, legal theory refers to the hypothesis of usufruct and/or pledge, provided that to calculate the votes available for the exercise of a dominant influence, the law must also consider those belonging to the usufructuary and to the pledgee.
Given that the law gives legal importance to the availability of votes rather than to the ownership of shares or capital shares, to identify the internal control, it is necessary to ascertain the positions of power actually in place at the ordinary assembly, rather than the mere existence of situations of formal control. Therefore, there is internal control whenever one company can influence the activity of another by making use of the votes inherent in shares or capital shares and shares or capital shares belonging to other subjects (as in the case of a pledge or usufruct), and also both types of votes combined. This internal control is considered to be “legal” if it reaches the necessary majority.
In any case, this power of influence must be essentially positive, meaning that to be a parent company according to art. 2359 of the Italian Civil Code (with all of the control methods contemplated therein), the mere power to prevent the approval of the shareholders’ resolutions with one’s own vote has no importance. Furthermore, a legal control subsists only when the availability of the absolute majority of the votes exercisable at the ordinary assembly concerns all the resolutions of that assembly, and on the condition that this majority has the power to adopt all the same resolutions.
The statutory autonomy can make changes to the legal model under consideration concerning the organizational structure (for example in terms of shareholders’ quorum within the limits permitted by the law), or the financial structure (for example in terms of the issuing of particular categories of shares or financial instruments). In that case, the same entity cannot have the absolute majority of the votes in all possible resolutions of the assembly or the power to make all the decisions that can be assumed therein. Therefore, there is no internal legal control but there could be internal “factual” control, as we will see in the following paragraph.
In other words, the availability of the absolute majority of voting rights at the ordinary assembly does not imply dominant influence.
The entity that has the power to exercise such a majority is not necessarily the controlling subject if there are circumstances that prevent that subject from exercising that right.
To establish a position of internal legal control, agreements between members must also be included such as, in particular, voting unions, that constitute a particular category of shareholders’ agreements. These agreements have to be suitable for granting one of them the absolute majority of the voting rights exercisable at the assembly of the subsidiary company. Although it has not been mentioned explicitly in the regulation in question, according to the prevailing legal theory, this possibility is included in the concept of availability of vote we analyzed.
The nature of the case of internal legal control is potential/presumptive. The parent company is entitled to direct the strategic management of the subsidiary, thanks to the availability of an absolute majority participation in the capital of the latter. Therefore, to be qualified as such, it does not require a current and effective exercise of the power of guidance and supervision. In other words, this type of control is power in itself but it is not necessarily an actual power. Therefore, it is independent of the actual exercise, which means it is power even before it has been possible to exercise it.
Furthermore, if the actual exercise of the power of dominant influence does not add anything to the notion of control as such, likewise the fact that it is not exercised does not imply that the company that legitimately holds this power ceases to be a parent company, even if this depends on the inactivity of the latter, on its precise strategic choice, or on the presence of factual situations that have caused it not to exercise its rights as a parent company.
Moreover, for the definition of internal control (legal and factual), the votes belonging to a particular subject on behalf of third parties are not taken into account (art. 2359 of the Italian Civil Code, second subsection). Therefore, the vote of the participants at the ordinary assembly as representatives of one or more members is not taken into account, nor does the so-called joint control constitute control in the proper sense. This last case scenario typically occurs when several shareholders, none of which can autonomously obtain the majority of the votes that can be exercised at the ordinary assembly of a company, enter into a shareholders’ agreement to create a majority, and therefore they are obliged to vote in the same way. In the case in question, however, it is the shareholders’ agreement as such (i.e. the community of shareholders who are members of the union) to become the controlling entity. The concept of control in art. 2359 of the Italian Civil Code, regardless of the methods of implementation (internal legal or factual control or external control), establishes the “solitude” of the controlling party. In fact, as mentioned, a shareholders’ agreement is relevant for the purposes of control only if it assigns to a single shareholder, adhering to the agreement, the majority of the votes that can be exercised at the ordinary assembly.
Finally, the use of the expression “exercisable votes” at the ordinary assembly means that, to calculate the absolute majority, it is necessary to exclude not only the votes which the owner of the shareholding cannot exercise because it is subject to pledge or usufruct (as mentioned above, according to the provisions of art. 2352 of the Italian Civil Code, first subsection, the right to vote, unless otherwise agreed, is owned by the creditor or the usufructuary), but also the votes which cannot be exercised according to the prohibitions contained in art. 2359-bis of the Italian Civil Code (a subsidiary that holds a joint interest in the capital of its parent company).
2.2.2. The second internal control method according to art. 2359 of the Italian Civil Code (first subsection, point 2) occurs when a company has a number of votes that do not allow it to obtain the absolute majority of the votes that can be expressed at the first convocation of the ordinary assembly of another company, but that is in any case sufficient to exercise a “dominant” influence on it.
This form of control based on a non-majority shareholding in the capital of a given company is typical of those corporate contexts characterized by a heavy division of the shareholders as well as their absenteeism at the assembly (as in the typical case of public companies), in which a single entity can reach the relative majority of the votes that can be exercised at the ordinary assembly, even if it holds a minority interest in the capital.
The regulation in question, therefore, provides for the hypothesis of a “factual” corporate control, in which the holder of a joint interest in a given company (minor if compared to the total amount of the “ordinary” capital of the company and, therefore, not suitable to exercise a legal control) can constantly dominate the ordinary assembly and fully influence its main decisions, since it is the relative majority shareholder compared to the portion of capital represented therein.
The minority internal control in question, possible by a series of factual recurring circumstances, is a structurally different figure from the legal control analyzed above. So, in both cases, it is possible to exercise a dominant influence at the ordinary assembly of the subsidiary through the exercise of the right to vote (internal control). However, if in the first case the right to exercise it is obvious if a single entity has an absolute majority of the votes that can be exercised at the ordinary assembly, in the case of the internal factual control, it represents a constitutive element of the control itself and it must be ascertained on a case-by-case basis that the shareholding, even if it is a minority, is suitable to decisively affect the balance of power expressed at the assembly due to the factual circumstances that occurred.
Even in this case, the formal ownership of shares or capital shares is not sufficient for identifying the entity that can exercise substantial control over the assembly of the subsidiary. In fact, it is necessary to refer to the concept of the actual availability of an adequate number of votes (as pointed out above). However, votes on behalf of third parties or joint control cannot be taken into account. In this regard, it is necessary to clarify the meaning of the expression “dominant influence”. If, theoretically, it can be said that this method of exercising control establishes the possibility for a partner to individually determine the decisions of the assembly of the subsidiary in its most important decisions – namely the appointment of the directors – according to the prevailing opinion, it occurs when there is a “…positive power of influence over the decisions of the assembly as a result of legal positions and relations with a certain degree of stability”. On the other hand, for the identification of a dominant and exclusive position of influence, the existence of a mere “negative” power is completely irrelevant – that is, the power of veto towards the approval of the resolutions of the assembly.
Here, it is appropriate and sufficient to add that the concept of dominant influence basically indicates the possibility for a given entity to affect the deliberative autonomy of the ordinary assembly of the subsidiary, despite its minority shareholding in the “ordinary” capital of the latter. Such conditioning, which may affect the decision-making activity of the assembly as well as the adoption of individual acts, comes from the fact that no other partner is able, alone or with others, to adopt the same acts, so “…the vote of that entity is generally necessary for achieving the majority and is, therefore, able to influence the relative decisions”.
According to legal theory, the dominant influence, which is a fundamental element of the concept of control ex art. 2359 of the Italian Civil Code, consists of prevailing in the deliberations of the ordinary assembly related to the appointment of the members of the administrative body or the majority of them.
The possibility to appoint the administrative body of a certain company, therefore, constitutes in all circumstances the necessary but also sufficient condition to exercise influence on it by the company participating in terms of “factual” control. It is necessary since, in its absence, there would not be “…the possibility to have dominant influence, which characterizes internal factual control”. It is sufficient since the absence of an equally dominant voting capacity in the other matters of the ordinary assembly “…would not result in the majority shareholder losing power to translate into directives on the management of the company”.
Therefore, if a company has the majority of votes in the deliberations of the ordinary assembly of another company for what concerns the appointment of directors, it can be considered a factual parent company. This is true even if it did not have the same capacity in the other matters (including the withdrawal of the directors, the appointment and withdrawal of other corporate bodies, the budget approval, the destination of profits, etc.). The influence exercised is “dominant” because of the possibility of determining the company management guidelines and, therefore, its prospects. It is irrelevant whether or not the other members of the company are opposed to partial management issues. On the contrary, even if a company has the majority of votes in every decision taken at the ordinary assembly, but does not have a sufficient number of votes for the appointment of the members of the administrative body, it cannot be a parent company.
In order to have supremacy at the assembly, it is necessary to reach a stable and long-lasting majority. Occasional control due to particular circumstances – achieved, for example, in a particular assembly in which some members, usually present, could not participate – has no relevance.
Therefore, it is necessary to investigate on a case-by-case basis, the specific circumstances likely to “strengthen” the minority shareholding, having identified both factual factors (such as the division of capital and the absenteeism of members) and legal factors (such as shareholders’ agreements).
A minority shareholding could turn out to be a relative majority shareholding, thus becoming the parent company, thanks to the degree of division of the share capital of the company involved and to the absenteeism at the assembly of smaller shareholders or their reduced level of cohesion: these elements are closely related to each other, since in the case of large companies, mostly if listed on regulated markets, small shareholders rarely participate in social activities and anyway hardly achieve a sufficient “cohesion” with each other to hinder the reference shareholder (or the reference group of shareholders). In other words, it is not a matter of identification of a quantitative threshold beyond which the absolute minority shareholder could exercise the absolute majority of the voting rights normally present at the assembly (and therefore a dominant influence on that assembly). It is a matter of creating a probabilistic control mechanism based on the limited interest of minority shareholders in the management of the company. Their interest is limited because they do not participate at the assembly and hardly disapprove of the decisions of the management.
