The requirements of an innovative start-up
What are the essential formal requirements that a company must have to become an innovative start-up? How long must it keep them?
In the article “How to create a start-up company in Italy?” we have defined a start-up as a company established for less than 5 years, which envisages a new business model compared to the one already on the market.
We also highlighted how only thanks to an effective business strategy, long-term financial sustainability and expert consultants at its side, a start-up will be able to overcome the obstacles and possible failures that it will encounter along the way.
Let’s now see, in detail, what it means to be an innovative start-up and what are the requirements that a company must have to maintain this status.
The requirements of an innovative start-up
The innovative start-up is a new type of joint-stock company, also in a cooperative form, provided for by art. 25, 2nd paragraph, of the Italian Law Decree n. 179 of 2012 (recently amended by the Annual Market and Competition Law 2023 (Law 16 December 2024, no. 193), in force from 18 December 2024.
This article expressly indicates the requirements that any company (yet to be established or already established) must possess to legally become an “innovative start-up” and be registered in the special register at the Chambers of Commerce.
An innovative start-up is such if it meets the following objective requirements:
- is a micro enterprise or an SME incorporated no more than 60 months (5 years), extendable by a further 2 or 4 years, as better explained in the penultimate paragraph of this article;
- has its headquarters in Italy, or in another country of the European Economic Area (EEA), but always with a production site or branch in Italy;
- starting from the 2nd year of activity, the total annual production value, resulting from the latest financial statement approved within 6 months of the end of the financial year, does not exceed 5 million euros;
- does not distribute and has not distributed profits;
- it is not listed on a regulated market or on a multilateral trading platform;
- is not the result of a merger, spin-off or sale of a business unit;
- has as its exclusive or prevalent corporate purpose the development, production and marketing of a product or service with a high technological value;
- does not carry out prevalent agency and consultancy activities.
Finally, he must possess at least 1 of the following 3 subjective requirements, alternative to each other:
- must incur expenses in research, development and innovation equal to at least 15% of the higher value between turnover and cost of production.
Admitted expenses include those relating to pre-competitive and competitive development, such as:- experimentation, prototyping and development of the business plan;
- incubation services provided by certified incubators;
- legal fees for the registration and protection of intellectual property, terms and licenses of use.
- It must employ highly qualified personnel (at least 1/3 among research doctors, doctoral students or researchers, or at least 2/3 with master’s degrees).
- Must be the owner or licensee of at least one patent or owner of a registered software.
In addition to the requirements listed above, a company can also become an innovative start-up with a social vocation if it operates exclusively in the following sectors: social assistance; health care; health and social assistance; education, instruction and training; protection of the environment and the ecosystem; enhancement of cultural heritage; social tourism; university and postgraduate training; research and provision of cultural services; extra-curricular training, aimed at preventing early school leaving and academic and educational success; instrumental services to social enterprises.
The objective and subjective requirements referred to above must exist at the time of incorporation of the company (or of the application for registration of a company already incorporated in the special register) and be maintained over time, to maintain the status of an innovative start-up over time.
Additional requirements to maintain the status of innovative startup
The Annual Law for the Market and Competition 2023 also provided that an innovative startup must demonstrate that it possesses, after the conclusion of the 3rd year of activity, at least one of the following additional requirements, in order to maintain this status and the consequent registration in the special register:
- having increased the percentage of research and development expenses to 25%, as provided for in point 1 of the subjective requirements indicated above;
- having stipulated at least one experimental contract with a public administration, pursuant to Article 158, paragraph 2, letter b), of the Public Contracts Code, pursuant to Legislative Decree 31 March 2023, no. 36;
- having recorded an increase in revenues deriving from the characteristic management of the company or in any case identified under item A1) of the income statement, pursuant to Article 2425 of the Civil Code, or employment, greater than 50% from the second to the third year;
- having established an equity reserve exceeding € 50,000, by obtaining a convertible loan or a capital increase with a premium that leads to a participation not exceeding that of a minority by a professional third-party investor, a certified incubator or accelerator, a supervised investor, a business angel, or through equity crowdfunding carried out through an authorized platform, and an increase to 20% of the percentage of research and development expenses;
- having obtained at least one patent.
What happens to startups already established before the entry into force of the 2023 Law?
In this regard, it is expected that companies already registered that do not possess the new additional requirements indicated above, have the right to remain in the special section beyond the third year, provided that the new requirements are achieved:
- in the case of startups registered in the register for more than eighteen months, within twelve months of the expiry of the third year;
- in the case of start-ups registered in the register for less than eighteen months, within six months of the aforementioned deadline.
The provision specifies, therefore, that companies that do not possess the new requirements for innovative start-ups introduced by paragraph 2-bis, may register, if they have the relevant requirements, in the special section of the company register reserved for innovative SMEs.
Exception to the 5-year deadline
Finally, the recent Annual Law for the Market and Competition 2023 has provided that the term of five years in total for remaining in the special section of the company register can be extended for additional periods of 2 years, up to a maximum of 4 years in total, for the transition to the “scale-up” phase, where at least one of the following requirements occurs:
- capital increase at a premium by a collective investment scheme, for an amount exceeding € 1 million, for each extension period;
- increase in revenues deriving from the characteristic management of the company (or in any case identified under item A1) of the income statement, pursuant to article 2425 of the civil code), exceeding 100% per year.
The importance of legal and tax support
As already written in the previous chapter “How to create a start-up company in Italy?“, the initial phase of constitution is crucial for the fate of an innovative start-up.
For this reason, we advise all new entrepreneurs to carefully consider whether to deal independently with all the legal and tax practices indicated above, or if they consider it safer to rely on serious, qualified professionals with proven experience in business consultancy.
Our firm, thanks to the expertise and experience in consulting and assistance to innovative start-ups, both in the legal, tax and corporate fields:
- provides all entrepreneurs interested in starting their own innovative start-up, a preliminary assessment on the existence of all legal requirements and specific assistance in carrying out the registration procedures in the special register;
- manages the file until the end, representing you before the Chamber of Commerce and all public bodies.
Contact us immediately at info@studiolegalecoscia.it to help you start your innovative start-up
