When a company's losses become large enough to substantially erode its share capital, the issue goes beyond a negative financial result. Specific duties under the Italian Civil Code may arise and, in the most serious cases, grounds for winding up the company may emerge. However, saying “capital has fallen below the statutory minimum, so the company must close” is too simplistic. Subject to certain conditions, the law allows the company to be recapitalised, converted into another legal form or to adopt other legally permitted solutions. Nor are the rules identical for all companies with limited liability. For S.p.A. companies, the statutory minimum is currently 50,000 euros. For S.r.l. companies, however, the system is more complex: Article 2463 of the Code continues to specify 10,000 euros as the standard amount, but expressly allows an S.r.l. to be incorporated with capital below 10,000 euros and at least equal to 1 euro, subject to specific contribution and reserve-building rules. The first step is therefore to establish what type of company is involved, what loss has occurred and which capital requirement is relevant in the particular case.

First of all: share capital and equity are not the same thing

Share capital is a nominal amount stated in the incorporation document and is one component of equity. Equity also includes reserves, accumulated profits and losses. Suppose a company has:

Its initial equity is therefore:

100,000 + 20,000 + 30,000 = 150,000 euros

If the business incurs a loss of 60,000 euros, equity falls to 90,000 euros. The loss is first absorbed by available reserves and only then affects capital. It is therefore not enough to see that the financial year ended in a loss. You need to establish how much of that loss remains after reserves have absorbed it and how much share capital has actually been eroded.

A loss exceeding one third

The Civil Code lays down specific rules for losses that reduce capital by more than one third. For S.r.l. companies, Article 2482-bis provides that, when losses have reduced capital by more than one third, directors must call a shareholders' meeting without delay to take appropriate measures. If the loss has not fallen below one third by the following financial year, a capital reduction proportionate to the established losses must be approved. For S.p.A. companies, similar rules appear in Article 2446. This situation does not necessarily mean that capital has fallen below the statutory minimum. A company may have lost more than one third of its capital and still have sufficient capital remaining.

Imagine an S.p.A. with capital of 500,000 euros that, after reserves have been used, has losses of 200,000 euros. The loss exceeds one third, but the remaining capital is still 300,000 euros, well above the statutory minimum of 50,000 euros. The company must therefore address the loss under the prescribed rules, but this is not yet the most serious case.

When an S.p.A.'s capital falls below 50,000 euros

For joint-stock companies, the framework is relatively clear. Article 2327 of the Civil Code requires minimum capital of 50,000 euros. Article 2447 provides that, if a loss exceeding one third reduces capital below that minimum, directors must call a shareholders' meeting without delay to approve a capital reduction and simultaneous increase to at least the statutory minimum, or conversion of the company into another legal form. Suppose an S.p.A. has capital of 100,000 euros and, after losses, effective capital of 30,000 euros remains. The issue cannot simply be postponed to the following financial year. The meeting must be called without delay. In extremely simplified terms, the main alternatives may become recapitalisation, conversion or proceeding towards winding-up.

Reduction and simultaneous increase

The first solution is the transaction known as a capital reduction to cover losses and simultaneous capital increase. Suppose an S.p.A. has nominal capital of 100,000 euros and remaining losses of 80,000 euros. The economically remaining capital would therefore be 20,000 euros, below the 50,000 minimum. The meeting may approve a capital reduction to absorb the losses and simultaneously an increase sufficient to bring capital back to at least 50,000 euros. This aligns the nominal figure with the actual equity position while providing the company with new capital. It is therefore not simply a matter of “erasing the loss”. New equity is needed if that legal form is to be retained.

Conversion into another legal form

The second possibility expressly provided by law is conversion of the company into another legal form. An S.p.A. that no longer has the minimum capital may, where the conditions are met, convert into a company type compatible with its new equity position. The logic is simple: instead of immediately raising new capital to continue meeting S.p.A. requirements, the company changes its legal form. Article 2447 expressly provides for conversion as an alternative to a capital reduction and simultaneous increase. Conversion does not, however, eliminate the business's economic problems. If the company loses money because its business is unsustainable, changing its legal form will not automatically resolve the crisis. It is a legal solution to the minimum-capital problem, not necessarily an economic solution to the business problem.

What if the shareholders do nothing?