In general, if a significant division of the capital is accompanied by a high absenteeism rate among small members, the minority shareholder that has factual control could not reach the threshold for the absolute majority of the votes of those who will probably be present at the assembly. This is because it is very difficult for the latter to show a sufficient level of cohesion to overcome the decisions of the minority shareholder in a position of potential control. On the contrary, if a significant division of the company structure does not correspond to a high absenteeism rate of the shareholders, a minority shareholding could have dominant influence only if it reaches at least half of the votes at the assembly. Particularly important legal elements that may facilitate the attainment of a factual control position by an absolute minority shareholder are voting unions, to which the majority of the social participations belong (so-called control or majority unions).
As in the case of legal control, the voting union helps strengthen the minority shareholding by favoring the achievement, by a single entity, of factual control. As already said, the supremacy on the approval of the resolutions of the ordinary assembly of a company (specifically those concerning the appointment of the administrative body) cannot be attributed to the union as such. It cannot be attributed to a legal entity with a collective or associative structure, because the supremacy would be jointly exercised by several subjects, which violates the principle of the exclusive nature of the control ex art. 2359 of the Italian Civil Code. Only a single and well-identified partner, through his adherence to the union, can have a dominant influence on the activities and decisions of the company involved (which therefore becomes controlled under the shareholders’ agreement).
As in the case of internal legal control, even factual control has an exclusively potential nature, making itself explicit in the mere possibility for the controlling entity to direct and supervise the strategic management of the subsidiary and therefore not requiring, to be qualified as such, an actual exercise of that power. If the actual exercise of dominant influence adds nothing to the concept of control, not exercising it does not undermine the requirements for internal factual control. Therefore, this does not mean that the company which legitimately holds that power is not qualified as a parent.
Finally, even in the case of internal factual control, the votes belonging to a particular subject on behalf of third parties are excluded (the vote of the person taking part at the ordinary assembly as a representative of one or more members – art. 2359 of the Italian Civil Code, second subsection). Also, the votes not exercisable by the shareholder because they are subject to pledge or usufruct, are excluded. As already said regarding the possibility of legal control, in such cases the exercise of the vote is the responsibility, unless otherwise agreed, of the creditor or the usufructuary.
2.3. The third case of control in art. 2359 of the Italian Civil Code (first subsection, point 3) is the so-called external control. Unlike the previous ones, it is not based on qualified joint interests in the capital of a given company. Instead, it is based on “particular contractual constraints” between the parent company and the subsidiary. Such constraints must create an objective economic dependence of the subsidiary due to their content and context.
It is external because the controlling entity can concretely and permanently affect the overall strategic direction of the subsidiary and not just isolated and incidental managerial acts. This happens even if the parent company does not have votes exercisable at the ordinary assembly of the subsidiary regardless of the appointment of it representatives in the corporate bodies.
Besides the different “ways” in which dominant influence can be exercised, there is another difference between internal and external control. In the first case, the power is in the right to vote at the ordinary assembly of the subsidiary. In the second case, the power is in the objective conditioning of the operating mechanisms of the administrative body and the strategic and operational choices. In other words, the parent company does not appoint the directors of the subsidiary, but it directly influences their actions. There cannot be external control if there is no power to affect the internal dynamics of the subsidiary. This may happen, for example, if the consent of the members and/or directors of the subsidiary is necessary to implement the directives issued.
Moreover, it is important to remind that the requirement of having a contract for the subsidiary company – necessary to have an external control relationship – must not be confused with other situations that could put one company in a position of economic and commercial subordination to another. In such cases, the company is indeed the weaker party in the contract but it is not necessarily controlled. For example, external control does not subsist when, upon expiration of the contract, a contractual relationship does not prevent the presumed subsidiary from not renewing it or stipulating another one with other subjects.
The prevailing economic and legal theory identifies certain contractual forms which are more suitable to bind one company to a situation of objective economic dependence on another. These contracts are such that the survival of the subsidiary strictly depends on the parent company’s decisions. In these cases, the collapse of the contract could seriously jeopardize the continuation of the entrepreneurial activity of the subsidiary.
Among the instruments suitable for implementing this type of control, there are exclusive negotiation relationships, such as agreements of commission, concession, franchise, agency, and supply (for example, the so-called “satellite” companies, which are sub-suppliers of large companies). There are also the negotiation relationships in which the activity of the subsidiary is economically subject to the decisions of the parent company, such as in the case of patent, licensing, know-how, and finance agreements (to the extent that the amount of the sums provided is essential to ensure the business continuity of the financed entity). Regarding external control, the contracts of usufruct, lease, and pledge of companies are not relevant since such relationships do not affect the entity who exercises an economic activity, but they directly affect the related assets of the company.
However, according to the first subsection, n. 3 of art. 2359 of the Italian Civil Code, to have a situation of external control, the exercise of dominant influence must derive from “particular” contractual relation in terms of content and context, since these are negotiation agreements not covered in the article. It is not the type of contract established between two companies that involves the existence of this control relationship, but rather the concrete use of its content that allows the parent to exercise a decisive influence on the strategic and operational autonomy of the subsidiary. In any case, even if the contractual constraints related to external control are those that confer to a given company the power to concretely affect the management of another company, such subordination should never get to the point of obligating the administrative body of the subsidiary to act according to the instructions and orders given by the parent company about the overall management. If the powers of the subsidiary were completely transferred to the parent company, there would be a contract of “domination” which is not allowed in our national legal system by the most consolidated case law.
Therefore, in the case of external control, the difference between the particular contractual constraints (referred to in the first subsection, number 3, of art. 2359 of the Italian Civil Code) and the domination contract (typical of the German legal system) is that, in the first case, the subordination of one company to another is due to the contract, while in the second case the economic dependence is the aim of the contract. The additional constraints of a contract constitute atypical clauses of typical contracts (such as agreements of agency, commission, sale concession, license, etc.) and are legally valid because they are part of the contract (the power to influence the entrepreneurial policy of the subsidiary company has legal importance and can be demonstrated from the contract itself). However, they are null and void if they are not mentioned in the contract.
As in the case of internal control, also external control is characterized by the possibility of exercising a dominant influence on a given company. If that power is not exercised, this does not mean that the controlling company loses its status as a parent company.
2.4. Under the second subsection of art. 2359 of the Italian Civil Code, to verify the existence of internal legal or factual control, the votes that a company can express at the ordinary assembly of another company through subsidiaries, trust companies, or interposed persons, must not be taken into account.
Therefore, indirect control is not an autonomous type of control, but rather a way of propagation of internal control (so-called “transitivity theorem of the control relationship”) along a unitary, though ideal, corporate axis. Commonly, this happens between two companies through another legal entity interposed between them. This entity is controlled by the former and controls the latter by owning shares or ownership shares of the latter. This is what constitutes the phenomenon of groups with a “pyramidal” or “cascade” ownership structure.
Moreover, it is clear from legislative provisions, that the case in question is only relevant “…for the application of numbers 1) and 2) of the first subsection” of art. 2359 of the Italian Civil Code, but not for number 3), and therefore takes into account only the votes of subsidiaries, trust companies, and interposed persons, but not those of any particular contractual constraints that may exist between direct and other subsidiaries.
Precisely, the explicit reference to numbers 1) and 2) of art. 2359 of the Italian Civil Code would, therefore, seem to exclude that the principle of the transitivity of the control can be applied to the hypothesis of external contractual control. This is because this last modality of implementation, which can potentially be found anywhere on the corporate axis, would stop the propagation of the chain of command, not allowing verification of the degree of domination of the parent company over the various links of the chain itself. Moreover, external control is not unrelated to the principle under consideration, provided that to apply numbers 1 and 2, the regulation requires to take into account the votes of “subsidiaries” as well – such as those linked to each other by contractual control relationships according to number 3) of the first subsection of art. 2359 of the Italian Civil Code.
Therefore, since it focuses on the allocation of votes of subsidiaries, this regulation creates a particular situation. If a company controlled by another with particular contractual constraints is in a complex corporate chain, only the company that directly controls it, is considered to be the parent company according to art. 2359 of the Italian Civil Code. The company that controls the parent company through participatory bonds or contractual constraints is not considered to be a parent company. At the same time, according to the principle of transitivity, the company that is internally controlled by a company contractually controlled by another is considered to be controlled by the company that exercises contractual control over the intermediate company.
An example will help clarify this.
If company A, through particular contractual constraints, controls company B, which internally controls company C (through a participating bond), according to the principle of transitivity just described, A also controls C, since the external control is placed in the first “link” of the control chain. If company C controls company D through participating bonds, according to the principle of transitivity, A also controls D, having to take into account the votes belonging to C at the assembly of D. On the contrary, if the hypothesis of external control occurred at a subsequent “link” of the chain, the transitivity theorem could not be applied to the company exercising such control. In other words, if A internally or externally controls B and B controls C under particular contractual constraints, then A cannot be considered as C’s indirect parent but only B’s, which will be the only parent of C.
So according to the previous example, if C controls D under particular contractual constraints, the principle of transitivity would not be applicable and, therefore, there would not be control between C and D, preventing B and A from acting as D’s parent company. This is because according to the second subsection of art. 2359 of the Italian Civil Code, indirect control is relevant only if it is internal, that is when it has a participatory nature.
It is also possible for indirect control to be exercised on company C by company A through the votes related to C’s assembly belonging to B, which is directly controlled by A. Therefore, indirect control can be exercised by a plurality of companies (B1, B2… Bn) that are also directly controlled by A, even if none of these companies (neither B nor B1, B2… Bn) is C’s direct parent company. In other words, if A owns 51% of the votes at B’s ordinary assembly and 20% of the votes af C’s assembly, but B has 40% of the votes a C’s assembly, A will also be C’s parent with a total of 60% of the votes that can be exercised at C’s assembly. So, 20% directly and 40% indirectly through its subsidiary B (although neither A nor B directly controls C).
