Nonprofit companies and insolvency proceedings

Nonprofit entities may carry out economic activities in order to achieve their institutional purpose, in accordance with the law and their articles of association.

Consequently, if the activity in question fulfills the requirements established by paragraph 2082 of the Italian Civil Code and it is one of the activities listed in the following paragraph 2195, then it can be considered a commercial enterprise.

While initially the scholars tended to exclude the application of insolvency procedures to nonprofit companies, lately took hold the opposite orientation, according to which, within the framework of its own articles of association, even a nonprofit company can carry out economic activities, even though not-for-profit.

In recent years, the case law has in fact reiterated that the profit-making aim (so-called subjective profit or “lucro soggettivo”) to which the economic activity carried out is normally oriented to, it is not an essential element to be considered to qualify a commercial enterprise, given that it is possible to identify business activities whenever there is an objective profitability of the activity performed, in terms of proportionality between costs and revenues (so-called objective profit or “lucro oggettivo”).

As effectively recently reaffirmed by the Court of Cassation (with ruling no. 6835/2014), in order to qualify a company as commercial, what is relevant, alongside management, financial and accounting autonomy, is indeed the pursuit of a so-called objective profit, to be intended as the proportion between costs and revenues, meaning that the latter tend to cover the former, at least in the medium-long term period.