This is where Article 2484 of the Civil Code comes into play. The grounds for winding up companies with limited liability expressly include a reduction of capital below the statutory minimum, subject to Articles 2447 and 2482-ter. Those exceptions are fundamental. They mean that falling below the minimum does not inevitably and instantaneously lead to liquidation: the law allows shareholders to take the prescribed corrective measures. If no suitable solution is adopted, however, failure to meet the equity requirement may become actual grounds for winding-up. Directors must then identify those grounds promptly and fulfil the duties laid down by the Code. The term “winding-up” can itself cause confusion.

The occurrence of grounds for winding-up does not mean the company ceases to exist at that very moment. Instead, it marks a transition from ordinary operations to a phase directed towards liquidation, unless the grounds are removed in a manner permitted by law. In the cases covered by Article 2484, the legal effects arise when the directors' declaration identifying the grounds is entered in the Business Register, as provided by that article. The restriction on management applies from the moment the grounds arise, even before registration: under Article 2486, directors must preserve the integrity and value of the company's assets. The duties to establish the grounds and make the required public filings remain separate and must be fulfilled without delay.

The position of S.r.l. companies is more complex

Much greater care is needed with S.r.l. companies. Article 2463 continues to list capital of at least 10,000 euros among the elements of the incorporation document. However, the same article expressly allows a lower amount, provided it is at least 1 euro. In that case, contributions must be made entirely in cash, and stronger legal-reserve rules apply: at least one fifth of net profits must be set aside until capital and the reserve together reach 10,000 euros. This has created an obvious interpretative issue because Article 2482-ter (written before S.r.l. companies with capital below 10,000 euros became generally available) continues to refer to the minimum established by Article 2463.

Consequently, it is incorrect simply to say that every S.r.l. whose capital falls below 10,000 euros must automatically recapitalise to 10,000 euros or be wound up. The issue has also been addressed by the Italian National Council of Notaries. According to an authoritative notarial interpretation, following the changes introduced in 2013 an S.r.l. may maintain capital below 10,000 euros throughout its existence, provided it remains at least 1 euro and complies with the specific rules for low-capital companies. Under this interpretation, an S.r.l. with original capital of 10,000 euros that incurs losses of 4,000 euros could reduce its capital to 6,000 euros without necessarily being required to restore it immediately to 10,000. However, the safeguards in Article 2463 for S.r.l. companies with capital below 10,000 euros would then apply, including the special reserve-building mechanism.

This clarification matters because the wording of Article 2482-ter has not been fully coordinated with subsequent changes allowing S.r.l. companies to be incorporated with reduced capital. Suppose an S.r.l. has share capital of 10,000 euros, no available reserves and a loss of 4,000 euros. After the loss, 6,000 euros remains. An excessively literal, traditional reading might suggest that falling below 10,000 euros requires immediate restoration to that level. The notarial interpretation developed after the 2013 reform observes, however, that an S.r.l. may now lawfully operate with capital between 1 and 9,999.99 euros. The company could therefore reduce capital to 6,000 euros and continue under the rules for S.r.l. companies with capital below 10,000 euros. This perfectly illustrates why, in company law, reading an individual provision without coordinating it with subsequent reforms is not enough.

What if the S.r.l.'s equity becomes negative?

The problem naturally becomes much more serious when losses do more than reduce capital below 10,000 euros and instead completely absorb capital and reserves. Suppose capital is 10,000 euros and the loss is 14,000 euros. In simplified terms, equity becomes negative by 4,000 euros. At that point, formally setting capital at 1 euro is not enough. The loss must first be addressed in full and an equity position compatible with the company's continuation restored. Under the National Council of Notaries' interpretation, once losses have been absorbed, the company may restore capital to at least 1 euro, complying with the rules for S.r.l. companies with capital below 10,000 euros. This again shows that the central issue is not just the number recorded under “share capital”, but the actual equity remaining after losses.

The simplified S.r.l.

A simplified S.r.l. (S.r.l.s.) may also have capital between 1 euro and 9,999.99 euros, which must be fully subscribed and paid in cash on incorporation. Clearly, therefore, automatically treating 10,000 euros as the minimum below which winding-up would be triggered for this legal form would conflict with its incorporation rules. The company is lawfully established with lower capital. This confirms why any general discussion of “minimum S.r.l. capital” must specify the regime actually applicable.