In the same way, it is possible to assume control through cascade shareholdings, when a “link” in the chain consists of a plurality of companies rather than a single company. None of these companies can individually be the parent of the following company, but together they have sufficient votes to exercise a dominant influence on it. Specifically, if A has 51% of the votes at the ordinary assembly of B1, B2, and B3, and each holds 20% of C, A will also be C’s parent, controlling in a completely indirect way 60% of the votes that can be exercised at the assembly of the latter, through the shareholdings held by B1, B2, B3, which are directly controlled by A. It is quite clear that to the extent to which the methods of the dominion of the companies of the group are based exclusively on a hypothesis of indirect control through capital joint interests (which in any case constitutes the most common case in practice), the extension of the corporate chain may have no limits whatsoever. With elaborate forms and by alternating, in its subsequent “links”, companies with legal control to companies with factual control, there would be to the so-called “telescope effect” (also called a shareholder or company leverage).
2..5. As examined, the fact that the case of control ex art. 2359 of the Italian Civil Code has been elaborated with specific reference to joint-stock companies, does not preclude the possibility for the parties to establish, in the drafting of the company bylaws, additional or different clauses to the mentioned legal model, capable of significantly affecting the corporate governance. In particular, the legislator grants to the statutory autonomy the right to:
issue special categories of shares (ex art. 2351 of the Italian Civil Code, within the limit of half of the total share capital) with a vote limited only to specific matters of the ordinary assembly. In this way, two problems arise: the first one is identifying the controlling partner for each matter of the assembly, while the second one is calculating the necessary shares to reach the majority suitable for obtaining legal control referred to in the first subsection, number 1), of art. 2359 of the Italian Civil Code;
issue financial instruments different from shares (art. 2346 of the Italian Civil Code) that can give the owner the right to express their opinion on matters specifically indicated in the company bylaws at the separate meeting of the holders of such instruments, thus indirectly affecting the company’s will;
plan a slate voting system for the appointment of corporate officers (to protect minority shareholders) potentially affecting the rights of the shareholder holding the majority of voting rights.
In any case, according to art. 2369 of the Italian Civil Code, fourth subsection, for the resolutions of the assembly concerning the approval of the financial statements and the appointment/withdrawal of the corporate officers (which, as previously analyzed, are typically “political” acts that can be taken in that assembly and, therefore, able to qualify the subject who can permanently prevail as the controlling subject), the statutory autonomy cannot set higher resolution quorums than those present in the examined legal model. First of all, it should be highlighted that the presence of special categories of shares or “atypical” financial instruments may affect the case of internal legal control, that does not subsist when the majority of votes at the ordinary assembly does not correspond to the power to manage all the resolutions that can potentially be taken by it. And it can also affect internal factual control, making it necessary to examine the combination of the powers about the different categories of shares or financial instruments, to assess whether or not they constitute a dominant influence. Specifically for what concerns the presence of categories of shares with a vote limited only to certain matters falling within the scope of the ordinary assembly, it is clear that the case of legal control can only exist when the majority of voting rights are achieved by a single entity on all the deliberations that may be taken by the assembly (that is all the matters falling within the area of competence of the ordinary assembly). If this were not the case, the automatism typical of the case of legal control would be lost and, therefore, we would have internal factual control. This would mean that it would be necessary to consider each time if the lack of power concerning some of the resolutions of the assembly could or could not compromise the ability of the majority shareholder to exercise a dominant influence.
In the same way, even if the company has issued the financial instruments referred to in art. 2346 of the Italian Civil Code, giving the holder the right to vote only on matters specifically indicated in the company bylaws, the power of influence of the majority shareholder could be compromised and this could prevent him from taking all the resolutions of the ordinary assembly. This implies that the case of internal legal control could no longer be applicable and, therefore, it would be necessary to verify each time if there is factual control.
If the power to appoint the directors does not pertain to all the members of the administrative body, but only to some of them, it is very difficult to have dominant influence, which is a requirement for the case of factual control. This is a consequence of the attribution of the right to vote different from the legal model and connected to the provision of particular systems for the appointment of corporate bodies, such as, in particular, the slate voting system. As is common knowledge, this system is aimed at protecting corporate minorities by giving them the right to appoint one or more directors. Even if it is not appropriate to investigate issues of such legal complexity here, it should be noted that, regardless of the different technical methods with which the voting power of the majority shareholder could be weakened, the issue concerns both the hypothesis in which the majority shareholder retains the power to appoint the absolute majority of the members of the administrative body and the hypothesis in which the slate voting system, possibly combined with other amendments to the mentioned legal model, allows it to appoint only the relative majority of them. We have ascertained that, in the first case, factual control belongs to the relative majority shareholder since, by appointing the absolute majority of the directors, it would maintain the capacity to establish the directives of the company management (the administrative body follows the directives of the majority shareholder). In the second case, it is possible to have factual control only when the remaining directors can be chosen by different unrelated shareholders, each of whom can appoint a lower number of directors than the majority shareholder. Even though the case of control according to art. 2359 of the Italian Civil Code was specifically elaborated for joint-stock companies, it can be applied also to other types of corporations with the necessary critical adjustments and corrections. About Partnership Limited by Shares (S.A.p.A. in Italian), the differences in terms of organizational structure compared to Ltd. are mandatory under the Italian Civil Code (art. 2452 and following), and involve a substantial change in the relationships between the assembly and the company management: i) all general partners (accomandatari in Italian) are liable with no limitation with their assets for the obligations assumed by the company in carrying out its business activity; they are directors by right and their designation constitutes an essential element of the company bylaws; ii) the withdrawal of a director must be deliberated with the majorities established by the extraordinary assembly and is subject to the approval of all the remaining general partners; iii) amendments to the company bylaws require the consent of all the general partners. In light of these characteristics, it is clear that the regulations on corporate control according to art. 2359 of the Italian Civil Code are difficult to apply to Limited Partnership by Shares, leading the interpreter to believe that this type of company can never be a subsidiary. In fact, the availability of the majority of the votes that can be exercised at the ordinary assembly of a Limited Partnership by Shares is not in itself sufficient to confer the role of parent to anyone, since the appointment and withdrawal of the directors is not the responsibility of the ordinary assembly and, in any case, it is indisputably subject to a veto power assigned by law to each general partner.
Concerning limited liability companies(S.r.l. in Italian), the greatest difficulty in adapting the concept of control (ex art. 2359 of the Italian Civil Code) does not derive from the legal model, whose structure is different from that of Ltd., but still has the same basic characteristics. It derives from the countless and relevant “variants” that can be found in the standard model. Moreover, if the statutory provisions do not define an organizational and management model of the company radically different from the legal discipline established by the Civil Code in Articles 2462-2483, and therefore maintain a legal framework that is fundamentally similar to that of joint-stock companies, the definition of corporate control according to art. 2359 is also applicable to limited liability companies without any particular adaptations concerning both the case of internal (legal and factual) and external control. In these circumstances, the majority of the authorized capital corresponds in fact to the legal and factual control of the assembly and, therefore, the power to make strategic and supervisory decisions (such as, in particular, the power to appoint directors). However, since the legislator gave a lot of autonomy to shareholders in the drafting of the company bylaws, this could not only result in the inclusion in that document of significant variations to the legal model in terms of the competencies of the shareholders – shareholders’ quorum – but also in the abandonment of the same corporate structure of the company, based on the presence of different corporate bodies with their competences and functioning rules, for example, to adopt a structure similar to that of partnerships, where the managerial function is entrusted to one or more partners with joint or separate powers according to the cases.
There could even be “intermediate” solutions in which the entrusting of the company’s management to directors designated in the company bylaws is balanced by the provision of special rights to individual shareholders concerning the exclusive appointment of other directors. Together with the designated directors, they may constitute a board of directors or act separately or jointly according to what is provided for in the bylaws. It is clear that in such circumstances, factual control ex art. 2359 of the Italian Civil Code would derive, on the one hand, from the combination of the powers conferred on the shareholder as such and, on the other hand, on the shareholder as director (or on the director(s) whose appointment is the exclusive competence of the shareholder). Moreover, the abovementioned approach can also be applied to joint-stock companies that make use of the two-tier system of administration and control according to art. 2409-octies of the Italian Civil Codeand following, which establishes atypical powers for the ordinary assembly and a different relationship between the latter and the company’s management and supervisory bodies. The use of this alternative corporate governance instrument, only used by a very small number of joint-stock companies, does not modify the application of the control cases provided for by art. 2359 of the Italian Civil Code, if the rules for the appointment of the Supervisory Board and the Management Board are not changed in relation to the legal model. If the statutory autonomy does not forbid it, the shareholder who holds the majority of the voting rights that can be expressed at the ordinary assembly has the power to appoint all the members of the Supervisory Board, and therefore, indirectly through them, all the members of the Management Board.
Having ascertained the extreme variety and complexity of forms that private autonomy can take concerning both Limited Liability Companies and Joint Stock Companies (in a much less incisive manner for the latter), we do not deem the present paper to be the most suitable place to further investigate the effects that such numerous variations to the legal model can produce on the notion of control according to art. 2359 of the Italian Civil Code, thus referring the reader to specific contributions.
3. The 7th EEC Directive (No. 349 of 13/06/1983) sets the objective of regulating the drafting of the consolidated financial statements of corporate groups, consisting of the union of the financial statements of each company forming the aggregate, whose purpose is to represent the assets and the financial situation as well as the economic result of the group as a whole, although it does not provide an organic and exhaustive definition of it. However, it indicates the hypotheses in which the type of link existing between the parent company and each subsidiary leads to the obligation to draft the consolidated financial statements.
In other words, the EU legislator, as well as the Italian legislator, has chosen not to define the concept of the corporate group but has established the criteria for defining the consolidation area to draft the consolidated financial statements. Art. 1 (subsection 1) of the abovementioned Directive shows the group as a set of companies subject to the control and direction of a single company (the so-called parent company), thanks to the majority of the votes that can be exercised at the ordinary assembly of each subsidiary – that is the right to appoint the majority of the members of the administrative, management or supervisory bodies.
