Legal forms of business: what they are and how to choose

Anyone planning to start a business must go through a few essential steps. First, you identify a market niche, then you shape your business idea, and finally, it’s time for the practical side: registering a VAT number and formally establishing the business.

During the launch phase, it’s crucial to lay the foundations–choosing a business name, setting a registered address, and opening a business bank account. But before all that, you need to carefully choose your company’s legal form.

Choosing the right legal structure means laying solid foundations for your new venture. It helps you manage risk properly, protect your personal assets, define the rights and responsibilities of partners, and select the most beneficial tax regime.

There are many types of company structures in Italy–some simpler (run by one individual), others more complex. Let’s take a look at the main types of legal form available and which one might be the best fit for different situations.

Summary

1. What is a legal form?
2. Sole proprietorships
3. Partnerships (Società di Persone)
4. Capital companies (Società di Capitali)
5. How to choose the right legal form for your business
6. Business accounts: who needs one

What is a legal form?

In Italy, the legal form defines the organisational, administrative, fiscal, and accounting framework under which a business operates–whether it involves producing or selling goods and services. It should not be confused with self-employment or freelancing, which typically only requires a VAT number.

Establishing the legal form is the first formal step for any entrepreneur, as it determines a wide range of legal and tax-related rights and obligations.

Examples of legal forms

Here are a few easy examples to make it clearer:

Officina Meccanica Rossi, owned by Marco Rossi, is the classic case of a sole proprietorship, where the business name is tied to a single owner.

Then there are the abbreviations like S.a.s. or S.n.c. For example, a cleaning company called Bianchi & Puliti S.n.c. is a partnership, and more specifically, a general partnership.

Small and medium-sized enterprises (SMEs), such as Ferramenta Donna S.r.l. or Biondi Consulting S.r.l., are examples of capital companies in the form of a limited liability company.

The largest Italian companies–Enel S.p.a., TIM S.p.a., Prada S.p.a., and Ferrari S.p.a.–have adopted the joint-stock company as their legal form, a type of capital company.

Main legal forms of business in Italy

Italian law recognises a variety of legal forms–some simpler, some more complex–each with its own features.

However, the system isn’t always clearly structured. ISTAT, Chambers of Commerce, and the Tax Register (run by the Italian Revenue Agency) often use different classification models, and even ISTAT admits these are not always easy to reconcile.

The most widely recognised and commonly used legal form groups are three:

• Sole proprietorships
• Partnerships (società di persone)
• Corporations (società di capitali)

Each of these categories includes several types, which we’ll explore shortly.

Other recognised legal forms include cooperatives, consortia, and entities of a public (e.g. regional agencies), religious (e.g. ecclesiastical institutions), non-profit (e.g. foundations, associations), or foreign nature.

Sole proprietorships

A sole proprietorship is a business run by a single individual, or by an owner working with close family members. These businesses are easy to start and don’t require any upfront capital. However, they offer no legal protection for the business owner: if the business fails, the owner is personally liable and risks their entire personal assets.

Sole proprietorship (Ditta individuale)

This is the simplest and most common legal form for individual entrepreneurs in Italy. It’s built around a single person, who owns and runs the business entirely. It’s often the ideal choice for VAT-registered individuals who want to launch quickly but aren't yet sure how the business will evolve.

Setting it up is straightforward:

• No notary or formal statute is required
• No minimum capital is needed
• The process can be completed in around 10 working days

Administrative requirements are minimal. Sole proprietors often qualify for the flat tax regime and simplified accounting, meaning lower costs and fewer obligations. Plus, being the sole decision-maker allows for fast, flexible management.

The downside? There’s no legal separation between the business and the entrepreneur. The owner is fully liable for all obligations. If the business can’t repay its debts, the owner must cover them–with no liability limit–using personal funds.