Reducing capital does not make the economic loss disappear

Another common misunderstanding concerns capital reduction. Suppose a company has nominal capital of 100,000 euros and accumulated losses of 70,000 euros. Reducing capital in the accounts from 100,000 to 30,000 euros to cover the loss brings no money into the company. The transaction aligns nominal capital with actual equity. Before: capital 100,000, loss -70,000, equity 30,000. After the reduction: capital 30,000, losses 0, equity 30,000. Actual equity remains exactly the same. Strengthening the company's financial position instead requires new resources or future profits.

Recapitalisation means providing new resources

If the company needs to restore capital to a particular level, a capital increase is required. Imagine an S.p.A. that, after a reduction for losses, has 20,000 euros remaining and must return to at least 50,000. It needs at least another:

50,000 − 20,000 = 30,000 euros

in capital. Shareholders may be invited to subscribe to the increase under the terms laid down by law and the resolution. If nobody is willing to provide new resources, the company must consider the permitted alternatives, including conversion or, if the grounds are not removed, liquidation.

Are shareholders obliged to recapitalise?

No. A company's need for new capital does not automatically mean every shareholder is personally obliged to contribute additional sums beyond existing commitments. Shareholders may decide not to participate in the recapitalisation, subject to any specific pre-existing obligations. That choice can, however, affect their ownership interest: the increase may be subscribed by other shareholders or new investors, changing the ownership balance. If the necessary increase is not subscribed and no suitable alternative is chosen, the grounds for winding-up may remain.

Capital loss and insolvency are not synonyms

A company whose capital is below the statutory minimum is not necessarily insolvent. It may have sufficient cash, pay all debts regularly and have shareholders ready to recapitalise. Equally, a company whose equity is still positive may face a serious financial crisis and be unable to pay its debts when due. A distinction is therefore needed between an equity problem → loss of capital; a financial problem → inability to meet payments; and an economic problem → the business's inability to generate sufficient results. In practice, these can occur together, but they are not the same thing. Going concern must also be assessed separately. A loss taking capital below the minimum may be remedied through credible, timely recapitalisation. If shareholders have sufficient resources and the business remains economically viable, continued operation may still be reasonable.

If, instead, the company has structural losses, no liquidity, banks withdrawing credit facilities and shareholders unable to intervene, the issue goes beyond company law. Capital loss can become a sign of a broader crisis. The Civil Code rules on losses must therefore be coordinated with the rules on adequate organisational arrangements and business distress.

Directors cannot ignore the loss

As discussed in the previous article, directors must identify losses promptly and call a shareholders' meeting when the statutory conditions arise. If grounds for winding-up occur, they must establish them without delay and make the required public filings. Article 2484 expressly lists a reduction in capital below the statutory minimum among the grounds for winding-up, subject to adoption of the solutions in Articles 2447 and 2482-ter. Failing to act means allowing the company to continue operating in circumstances that lawmakers consider incompatible with ordinary continuation. This is precisely where directors' liability may arise.

Conclusion

When share capital falls below the relevant minimum, the company is not necessarily destined to close, but neither can it ignore the situation. For S.p.A. companies, the framework is clear: if a loss exceeding one third takes capital below 50,000 euros, a meeting must be called without delay to approve a reduction and simultaneous increase to at least the minimum, or conversion into another legal form. If the grounds are not removed, winding-up may follow. S.r.l. companies require greater attention because the law now permits capital below 10,000 euros and at least equal to 1 euro. It is therefore incorrect to treat 10,000 euros indiscriminately as an absolute survival threshold for every S.r.l.

The right question is therefore not: “Is capital below 10,000 or 50,000 euros?” It is: “What type of company is involved, which capital regime applies, how much loss must be absorbed and which resolutions are needed for the company to continue operating lawfully?” Only after establishing these elements can one determine whether recapitalisation is necessary, conversion is possible or grounds for winding-up have already arisen.

Note: the loss rules for S.r.l. companies present issues of legislative coordination arising from changes to minimum-capital rules. This article describes the general framework for explanatory purposes; actual capital reductions, recapitalisations, conversions or winding-up procedures require examination of the company's position and the interpretation applicable to the specific case.