In subsection 2 of the same article, the Directive established that the Member States could include in a group those companies in which another party (i.e. the parent company) held a joint interest such as to allow it to exercise a dominant influence. Article 12, on the other hand, established the option to include in a group those companies which, despite the absence of shareholding constraints, were subject to the unitary management of another, by virtue of a contract or specific statutory provisions, or also those companies in which the administrative, management or supervisory bodies were mostly made up by the same entities. In other words, the Directive allowed the Member States to oblige even companies belonging to a so-called “horizontal group” to draft the consolidated financial statements.
Having said that, it is necessary to point out that the EU legislator allowed a wide range of options because of the necessity to make the European regulations for the drafting of the consolidated financial statements adaptable to the specific economic and legal characteristics of each Member State of the European Union that had very different regulatory systems.
Concerning the Legislative Decree 127/91 with which the national legislator has implemented the Directive 349/83 EEC on consolidated statements, the relevant regulatory provision was intended to exclude all situations in which the coordination or unitary management of the companies forming the aggregate was not based on objectively detectable legal constraints. In other words, it has been chosen to consider as groups only those companies based on legal or factual control provided for in numbers 1) and 2) of the first subsection of art. 2359 of the Italian Civil Code, explicitly extending its scope only for the particular cases of dominant influence exercised under agreements with other shareholders. This is the case of shareholders’ agreements, already implicitly established by article 2359 of the Italian Civil Code, under contracts (so-called “domination” contracts) or statutory provisions, provided that the law of the country in which the subsidiary company has its registered office allows such contracts and provisions.
More specifically, art. 25 of Legislative Decree no. 127/91 provides that corporations controlling another companyare obliged to draft the consolidated financial statements of the group, on the condition that shares or capital shares of the subsidiary are owned by the parent for the (indirect) performance of its business activity and not for subsequent dissolution. Therefore, they are entered in the related financial statements (so-called individual financial statements) among financial fixed assets and not as mere trading values in current assets.
According to art. 26:
1. For the purposes of art. 25, the companies indicated in numbers 1) (internal legal control) and 2) (internal factual control) of the first subsection of art. 2359 of the Italian Civil Code are considered subsidiary companies for what concerns the drafting of the consolidated financial statements.
2. In any event, the following shall be considered as subsidiaries:
a) companies over which another company has the right to exercise a dominant influence throughout a contract or statutory provisions, where the applicable law allows such contracts and provisions;
b) companies in which another company has the control of the majority of the voting rights at the ordinary assembly thanks to agreements with other shareholders;
3. For the application of the preceding subsection, also the rights of the subsidiaries, trust companies, and interposed persons shall be taken into account; third parties’ rights shall not be taken into account.
First of all, it should be noted that the choice of the legislator regarding the definition of the control relations between parent companies and subsidiaries is inspired by an institutional principle oriented by the power of control, meaning that it is based on objective guidelines defined by formal control relations that represent objectively detectable legal constraints, as opposed to a functional principle based on a dominant influence exercised by single management based on factual relations.
Moreover, the system of European regulations linked to the 7th EEC Directive concerning the links between companies has its origin in a real compromise between two different doctrinal approaches. On the one hand, the so-called “institutional principle” of Anglo-Saxon origin, centered on the notion of control when a company has the majority of voting rights – that is when it has the right to appoint and/or withdraw the majority of the members of the administrative, management or supervisory body of another company (art. 1 subsection 1 a) and b). On the other hand, the so-called “realist principle” derived by German company law allows the Member States to give more importance to the power to exercise control as such, regardless of whether or not there is a participation relationship.
The reference made by the national legislator to numbers 1) and 2) of the first subsection of art. 2359 of the Italian Civil Code, constitutes a concept of control for the preparation of the consolidated financial statements tied to situations of internal legal and factual control, deriving from the availability of voting rights that can be exercised at the ordinary assembly of the subsidiary (in this regard, also including indirect control relationships, and therefore the voting rights of subsidiaries, trust companies, and third parties). It, therefore, excludes from the obligation to draft the consolidated financial statements, companies controlled by another company through special contractual constraints referred to in subsection 1, point 3) of the same article (hypothesis of external control), which completes the range of control cases.
The Ministry Report related to the Decree does not explain the reasons why article 26, when identifying the companies obliged to draft the consolidated financial statements, does not consider as subsidiaries those companies subject to the control of another company, if the control is exercised outside the ordinary assembly (external control). Therefore, they are not considered as part of the group, at least for what concerns the drafting of the financial statements. In this regard, the law establishes that the mere existence of the dominant influence based on contractual constraints is not sufficient to justify the inclusion of the assets and economic results of these subsidiaries in the consolidated statements of the parent company.
Moreover, in addition to the abovementioned internal control methods provided for in art. 2359 of the Italian Civil Code, the second subsection of art. 26, for what concerns the obligation to draft the consolidated financial statements, considers as subsidiaries also:
a) companies over which another company has the right to exercise a dominant influence on the ordinary assembly throughout a contract or statutory provisions, where the applicable law allows such contracts and provisions;
b) the company at whose assembly another company controls the majority of the voting rights thanks to agreements with other shareholders (hypothesis of the shareholders’ agreements which, as anticipated, is implicitly provided for also in the case of internal control according to art. 2359 of the Italian Civil Code).
Among the cases referred to in the first subsections, there are “domination” contracts (the most important of which are management contracts). These contracts have as their object the right to exercise formal power over another company, which is obliged to act following the orders imposed by the institutional bodies of the former, even if this may cause financial damage.
As anticipated, this method of control is not part of our legal system. On the contrary, it is considered by consolidated legal theory and unanimous case law (as well as by the national legislator itself in the cited Report to Legislative Decree 127/91) incompatible with its fundamental principles, according to which the management body must be legally independent of the bodies of other companies because it affects its status and typical function. Nevertheless, this method of control has been included in art. 26 of Legislative Decree 127/91 given the possibility that a company group governed by Italian law may include, among its members, also subsidiaries resident in countries where such control is permitted by law (such as in the case of Germany).
Unlike what is stated in the first subsection, number 3) of art. 2359 of the Italian Civil Code (the hypothesis of external control through specific contractual constraints that economically bind one company to another even in the absence of a participatory constraint), in the case of the domination contract it is the overall contract that is illegal for the Italian legal system because it is exclusively intended to form a hypothesis of hetero-direction of one company by another. This means that an independent company is subordinated to the dominant influence of another entity. More specifically, the control deriving from a domination contract differs from that based on particular contractual constraints. In fact, in the latter, (not considered by art. 26 of Legislative Decree no. 127/91 in the definition of the area of consolidation) the object of the contract is not the supremacy of one company on another but the creation of commercial/financial trading relationships fundamental for their survival over time. An example is the use of a concession that puts the licensee in a condition of economic dependence from the grantor).
The second case of contractual control arises from the possibility that a company exercises a dominant influence over another company according to special provisions inserted in the company bylaws of the latter (the bylaws is a particular type of contract). The typical method of implementation of this type of corporate control, which is also the most studied, consists in assigning to only a specific shareholder a series of rights, regardless of their share capital. Among the most common rights, there is the power to appoint a majority of the members of the board and the power of veto over specific corporate decisions. This means that such privileged provisions in the company bylaws may allow a shareholder with a minority share package – even a single share, which is necessary to have the status of a partner (so-called golden share) – to become a reference partner, acting at the assembly and more generally on the governance of a given company, as if it held the absolute majority of the share capital.
As in the contract of domination, according to the prevailing legal theory and unanimous case law, control through statutory provisions is also considered to be incompatible with the national legal system. This is because not only does it affect the status and the typical functions of the institutional bodies of a company according to the principles of corporate law, but also because it is detrimental to the majority principle that should govern the functioning of the bodies themselves (in particular, the assembly).
Therefore, even in this case, the legislator has contemplated the possibility of control arising from a statutory provision only if the law applicable to relations with a foreign subsidiary allows the inclusion of such provisions in the bylaws of the subsidiary.
According to to the abovementioned point b) second subsection of art. 26, for what concerns the drafting of the consolidated financial statement, companies are considered subsidiaries if another company, thanks to agreements with other shareholders, controls the absolute or relative majority of the voting rights that can be exercised at the ordinary assembly. This refers to the hypothesis of the shareholders’ agreement previously analyzed concerning art. 2359 of the Italian Civil Code. As is now well known, the shareholders’ agreement is a way to strengthen minority shareholdings to achieve a position of legal or factual control by a single shareholder. Again, the status of parent does not belong to the union as such and therefore to a legal entity with a collective or associative structure (thus prefiguring the hypothesis of joint control). It belongs to a single and well-identified shareholder who, through its adhesion to it, can exclusively exercise a dominant influence on the activities and decisions of the subsidiary company (which therefore becomes “unilaterally” controlled by such shareholder thanks to the shareholders’ agreement). Moreover, it should be pointed out that the notion of corporate control relevant for drafting the consolidated financial statements, like that outlined in art. 2359 of the Italian Civil Code, requires a necessary and sufficient legal situation on the part of the parent company from which derives the possibility of exercising a dominant influence over the subsidiary. In other words, in any case, the power that leads to control is potential, since it is not necessary to demonstrate the actual exercise of this right, but the mere existence of the faculty of exercising it is sufficient. For the purpose of the obligation to draft the consolidated financial statements, this characteristic of the potentiality of control makes irrelevant the reasons why it is not exercised. Whether these reasons are related to the parent company’s will or not, the parent company must include the subsidiary in the consolidated financial statements, given the existence of the power to exercise the related right. Finally, with the Legislative Decree 127/91 the national legislator has established that the consolidated financial statements must be drafted only by parent companies who have internal control over their subsidiaries. That is when there is a legal or factual legitimate majority of the voting rights at the ordinary assembly. The hypotheses of control exercised outside the assembly (external control) have a limited role. Control exercised as a result of particular contractual constraints according to art. 2359 of the Italian Civil Code has been explicitly excluded, while control through domination contracts or statutory provisions, which in any case confer the right on a given entity to exercise a dominant influence, is allowed “…when the applicable law allows such contracts or provisions”, thus providing a legal definition that allows to objectively identify which companies have to be included in the consolidated financial statements.
