The company group (under Italian law)

The phenomenon

The corporate group is an aggregation of corporate enterprises that are

• formally autonomous and independent;
• all subject to a unified management. This means that all enterprises participating in the group are under the dominant influence of a single company (called the holding company).

The holding company directly or indirectly controls the other companies (called subsidiaries) and directs their activities according to a unified plan, in pursuit of a unified and common purpose, the so-called group interest.

Each of the companies comprising the group may correspond to, as its corporate object,

• a distinct field of activity,
• a distinct stage of the production process,
• a distinct form of industrial use of the same basic substance,
• a distinct market.

Thus, it can be said that in groups there is a single enterprise in the economic aspect, to which correspond several enterprises in the legal aspect, that is, all those that are part of the aggregation.

Groups of companies can take different conformations:

• Chain groups: company A directs company B, which directs company C.
• Ray groups: company A simultaneously directs all the others.

This is a physiological phenomenon that is widespread in practice, especially for large and multinational companies, as well as a reality that the national legislature tends to favor.

The reason why business groups are formed is essentially to combine the advantages arising from the economic unity of the large enterprise (speed and autonomy of decision-making) with those arising from the articulation into several distinct and autonomous organizational structures (separation of business risk). In other words, through groups, needs for greater efficiency in the production system are met.

The legislation

To this date, there is a lack of organic regulations specifically dedicated to groups of companies, but the phenomenon is not completely ignored in legal terms. In particular, in the Civil Code one must consider:

• Articles 2359 et seq. which regulate the notion of control and subsidiary and holding company;
• Articles 2497 et seq. introduced in 2003, which deal with the so-called management and coordination activities of companies.

The controlled company

A controlled company is defined as a company that is, directly or indirectly, under the dominant influence of another company, called the holding company, which can define its activities. This definition is derived from Article 2359 of the Civil Code, according to which control can take several forms:

• De jure shareholder control: the company in which another company has a majority of the votes that can be exercised in the ordinary shareholders' meeting is controlled.
• De facto shareholder control: the company in which another company has sufficient votes to exercise a dominant influence in the ordinary shareholders' meeting is controlled.
• Contractual control: companies that are under the dominant influence of another company by virtue of special contractual ties with it are controlled.

The activity of management and coordination

However, the existence of a corporate control relationship is not sufficient to say that there is a group of companies. Rather, such control gives rise to the presumption that the parent company also exercises management and coordination activity over the controlled company. Indeed, it is in this activity that the essence of the group of companies is embodied.

The notion of management and coordination activity can be traced to an essentially material fact, that is, as the set of activities by which the parent company substantiates the essence of control, in its relationship with the controlled company. As a material fact, the activity is expressed in conduct that is difficult to typify, so the legislator prefers to resort to general clauses in describing it.  Normally, management and coordination activity takes the form of the transmission to subsidiaries of decisions that are made by the holding company. This transmission may take place on the basis of formalized procedures, through directives or circulars, or, as is often the case, in the form of confidential directives, which the managers of the holding company send to the managers of the controlled company.

References

• M. Campobasso, Diritto commerciale, vol. II, Diritto delle società, Utet, Milano, 2020, pp. 282 et seq.
• F. Galgano, Trattato di diritto civile, vol. IV, Cedam, 2015, pp. 770-771.
• G. Meruzzi, Complemento di diritto commerciale, vol. II, Società di capitali e cooperative, Egea, Milano, 2017, pp. 111-112.