Equity in a startup: what it is and how it works in Italy

Equity in a startup is just another word for ownership. Founders hold some, investors hold some, and so may an early employee or an advisor. Own 10% and, in principle, that’s 10% of the votes, 10% of whatever profits get paid out and a matching slice of the price if someone buys the company. Only in principle, though: in an Italian SRL the founding deed can tilt things with special rights for particular partners.

In Italy that ownership takes one of two legal forms, quote in an SRL or azioni in an SpA, and the difference starts to matter once investors arrive. Further down we work out what 10% is worth after two rounds. Just getting started? Our map from zero to a first round shows where equity fits.

Quote or azioni: what equity looks like in Italy

Most Italian startups begin as an SRL. Gianni & Origoni write that market practice ‘strongly favours’ the SRL for early-stage companies, with a move to an SpA once investors get larger or international. Our comparison of SRL and SpA for an Italian startup goes through the trade-offs. The two forms hold equity differently. An SRL partner owns a quota, a stake measured against the share capital, and Article 2468 says it can’t be represented by shares. An SpA issues azioni, which suit multiple classes and, one day, a listing.

The minimum capital differs too. An SRL needs €10,000, but Article 2463 lets you go as low as €1 if contributions are in cash and paid in full. An SRLS, the simplified version, takes €1 to €9,999.99, fully paid in cash at incorporation, and only natural persons can form one (Article 2463-bis). An SpA starts at €50,000 (Article 2327).

Equal stakes don’t have to mean equal rights. The founding deed of an SRL can give individual partners special rights over management or profits (Article 2468, paragraph 3), such as the power to appoint a director. An SRL that qualifies as an SME can go further and create categories of quote, with rights that are equal inside each category and different from the others (Consiglio Notarile di Milano, Massima 171). A sample clause in the Brescia accountants’ startup handbook gives category A the right to name two directors out of three.

Equity vs debt: the difference

	Equity	Debt
What the company gives	A share of ownership: quote or azioni	A promise to repay, with interest
When it’s paid back	Never on a schedule: holders earn from dividends or a sale	On fixed dates, whatever happens
If the company is wound up	Paid last, from whatever is left after creditors	Paid before any partner
What it costs	A slice of future value and of control	Interest and fees, in cash
Control	Votes, often with special rights	Usually no votes, but covenants in the contract

That’s why a startup with no revenue raises equity rather than loans. There’s nothing yet to pay interest from, and an equity investor accepts the risk of losing everything in exchange for a share of the upside. The Civil Code is explicit about the queue: in a liquidation, Article 2491 bars advances to partners unless creditors can still be paid in full and on time.

How do you get equity in a startup?

Founders get theirs by subscribing the capital when the company is set up. Two founders forming a €10,000 SRL at 50/50 each subscribe €5,000, and with a deed signed by several partners at least 25% of the cash contributions, plus any premium, is paid at signing (Article 2464).

Investors come in later through a capital increase. They buy newly issued quote or azioni at nominal value plus a premium, and because every round creates new quote, everyone else’s percentage falls. The example below shows by how much.

Employees and advisors usually receive options or quote under an incentive plan. An SRL often builds these with reserved capital increases or quote carrying specific rights. Innovative startups, and SRLs that qualify as SMEs, may also use their own quote for incentive plans (Article 26 of DL 179/2012), which is an exception to the general ban in Article 2474 of the Civil Code. Paying advisors or suppliers in equity instead of cash is called work for equity, and Chambers lists it among the standard tools in Italy. Tax is a separate question: see how stock options are taxed in Italy.

Then there’s sweat equity, the stake you earn with work rather than money. Italian company law is stricter about it than the slang suggests. In an SRL you can contribute your work as capital only if an insurance policy or bank guarantee covers its full value (Article 2464). In an SpA you can’t contribute work at all (Article 2342). The simpler route: pay your capital in cash and tie the stake to the work with vesting, linked below.

One more Italian twist. As a rule, SRL quote can’t be offered to the public (Article 2468). Crowdfunding is the exception. It was opened first to innovative startups and innovative SMEs, then extended to every SRL that is an SME by DL 50/2017. Today the rules sit in Article 100-ter of the TUF, rewritten in 2023 around EU Regulation 2020/1503 (which covers offers of up to €5 million per company over 12 months). Our guide to equity crowdfunding in Italy covers platforms and costs.

What is a 10% stake worth? A worked example

Say you join a Milan startup as its third partner with 10%, at a €2 million post-money valuation. On paper your stake is worth €200,000. A year later the company raises €2 million at an €8 million pre-money valuation, so €10 million post-money, and the new investor takes 20%. You hold the same quote as before. They’re now 8% of the company (10% × 8 ÷ 10), worth €800,000 at the new price.

	Today	After an up round	After a down round
New money	None	€2M at €8M pre-money	€1M at €1.5M pre-money
Post-money valuation	€2M	€10M	€2.5M
Your stake	10%	8%	6%
Worth on paper	€200,000	€800,000	€150,000

And if the second round goes badly? At €1.5 million pre-money for €1 million, you drop to 6%, worth €150,000. Two cautions apply either way. Paper value isn’t cash: you see it only when the company is sold, lists or pays dividends. And if investors hold a liquidation preference, which pays them first in a sale, 8% of the price won’t always mean 8% of the proceeds.

You can run the same numbers on your own company with the cap table simulator in our Investor-Ready Kit (€149).

Related terms

• Why did your 10% turn into 8%? Equity dilution explains it, and shows how to work it out for any round.
• If you’re a founder or an early hire, a vesting schedule decides how you earn your equity month by month. Leave early and you lose the part that hasn’t vested.
• Paper value only turns into money at a startup exit.
• The cap table is where all of this gets written down, round after round: who owns what.
• The full startup glossary has the other 49 terms, valuation, SAFE and option pool among them.

This page is general information, not legal or tax advice. Rules change: check the official source or ask a professional before you act.