4. The organizational and operational characteristics of the corporate group are potentially signs of more or less significant distorting effects, which can be attributed to possible conflicts between the dominant will of the parent company, which establishes the strategic conduct of the various subsidiaries, and the interests of the minority shareholders of the subsidiaries. Therefore, to regulate these forms of aggregate according to the principle of transparency and by balancing the many interests involved, Chapter IX of the Italian Civil Code, entitled “Management and coordination of companies” and introduced by the Company Law Reform of 2003, lays down a series of obligations for companies subject to management and coordination activities, as well as regulating the liability regime for companies which carry out such activities.
As is now well known, art. 2359 of the Italian Civil Code regulates only the instrumental relationship of participatory and contractual control between parent companies and subsidiaries, and essentially the reciprocity of participation, as well as configures the legal cases of reference for the drafting of the consolidated financial statements (articles 25 and 26 of Legislative Decree 127/91). With the introduction of Chapter IX in the Civil Code, however, it was given importance to the activity of management and coordination of the company to which control is, as a rule, preordained (and which we shall see is presumed until proven otherwise), favoring the substantial aspect of the phenomenon.
Instead of starting from an abstract definition and then concretely verifying its elements, it was necessary to start from the typical external manifestation of the operational implementation of a group logic. This is because it is clear how participatory and contractual control constitutes only a mere indication of the existence of a corporate group, while it is the actual exercise of a dominant influence through the expression of a unitary direction of the aggregate that is the expression of the existence of the group. In other words, the control legitimizes the management and coordination activity but it is the exercise of this activity that gives concreteness and effectiveness to the control itself which, otherwise, would remain mere potentiality.
Moreover, the use of an extremely generic and all-inclusive expression that does not specify the many ways in which the management and coordination of companies could be carried out leads to the extension of the scope of application of articles 2497-2497-septies of the Civil Code to cases which seem to be outside the empirical concept of the group. If the regulations in question can be normally applied to the classic pyramidal group (with a parent company that directly or indirectly has control over such a group) it is, however, also applicable to situations that are not traditionally considered to be exemplary of the existence of a corporate group, both because the same provisions do not concern the companies alone (and therefore the corporate groups alone), and because they do not necessarily presuppose control in its “technical” meaning.
In this regard, for what concerns the entities to which art. 2497 of the Italian Civil Code is referred to (“…companies or corporations which, by exercising activities of management and coordination of companies, act in their interest or the interest of others”), it can be seen that the management and coordination activity must necessarily be directed at one or more companies having a corporate legal form (whether they are limited companies or partnerships, but also single-member companies, cooperatives, etc.). On the other hand, it can be exercised by companies of any kind and by private companies (such as consortia, foundations, associations, etc.) or public companies. However, the possibility of management and coordination by a natural person cannot be exercised (so-called “personal” holding company). Also, partnerships, joint ventures, business alliances, and trade union agreements are excluded, since in all these cases the agreement between the parties cannot give rise to a separate and autonomous entity capable of directing and coordinating the activities of the associated companies.
For what concerns the meaning of the concept of management and coordination activity, it should be noted that, being aware of the fact that it is not possible to give an excessively narrow definition of it but still wishing to remain faithful to the objective of considering unitary management as a fact, in art. 2497-septies of the Italian Civil Code, the legislator has laid down well-defined characteristics according to which “…it is presumed, unless proven otherwise, that the management and coordination of companies are carried out by companies or entities required to draft their consolidated financial statements or which, in any case, control them according to art. 2359”.
Therefore, the presumptions under examination seem destined to constitute the general reference basis of the group phenomenon and are applied to all situations of corporate control contemplated by art. 2359 of the Italian Civil Code – situations of internal and external control – and in every other case in which, although lacking the case of control outlined in said article, there is an obligation to draft the consolidated financial statements of the aggregated companies according to art. 25-28 of Legislative Decree 127/91 (therefore also including the possibility of explicit contractual control, as in the case of the contract of domination as well as statutory provisions).
In other words, the reform has given importance to that activity of management and coordination of companies and especially to the drafting of the relative consolidated financial statements to which control is normally preordained unless proven otherwise. The reference to control as well as to the consolidated financial statements is justified by the fact that not all parent companies are required to draft it, since those pursuant to art. 27 of the cited Legislative Decree are exempt, and not all subsidiaries must necessarily be included since those pursuant to art. 28 can be excluded (in this regard, see the following chapter).
Therefore, there is a corporate group only where more subjects are united in a unique complex by the activity of guidance and direction that one of these companies exercises on the others. However, this unity of direction must not be proved since it is presumed that the controlling company takes advantage of its position of supremacy, which comes from financial interests or contractual constraints, to impose its direction on the administrative bodies of subsidiaries and thus determine their business conduct. This means that it is presumed that the directors of the parent company give directives to the directors of the subsidiaries and that they, even if formally entitled to disregard them, will eventually execute their decisions, because their “fate” as well as the fate of the company they manage, depends completely on the decisions of the parent company.
The regulation, therefore, leaves it up to legal theory and case law to define the content of management and coordination activities. It also provides that if there is a controlling relationship pursuant to art. 2359 of the Italian Civil Code (that is the obligation to draft the consolidated financial statements according to art. 26 of Legislative Decree 127/91), unless proven otherwise, the exercise by the parent of that further activity of management and coordination is presumed, thus acknowledging the logical and factual distinction existing between them.
Moreover, the law presumes that when there is control there is also the exercise of the activity of management and coordination of companies.
Moreover, the fact that these presumptions are relative (which means that they can be overcome if proven otherwise) confirms the lack of equivalence between the two concepts and that the notion of corporate control, fundamentally linked to the ownership of the company, is different from the phenomenon of management and coordination. It can exist and have juridical importance regardless of any substratum of corporate control ascribable to the abovementioned art. 2359 of the Italian Civil Code or another regulations from which the obligation to draft consolidated financial statements derives. In fact, if control, or rather the obligation to draft the consolidated financial statements, is not sufficient to ascertain the existence of management and coordination, we must conclude that it is only one of the factors that prove the existence of a situation of management and coordination that, therefore, is necessarily something different.
As far as the contents of the unitary management and coordination activity are concerned, if in general terms they can be identified in the management activity of the entire group through “…the imposition on the administrative bodies of the subsidiary company of decisions of the parent company”, at a deeper level of analysis it is necessary to answer further questions. What kind of management is it necessary for it to be relevant for the purposes of the regulation in question? Is extemporaneous conduct sufficient or is it necessary to manage in a long-lasting and capillary way? Could a superordinate activity of coordination of the subsidiary be sufficient, or is it necessary to carry out more incisive interventions? What are the external factors that show the existence of management activity?
If it is obvious that the “detailed” management of a company by another entity implies a superordinate management activity, a problem of interpretation arises in the opposite case about the identification of the limit under which the participation in the management of the company is completely irrelevant for the purposes of the regulation: in the absence of specific directions provided by the legislator, the legal theory considers that an answer to the question can only be given in relation to the actual case.
Given that the regulation under examination is based on the principle of effectiveness and, therefore, what is important is not the mere possibility of exercising a dominant influence over one or more companies, but the actual exercise of such influence through management and coordination activities, it must be considered that the mere exercise of the powers deriving from a dominant position at the assembly is not sufficient to integrate the phenomenon of management and coordination. This is because the activity of management and coordination does not consist only in exercising the corporate rights by the parent company, but a significant factor of unitary management is the centralization of management functions within the parent company relating to every subsidiary, as well as the elaboration by the latter of financial and production programs concerning the aggregate in its entirety.
Moreover, if for articles 2497-2497-septies of the Italian Civil Code, the parent company’s interference should take the form of significant, systematic, and continuous acts and, on the contrary, cannot take the form of an isolated and occasional action, it certainly cannot be overlooked that the sporadic nature of the interference should also be related to the degree of “importance” of the parent company. Therefore, the number of acts should necessarily be accompanied by their quality assessment. Consequently, it cannot be excluded in advance that, regarding particularly important single affairs for the company involved, the performance of a single act of management may be sufficient to prove the subordination to management and coordination activities (for example, in the case of the transfer of a part of the company, the management of an important contract, etc.).
Essentially, the detection of the direction of others must necessarily be inferred from external concluding behaviors not necessarily formalized in specific acts. It is necessary to examine the actual situation to identify a series of factors that prove the external management of a company, being aware that these factors should be fully interpreted and coordinated with each other because, if examined by themselves, they don’t prove the existence of external management.
In addition, there is a doubt as to whether management must necessarily be considered a positive behavior or if it is also possible to accept an omission or an act of tolerance: in the opinion of the prevailing legal theory, this last hypothesis should, in any case, be rejected (as in the cases in the previous pages concerning the notion of control according to art. 2359 of the Italian Civil Code), even if it is in a wider context that gives them a precise managerial meaning (as, for example, in the hypothesis of an omission that has the value of waiver to assert a right of the company and that also involves financial repercussions).
Finally, concerning the definition of the coordination activity, it is noted that, in its absence, management alone is not sufficient to demonstrate the case provided for by art. 2497 of the Civil Code and following. It must be considered as an activity of connection and harmonization between homogeneous entities whose interests would seem conflicting if considered individually, but that become converging when considered at least in their entirety. Therefore, there cannot be coordination where there is no homogeneity of interests between the controlled entity and the entity in whose interest the management is carried out. Therefore, it can be deduced that the rationale of the law is to extend as much as possible the scope of application of the regulation in question. Also, by introducing the concept of coordination, the legislator wanted to exclude only those situations in which the management activity was not combined with an entrepreneurial interest of the controlling entity (as in the case, for example, of “conglomerate” or multi-sectoral groups).