Family business (Impresa familiare)

A family business is a sole proprietorship in which the owner works alongside their spouse or partner, close relatives (up to the third degree), or in-laws (up to the second degree). These family members:

• Are not partners (the business remains solely owned by the founder)
• Are not employees or casual helpers
• Must actively contribute to the business and its value

In return, they are entitled to a share of the profits, based on the quality and quantity of their contribution. However, at least 51% of the profits must remain with the main owner. The owner alone remains personally liable.

Each family collaborator must be officially recorded through a public deed or authenticated private agreement, before joining the business.

From a tax perspective, the family business follows the transparent taxation model:

• Profits are taxed at the level of each individual participant
• The business owner’s tax return must detail each collaborator’s share
• Each family member must include that income and its origin in their own return

Partnerships (Società di Persone)

A partnership is a legal form in which two or more individuals jointly run a business and share legal capacity. While partners have rights and responsibilities, the business does not have its own legal personality.

The assets of the company and of the individual partners are functionally separated (usually through a dedicated business account), but not in the event of insolvency: like sole proprietors, partners in a società di persone are jointly and unlimitedly liable for the company’s obligations, and may have to cover debts with their own personal assets–with some exceptions.

There’s no minimum capital requirement to establish a partnership, but an incorporation deed (either public or private) and registration with the Business Register may be needed.

Capital companies (Società di Capitali)

A capital company is a legal form in which the company and its shareholders are separate entities. They operate on two distinct tracks: the company has its own legal identity, and the shareholders are only liable for the company’s debts up to the amount of their investment.

Having a separate legal personality is a major advantage, but managing a capital company requires more bureaucracy, both at the formation stage and throughout the business lifecycle. Incorporation must be done via a public deed, and the company must have a statute–a formal set of rules that outlines how the business will be managed and what responsibilities the shareholders have.

How to choose the right legal form for your business

Choosing the right legal form is one of the most important steps in starting or restructuring a business. It affects everything from liability to taxes and decision-making. It’s always wise to consult a trusted accountant early on–or before making any changes–since every business case is different.

That said, here are some general guidelines:

• A sole proprietorship works well for those running a business on their own–like small retailers, plumbers, artisans, or marketing consultants.
• A general partnership (S.n.c.) is ideal for small, local businesses with a few partners and low initial investment, such as bakeries, clothing shops, or repair garages.
• A limited partnership (S.a.s.) is more flexible when some partners want to be active and others prefer to invest passively–such as in construction businesses.
• Capital companies are better suited for medium to large enterprises where risk exposure is higher and personal asset protection is key.
• The S.r.l. is the go-to form for Italian SMEs–like factories, wholesalers, tech startups, or food producers.
• If there’s little starting capital, a Simplified S.r.l. (S.r.l.s.) can be a great fit–for example, a young entrepreneur launching an e-commerce business.
• The Joint-Stock Company (S.p.a.) is designed for large corporations, often listed, with many investors and complex structures–think energy companies, fashion retailers, manufacturers, or supermarket chains.
• The S.a.p.a. (Partnership Limited by Shares) is rarely used, but still adopted by large family-run businesses aiming to preserve long-term continuity and control.

Business accounts: who needs one

In Italy, a company’s legal form impacts many aspects of business management–including the requirement to open a business bank account.

For example, capital companies (S.r.l., S.r.l.s., S.p.a., S.a.p.a.) are legally required to have a separate business account registered in the company’s name.

Partnerships (S.n.c., S.a.s.) are not obliged to open a business account unless their annual revenue exceeds €400,000. Once that threshold is crossed, the requirement becomes mandatory.

Sole proprietorships, family businesses, and freelancers are not required by law to open a business account–but doing so is still strongly recommended.

Regardless of the legal structure, keeping personal and business finances separate is crucial for maintaining clean books and complying with tax rules. This becomes especially important during audits: if the Italian Revenue Agency launches an investigation, it's the taxpayer’s responsibility to prove the nature of each bank transaction.

That’s why not only capital companies (who are obliged), but also partnerships and sole traders should seriously consider opening a dedicated business account.

Vivid offers a fully digital business account designed for all business types–from sole proprietors and partnerships to SMEs and large corporations. Open yours in minutes→