Moreover, it should be pointed out that a definition of the corporate group based on the concepts of management and coordination as well as on the broad concept of unitary management, rather than on participatory or contractual control, creates significant practical problems regarding the boundaries of the aggregate itself. The lack of legal and economic grounds makes it difficult, and sometimes subjective, to establish with certainty “what” should be considered part of the group and “what” should not.
 The entire work has been thought and discussed by both authors; however, paragraph 1 is attributable to Madjid Tavana, while paragraphs 2,3 and 4 are attributable to Jacopo Paoloni.
 Paoloni M., Celli M., Dall’economia d’azienda all’economia dei gruppi aziendali, Giappichelli, Torino, 2011, p. 110.
 This methodological dualism has inevitable consequences in the different concepts of capital and income. The capital identifies the assets owned at a given moment, while the income represents the variations undergone by the capital as a result of management. From a legal point of view, the main data to be taken into account for the protection of the social interests of each company (including minority shareholders) are the income and assets of each company constituting the group. From an entrepreneurial and economic point of view, it is the income and assets of the group as a whole that have that function.
 Campobasso P., Diritto commerciale, Vol. II, Utet, Turin, 2020, p. 299.
 Tremonti G., La fiscalità industriale. Strategie fiscali e gruppi di società in Italia, Il Mulino, Bologna, 1988, p. 121. See also: The Cascio G., Proto C., La riforma del diritto societario. Società per Azioni, Giuffrè, Milano, 2007, p. 23.
 Report related to the draft of the Legislative Decree “Riforma organica della disciplina delle società di capitali e società cooperative, in attuazione della Legge 3 ottobre 2001, n. 366”; Passaponti B., Politiche di aggregazione aziendale. Attinenze e diversificazioni, op. cit., p. 115.
 Different and complex reasons delay the establishment of corporate group legislation in national law (as well as in the European Union law) which “…seems to be necessary to regulate an economic phenomenon that is likely to have significant consequences on the legal relations between legal entities. In fact, there is a constant attitude of trying to regulate the internal relations between the individual companies of the group, not based on market rules and the assumption of absolute equality and freedom of self-determination of the contracting parties, but by implementing policies and seeking synergies aimed at favoring the possibility of conflicts between the shareholders and creditors of the individual companies making up the group, on the one hand, and the shareholders and creditors of the parent company, on the other. Therefore, the problem of developing a group legal framework lies in the necessity not to impose constraints on their actions which could jeopardize their operational possibilities and thus their positive effects on the economy”. Baldini G., Disciplina giuridica del gruppo di imprese. Esperienze a confronto, Giuffrè, Milano, 1982, p. 6.
 Rordorf R., “I gruppi nella recente riforma del diritto societario”, Le Società, n. 5, 2004.
 See, among others: Anselmi L., Gruppo e controllo nella legislazione italiana, in: Antonucci A., Gruppo e controllo: discipline nazionali e straniere a confronto, Ceradi, Roma, 1996; Chiomenti F., “Osservazioni per una costruzione giuridica del rapporto di gruppo fra imprese”, Rivista di diritto commerciale, n. 1, 1983; Galgano F., “L’oggetto delle holding è dunque l’esercizio mediato e indiretto dell’impresa di gruppo”, Contratto e impresa, n. 1, 1990; Niutta A., “La nuova disciplina delle società controllate: aspetti normativi dell’organizzazione del gruppo di società”, Rivista delle società, n. 6, 2003; Pavone La Rosa A., “Nuovi profili della disciplina dei gruppi societari”, Rivista delle società, n. 4, 2003.
 De Biasi P., “Sull’attività di direzione e coordinamento”, Le Società, n. 7, 2003.
 Salafia V., Bonfante G., Corapi D., De Angelis L., Rordorf R., Codice commentato delle società, Ipsoa, Milano, 2011, p. 1194.
 In any case, even though an interpretation of the problem under examination, consistent with the complexity of the existing legislative provisions and capable of allowing a unitary recognition of the case of corporate control, is desirable, beyond the differences in method concerning the study of the legal notion of control, the provisions contained in art. 2359 of the Italian Civil Code are considered as central (“general”), while the regulations contained in the various special legislations have functional value. The latter must constantly and implicitly refer to the provisions mentioned above and must be interpreted in the light of them. Therefore, art. 2359 of the Italian Civil Code is to be considered as “general”. This is because it operates whenever a regulation has the concept of control among the prerequisites of its application, without giving a specific definition of it, thus going beyond the boundaries according to which it was initially created by the legislator (other definitions of control are to be considered special because they are only applied in specific contexts). Another reason why it is considered as “general” is that it is suitable to “guide” the interpretation of special regulations.
 Bignami M., “Direzione e coordinamento di società: alla ricerca di una definizione”, Rivista dei Dottori Commercialisti, n. 3, 2005.
 Lamandini M., Il controllo. Nozioni e tipo nella legislazione economica, Giuffrè, Milano, 1995, p. 9. See also: Pavone La Rosa A., “Divagazioni in tema di controllo e gruppo nelle aggregazioni societarie”, Contratto e impresa, 1997, n. 3; Sbisà G., “Società controllate e società collegate”, Contratto e impresa, 1997, n. 1; Schiuma L., Controllo, governo e partecipazioni al capitale, Cedam, Padova, 1997, p. 133.
 Notari M., La nozione di controllo nella disciplina antitrust, Giuffrè, Milano, 1996, p. 188.
 In the following pages, we will analyze the legal regulations related to corporate groups composed of joint-stock companies, which have “traditional” or “Latin” governance systems, adopted by more than 90% of Italian corporations and by almost every company listed on the stock exchange. Moreover, we assume that the statutory autonomy has not introduced any changes to the organizational structure (regarding, for example, the quorum of shareholders) or to the financial structure (regarding the issuing of particular shares categories or participating financial instruments), that could undermine the paradigmatic conditions assumed by the legislator in the elaboration of the legal concept of control ex art. 2359 of the Italian Civil Code. For a brief analysis of the relationship between the latter and the other forms of corporate governance (“dualistic” and “monistic” systems) as well as other types of companies (Limited Partnerships and Limited Liability Partnerships Companies), see the following paragraphs.
 In this regard, “…it is useful to point out that there is no reciprocal relationship between the concept of control and the concept of the group. Even if the concept of the group is based on the legal perspective of the existence of control, each situation of control does not imply the existence of a group. As in the case of the control of a natural person over a corporation”. Scognamiglio G., I gruppi di società, in: Allegri V. (Edited by), Diritto Commerciale, Monduzzi, Bologna, 2010, p. 99.
 Campobasso G.F., La riforma delle società di capitali e delle cooperative, Utet, Torino, 2004, p. 69; Di Sabato F., Diritto delle società, Giuffrè, Milano, 2011, p. 507.
 The acquisition of shareholdings in other companies is in principle not forbidden and it can be included in the company bylaws, except in cases where the extent and purpose of the shareholding substantially and surreptitiously alter the corporate purpose indicated in the company bylaws by the administrative body, in violation of the shareholders’ powers (art. 2361 and 2365 of the Italian Civil Code). Furthermore, the law controls and restricts this phenomenon when the shareholding concerns listed companies or companies that carry out important economic activities (banks, insurance companies, securities brokerage companies, etc.) – that is when the joint interest causes phenomena that are potentially damaging to the relations of competition (so-called antitrust laws). Buonocore V., Manuale di diritto commerciale, Giappichelli, Torino, 2017, p. 599.
 On the contrary, the positions of strength required for the functioning of the extraordinary assembly are not relevant for the case of control according to art. 2359 of the Italian Civil Code. Therefore, shares with a vote limited to matters reserved for such a meeting (preference shares) and shares without the right to vote are not calculated in the voting rights from which a position of control derives, since these instruments do not allow those who own them to exercise any influence on the assembly. The reason why art. 2351 of the Italian Civil Code was drafted is therefore clear. According to this article, shares with limited votes or completely lacking this right cannot be more than half of the total authorized capital. Without such limitation, there would be a risk of a malfunctioning between the control power and the entrepreneurial risk, given that a shareholder could have the controlling capital of a company (that is, the majority of voting rights expressed at the ordinary assembly) with very small capital investment. Pavone La Rosa A., Le società controllate – I gruppi, op. cit., p. 584. Colombo G.E., Portale G.B., Trattato delle società per azioni, Utet, Torino, 2004, p. 594.
 Notari M., Bertone J., Società controllate e collegate, in: Marchetti P., Bianchi L.A., Ghezzi F., Notari M., Commentario alla riforma delle società, Egea, Milano, 2008, p. 668; Buonocore V., Manuale di diritto commerciale, op. cit., p. 597; Ferrara F.jr, Corsi F., Gli imprenditori e le società, Giuffrè, Milano, 2011, p. 802.
 In the text, the term company refers exclusively to corporations and, where not otherwise specified, to joint-stock companies. Moreover, art. 2361 of the Italian Civil Code allows the participation of corporations in enterprises entailing unlimited financial liability (i.e. partnerships), but its acquisition must be approved in advance by the assembly of the acquiring company.
 Galgano F., Genghini R., Trattato di diritto commerciale e diritto pubblico dell’economia, Cedam, Padova, 2006, p. 272; Pavone La Rosa A., Le società controllate – I gruppi, op. cit., p. 585; Pinto V., Funzione amministrativa e diritti degli azionisti, Giappichelli, Torino, 2008, p. 43.
 Frè G., Sbisa G., Società per azioni, in: Commentario del codice civile Scialoja – Branca, Zanichelli, Bologna, 1997, p. 473; Spolidoro M.S., “Il concetto di controllo nel codice civile e nella legge antitrust”, Le Società, 1995, p. 499.
 Shareholders’ agreements concern the exercise of the right to vote at the ordinary assembly. With these agreements, some members legitimately agree in advance on how to express the vote. According to another type of agreement between shareholders, the so-called shareholders’ consultation agreement, some members must discuss in advance the issues that will be on the agenda in one or more of the ordinary assemblies.
This type of agreement is different from the shareholders’ agreement because it does not decrease the freedom to vote of individual partners and it does not give rise to any presumption of dominant influence.
 The control relationship must exclusively be among the subsidiary and an entity, among the union members, that has the power to impose its decisions on the union, and therefore on the subsidiary. Galgano F., Commentario al codice civile, La Tribuna, Milano, 2011, p. 123; Buonocore V., Manuale di diritto commerciale, Giappichelli, Torino, 2020, p. 602.
 Colombo G.E., G. Portale, Trattato delle società per azioni. Bilancio d’esercizio e consolidato, Utet, Torino, 1994, p. 670.
 Literally, art. 2359 of the Italian Civil Code, in indicating the constituent elements of the various control cases, always refers to “another company”, as the active term of the report under consideration, thus stressing that for the purposes of this provision, only the monocratic control is important. Notari M., Bertone J., Società controllate e collegate, op. cit., p. 682. See also: Lamandini M., Commento all’art. 2359 c.c., in: Campobasso M., Cariello V., Tombari U., Le società per azioni, Giuffrè, Milano, 2016; Notari M., “La nozione di controllo nella disciplina antitrust”, op. cit., p. 395.
 Cariello V., Controllo congiunto e accordi parasociali, Giuffrè, Milano, 1997, p. 110; Grande Stevens F., “Ancora sui patti di voto”, Contratto e impresa, 1990, n. 2; Nuzzo A., “Il vincolo di voto nelle società per azioni”, Rivista delle società, 1991, n. 2-3; Cottino G., “Anche la giurisprudenza canonizza i sindacati di voto?”, Giurisprudenza italiana, 1996, n. 1.
 In any case, joint control “…should also be kept separate from competing control, which occurs when two or more shareholders have a reciprocal power of veto which, in absence of coordination in the exercise of such power, becomes an instrument of mutual interdiction to the individual exercise of a dominant influence, with the result that it is not possible to identify any joint exercise of powers concerning the subsidiary”.
 Moreover, it is worth mentioning an isolated legal theory which, unlike what is stated in this text, considers joint control to be the same as control, including it in the provisions of art. 2359 of the Italian Civil Code. Niutta A., “La nuova disciplina delle società controllate: aspetti normativi dell’organizzazione del gruppo di società”, Rivista delle Società, n. 6, 2003.
 Pavone La Rosa A., Le società controllate – I gruppi, op. cit., p. 584. See also: Previ G., Rescigno M., Corso di diritto commerciale, Zanichelli, Bologna, 2019, p. 327.
 Lamandini M., Il controllo. Nozioni e tipo nella legislazione economica, Giuffrè, Milano, 1995, p. 397.
 Caratozzolo M., Il bilancio consolidato di gruppo. Profili economici e giuridici, Giuffrè, Milano, 2002, p. 64.
 In other words, given that corporate control is characterized by the concept of supremacy – commonly considered as the ability to positively impose one’s will on the decisions of the subsidiary – dominant influence exists when only one entity has the power since it has a legal or factual majority in the ordinary meeting, to subordinate “…the deliberate autonomy of the subsidiary by making it take decisions following its will and not only by preventing it from taking decisions contrary to its will.” Notari M., Bertone J., Società controllate e collegate, op. cit., p. 708.
 Pavone La Rosa A., Le società controllate – I gruppi, op. cit., p. 511; Sbisà G., “Società controllate e collegate”, Contratto e Impresa, 1997, p. 501.
 The dominant influence consists in having the power to decide and consistently manage the business. The legal theory agrees that the stability of the relationship is fundamental in this particular case, while not everybody agrees on the extent of the concept of dominant influence. Some Authors distinguish between dominant influence – the power to affect the behavior of the enterprise as a whole – and decisive influence – which would also apply in cases where an entity has the power to significantly affect the behavior of an enterprise in specific sectors without being able, even potentially, to affect its general management behavior. Lamandini M., Il controllo. Nozioni e tipo nella legislazione economica, op. cit., p. 56.
Notari M., Bertone J., Società controllate e collegate, op. cit., p. 710.
 This hypothesis refers to the more general case of the effective exercise of a dominant influence by a subject who, in theory, doesn’t have the relevant power. This is the (actually unrealistic) case of a shareholder holding a significant but minor shareholding, which dominates the ordinary meeting because a majority shareholder repeatedly refrains from exercising their powers as a controlling entity. As already said, in this case, according to unanimous legal theory, the power of permanent dominant influence at the ordinary assembly cannot be recognized, and therefore there is no “factual” control. Frè G., Sbisà G., Società per azioni, Zanichelli, Bologna, 1997, p. 474; Olivieri G., Presti G., Vella F., Il diritto delle società, Il Mulino, 2006, p. 669.
 Notari M., Bertone J., Società controllate e collegate, op. cit., p. 675. See also: Campobasso G.F., Diritto delle Società, Utet, Torino, 2020, p. 290; Corapi D., Le società per azioni, in: AA.VV., Diritto privato comparato – Istituti e problemi, Laterza, Bari, 2012, p. 198; Serafini S., “La qualificazione dei rapporti di controllo ai fini dell’accertamento dell’obbligo di redazione del bilancio consolidato”, Rivista Diritto Commerciale, 2004, p. 115.
 Notari M., Bertone J., Società controllate e collegate, op. cit., p. 675.
 Notari M., Bertone J., Società controllate e collegate, op. cit., p. 679; Galgano F., Genghini R., Il nuovo diritto societario, in: Galgano F. (edited by), Trattato di diritto commerciale, Cedam, Padova, 2006, p. 277. Moreover, in this regard, it is necessary to note that a minority legal theory strongly denies that the control achieved through shareholders’ agreements can be traced to the specific circumstances provided for in art. 2359 of the Italian Civil Code: Costi R., “I sindacati di blocco e di voto nella legge sull’OPA”, Banca e Borsa, n. 1, 1999; Costi R., “I patti parasociali ed il collegamento negoziale”, Giurisprudenza Commerciale, 2004, p. 200.
 Galgano F., Sbisà G., Direzione e coordinamento di società, in: Commentario del codice civile Scialoja – Branca – Galgano, Utet, Torino, 2014, p. 198.
 Spolidoro M.S., Il nuovo diritto societario fra società aperte e società private, Giuffrè, Milano, 2004, p. 483. In this regard, it is necessary “…that the economic dependence resulting from the contract determines the transfer outside the company of the power to direct the company’s activity”. Lamandini M., Il controllo. Nozioni e tipo nella legislazione economica, op. cit., p. 399.
 Loffari G., “Sul controllo esterno-contrattuale in materia societaria”, Giurisprudenza Civile, 2004, p. 2430; Sbisà G., “Società controllate e collegate”, op. cit., p. 480.
 Therefore, there is “…a clear dependence whenever the establishment or execution of a legal relationship represents a condition of existence and survival of the subsidiary, that allows the parent company to continuously affect the decision-making power and the operational activity of the subsidiary”. Tombari U., Il gruppo di società, Giappichelli, Torino, 1997, p. 283.
 It is the typical case of a legally independent company that has a single customer-buyer because of an exclusive supply contract. The survival of the company inevitably depends on the production and supply policies carried out by the client. See also: Galgano F., I gruppi di società, op. cit., p. 26; Musso A., “Il controllo societario mediante particolari vincoli contrattuali”, Contratto e impresa, 1995, n. 1; Rimini E., Il controllo contrattuale, Giuffrè, Milano, 2002, p. 30.
 According to a minor legal theory, the existence of a mere economic dependence between one company and another is not sufficient to constitute the case of external control, not even if it is such as to make the survival of the subsidiary itself depend on the economically dominant subject. For this purpose, the contractual constraints should produce equivalent effects to those of the internal control, and this could only occur when the contracts involve the approval by the dominant company of the underlying acts of the subsidiary, that is if they gave the parent company the power to designate the members (or the majority of them) of the administrative body of the subsidiary. Pavone La Rosa A., “Divagazioni in tema di controllo e gruppo nelle aggregazioni societarie”, Contratto e Impresa, n. 3, 1997; Musso A., “Il controllo societario mediante particolari vincoli contrattuali”, Contratto e Impresa, n. 1, 1995; Spolidoro M.S., “Il concetto di controllo nel codice civile e nella legislazione antitrust”, Rivista delle Società, n. 9, 1995; Notari M., “La nozione di controllo nella disciplina antitrust”, op. cit., p. 376.
 Galgano F., I gruppi di società, op. cit., p. 162. For the author, “…more precisely, the relationship of domination and alienation of the governance of the company seemed against two inalienable principles of corporate law: the principle that no company could act in a way that is not in its particular interest, and that corporate bodies could not, under any circumstances, abdicate the decision-making autonomy that they have concerning the conduct of social affairs. However, the same opinion was also argued based on the discipline concerning the liability of directors of corporations. The illegality of the contract of domination and the consequent constraints would, therefore, be derived from the fact that the latter must always be indisputably responsible for the management of the company towards third parties and, by admitting otherwise, the existence of those constraints could have been opposed by the directors of the subsidiary to third parties to exclude their responsibility for the management of the company.” For a similar interpretation, see also: Sbisà G., Società per azioni, op. cit., p. 478; Abbadessa P., Portale G.B., Le Società per Azioni, Giuffrè, Milano, 2016, p. 559; Donativi V., La riforma del diritto societario, Giuffrè, Milano, 2006, p. 143; Notari M., Bertone J., Società controllate e collegate, op. cit., p. 688; Ghini A., “I riflessi delle direttive di gruppo sui bilanci delle controllate”, Le Società, n. 5, 2006; Gambino A., Santosuosso D.U., Società di capitali, Giappichelli, Torino, 2018, p. 74.
 Moreover, unlike the abovementioned Authors, Tombari admits the legitimacy of atypical contracts in which a company must follow the directives of another company in the management of the economic activity. At the same time, the latter commits to the exercise of the related power of direction while respecting the interests of the dominated company and making the most of its economic results. Tombari U., Diritto dei gruppi d’imprese, Giuffrè, Milano, 2010, p. 299.
 Pfeffer J., Salancik G., the external control of organizations. A resource Annex perspective, Harper and Row, New York, 1978, p. 45; Abbadessa P., Portale G.B., Le Società per Azioni, op. cit., p. 111; Pavone La Rosa A., Le società controllate – I gruppi, op. cit., p. 508.
 Talamanca M., “Transitività e direzione del controllo di società”, Rivista di Diritto Civile, n. 3, 1993. According to the author, “…this form of control differs from mediated control exercised by means of an interposed person, which is just one of the modalities of indirect control”.
 Dalle Vedove G., Concentrazione e gruppi nel diritto antitrust, Cedam, Padova, 1999, p. 116.
 The example is taken from: Notari M., Bertone J., Società controllate e collegate, op. cit., p. 692.
 However, as mentioned above, the case of indirect control is not limited to the hypothesis of instrumental use of an intermediate subsidiary between the parent company and the final subsidiary (which, in any case, constitutes the most common hypothesis in practice), but also considers the possibility in which the control itself is implemented through trust companies or interposed persons to conceal the controlling interest of the parent company in certain companies.
 The purpose of this provision is to limit the “disconnection” between entrepreneurial risk and power of control, following the issue of shares without the right to vote at the ordinary assembly. Having ascertained that the economic subject of the company – the subject that holds the majority of the voting rights that can be expressed therein – is manifested in this context, it is quite clear that, as the portion of capital represented by shares without the right to vote in this assembly increases, the investment necessary to acquire legal or factual control of the “ordinary” capital of the company decreases proportionally, with a consequent lack of correspondence between the entrepreneurial risk assumed by the controlling subject and the exercise of the power of control. The general entrepreneurial risk would be borne by the relative minority shareholders – those who hold the minority of ordinary capital but the majority of total capital – while strategic decisions would be taken only by a subject holding the majority of ordinary capital, which, however, is an absolute minority of the share capital.
 Consider the assumption that the shareholder holding 51% of the total share capital of a certain company holds ordinary shares equal to 41% of the capital, and special shares give the right to vote only for the appointment and withdrawal of directors for 10%, while the remaining 49% consists entirely in ordinary shares. In this situation, the shareholder would legally rule the ordinary assembly in the deliberations concerning the appointment and revocation of the administrative body but would be in a minority in all other resolutions, in which the absolute majority would be of those who hold the remaining 49%. In such situations, there is no possibility to use the automatism of the legal control and, therefore, it is necessary to assess whether or not the case of the factual control subsists (as in the exemplified case). Notari M., Bertone J., Società controllate e collegate, op. cit., p. 713.
 This may be the case where it is considered admissible that the right to vote on matters specifically indicated in the bylaws implies, when exercised (in the separate assembly of the holders of such financial instruments), a condition of effectiveness for the deliberation of the ordinary assembly in such matters (if anything by being able to translate it into a real right of veto).
 Notari M., Bertone J., Società controllate e collegate, op. cit., p. 719; Stella Richter M., Commento agli artt. 2326-2328 – Atto costitutivo, in: Marchetti P., Bianchi L.A., Ghezzi F., Notari M., Commentario alla riforma delle società, Giuffrè, Milano, 2008, p. 410.
 This paper does not, however, examine the so-called monistic system of governance, in view of its high degree of functional and legal overlapping with the “traditional” or Latin system (used by almost all medium-large national companies).
 In fact, the statutory autonomy may introduce variations to the legal model about the procedure for appointing the Supervisory and Management Board. For example, the company bylaws could include the slate voting system for the appointment of the Supervisory Board (thus reserving some directors for minority shareholders), or establish a reinforced quorum for the appointment of the Management Board by the Supervisory Board (legal quorum for the appointment of the supervisory board is not modifiable). Notari M., Bertone J., Società controllate e collegate, op. cit., p. 718.
 While the form of the corporation of the parent company is rigidly established, the legal status of subsidiaries is much broader and any company can be included in this framework regardless of the legal form in which it is organized. Consequently, possible controlled entities that have to draft the consolidated financial statements are corporations, partnerships, consortia, joint ventures, single-member companies, associations, and foundations carrying out business activities.
 According to Accounting Standard (OIC) No. 17, the control for the obligation to consolidate must be: (a) stable over time – it must not be a transitional or occasional control relationship; (b) autonomous – the exercise of the right to vote must not depend on cooperation or alliance with other independent parties.
 Colombo G.E., Portale G., Trattato delle società per azioni. Bilancio d’esercizio e consolidato, op. cit., p. 670.
 Ballarino T., La società per azioni nella disciplina internazionalprivatistica, in: Trattato Colombo-Portale, Utet, Torino, 2004, p. 209.
 Established that the contract whereby one company waives its management for the benefit of another is a legal institution characteristic of the German system, it allows the parent company to openly pursue its interests and those of the group as a whole even to the detriment of the parent company by issuing legally binding instructions to the latter’s management body. The management body is entirely subordinate but not liable towards shareholders and third parties for any harmful consequences for the company that may arise from the implementation of the instructions received. To avoid that minority shareholders, creditors, and third parties of the subsidiary may have their rights (particularly those of a financial nature) damaged by an incorrect exercise of the relationship of dominance, German law provides for a specific system of liability on the part of the parent company. This system is aimed at ensuring the correct management of the subsidiary obliging the parent to cover, for the entire duration of the relationship, any operating losses suffered by the subsidiary attributable both to prejudicial directives given by the parent company and to the unfavorable trend of the entrepreneurial management tout court. In other words, the parent company and the subsidiary remain, in external relations, subjects distinct from each other, each maintaining its legal personality but, in internal relations, the subjective otherness is completely neutralized, given that:
 Quatraro B., “Il bilancio consolidato. L’area di consolidamento”, Rivista dei Dottori Commercialisti, n. 6, 1992. Dalle Vedove G., Concentrazioni e gruppi nel diritto antitrust, Cedam, Padova, 1999, p. 122.
 However, the golden share has been heavily used also in Italy, based on what happened in France, during the period of privatizations of public companies in the ‘80s and ’90s of the last century. It allowed the State to “make money” by selling on the market the majority of the shares of these companies and to maintain full control thanks to the right, included in the bylaws, to appoint a certain number of members of the Board of Directors and the Control Body as well as to designate the managing directors, especially for those companies considered strategic for the country. However, the lack of attractiveness on the stock market of companies burdened by the golden share provisions in their company bylaws and the judgments of conviction of the European Court of Justice in this respect, (such privileged provisions were considered to be in clear breach of the Community Treaties on economic and business freedom) have persuaded governments to gradually eliminate the use of such instruments. They have been replaced by mechanisms that are more respectful of the rules of the free market (golden powers, such as the provision of reinforced majorities, veto powers, and even opposition to the transfer of qualified shareholdings) to guarantee the supervision of national companies operating in strategic sectors for the country-system such as defense, national security, energy, transport and telecommunications (D.L. n. 21 of 15/03/2012; D.L. n. 22 of 25/03/2019; D.L. n. 105 of 21/09/2019).
 De Biasi M., “Sull’attività di direzione e coordinamento di società”, Le Società, n. 11, 2003.
 These are the so-called “intermediate” bodies, whose existence, justified by the impossibility of the State to protect all the interests of the community, is recognized by the Constitution, art. 2, within the social formations, that is alternative forms to physical persons through which “…The Republic shall recognize and protect the inviolable rights of the person”. Bignami M., “Direzione e coordinamento di società: alla ricerca di una definizione”, Rivista dei Dottori Commercialisti, 2005, n. 3.
 Rordorf R., “I gruppi nella recente riforma del diritto societario”, Le Società, n. 5, 2004.
 After all, presumptions with a substantially similar rationale already apply to the rules governing the preparation of the individual financial statements, in particular concerning the distinction between controlling shareholdings that are financial fixed assets and controlling shareholdings classified instead as current assets: according to the second subsection of art. 2424 of the Italian Civil Code, shareholding in subsidiary and associated companies are presumed to be fixed assets (also in this case evidence of the contrary is admitted, as this is a simple presumption). They are joint interests aimed at exercising a dominant influence over subsidiaries or significant influence over associated companies, and not mere exchange values (i.e. shareholdings acquired for a subsequent resale).
 Notari M., Bertone J., Società controllate e collegate, op. cit., p. 698
 Fauceglia G., Schiano di Pepe G., Codice commentato delle S.p.A., Utet, Torino, 2008, pag. 1672; Rordorf R., “I gruppi nella recente riforma del diritto societario”, op. cit.
 The rule under consideration has a double significance. It admits that, despite the presence of consolidation or control by an entity or a company over another company, there may not be any management and coordination activity. It also admits that despite the absence of consolidation or a presumption of control according to art. 2359 of the Italian Civil Code, there may be management and coordination activity by a company over other companies that can be demonstrated by other means (consolidation and control help giving evidence of the existence of a management and coordination activity by introducing a relative presumption, but they are not the only means of evidence).
 Galgano F., Bignami M., Sbisà G., Direzione e coordinamento di società: art. 2497 – 2497-septies c.c., Zanichelli, Bologna, 2014.
 Patti A., Abate F., Dimundo A., Lambertini L., Panzani L., Gruppi, trasformazione, fusione e scissione, scioglimento e liquidazione, società estere, Giuffrè, Milano, 2003, p. 110.
Jacopo Paoloni is Research fellow at Roma Tre University
Madjid Tavana is Professor and Distinguished Chair of Business Analytics at La Salle University of Philadelphia
The entire work has been thought and discussed by both authors; however, paragraph 1 is attributable to Madjid Tavana, while paragraphs 2,3 and 4 are attributable to Jacopo Paoloni