Work for equity: regulations, benefits and criticalities

25 June 2021
Let's find out the details of this type of employment relationship widely used in the startup world.

Resource created by TORO Legal Hub

Legislation on innovative startups has brought (at least on paper) tax advantages to startups in terms of the remuneration of their internal team and external consultants/professionals with the introduction of instruments such as:

  1. incentive and remuneration plans known as stock options, normally applicable to joint-stock companies and now extended to limited liability companies;
  2. introduction of the so-called Work For Equity mechanisms.

These tax and social security benefits are applicable to financial instruments aimed at remunerating the work and qualified consultancy services of certain individuals who have relationships, in various capacities, with the innovative startup.

The incentive and remuneration plans as well as Work For Equity allow the Company to overcome any "liquidity constraints" also allowing suppliers, collaborators and external professionals to become shareholders or holders of Equity Financial Instruments (SFP) for their own services and of its services.

Let's take a closer look at the legislation 

The first benefit provided by art. 27 paragraphs 1 to 3 of Law Decree 179/12 concerns the employment income deriving from the assignment of financial instruments or any other right or incentive, by the startup to its administrators, employees or continuous collaborators, providing in favour of these figures an exemption from the formation of taxable income for both tax and social security purposes, provided that such financial instruments or rights are not repurchased by the innovative startup.  

The second benefit is governed by paragraph 4 of the above-mentioned article and provides for the mechanism of Work for Equity involving professionals and, in general, external consultants of the startup who, in the absence of a subordinate relationship, provide work and services to the sameIn particular, these figures can benefit from tax exemption for the acquisition of financial instruments such as quotas, shares and shareholdings received in exchange for their work or for credits earned for their services

The Work for Equity allows startups to remunerate the services of their professionals in a tax-advantaged manner through the assignment of shares, quotas or participatory financial instruments, issued in return for the provision of services.  

But let's analyze this tool analytically in order to evaluate all aspects and criticalities.

What are the benefits? 

The assignment of shares, quotas and/or financial instruments is tax-exempt and does not contribute to the formation of the professional's taxable income either at the time of the service or at the time of the issue of the financial instrument. In addition, there are no restrictions on the subsequent transfer of the securities and financial instruments to the same startup, as this does not entail the loss of the concessionary regime. However, the application of VAT on the relative service, if due, remains unaffected and in these cases the collaborator/professional will be required to issue a regular invoice.

Who are the beneficiaries? 

Who may benefit from the provision in question? Consultants, professionals such as lawyers, accountants or notaries and, in general, suppliers of works and services to the startup other than employees and continuous collaborators of the same

As mentioned above, , the remuneration subject to the tax benefit may not consist of money but in shares, quotas, participatory financial instruments. On the other hand, the assignment of rights for the purchase or subscription of these securities or financial instruments, such as option rights, are not eligible.

Are there formal aspects that the startup must respect? 

The articles of association of the company must provide for the possibility of adopting work for equity and, specifically, the possibility of issuing participatory financial instruments against the contribution of works and services. 

It should be pointed out that the benefit of work for equity is not applicable to simplified limited liability companies under art. 2463-bis of the Italian Civil Code, as well as to companies with reduced capital under art. 2463 paragraphs 4 and 5 of the Italian Civil Code , for which there is a standard statute that excludes the applicability of this tax benefit. 

As regards at procedures for the assignment of the financial instruments subject to the work for equity , the startup company may opt for the adoption of regulations that expressly govern the terms and conditions of issue

These regulations must provide in detail the type of works and services that the collaborator, professional will provide within the company, the valorization of the contributions, the performance objectives to be achieved and the consequences in case of failure to provide the work and/or service. performance to be achieved and the consequences in the event of failure to supply the work and / or service.

From a practical point of view, it should be noted that the work for equity can be implemented by an innovative startup through an increase in share capital by means of new contributions or by payment

A prerequisite for carrying out a paid increase in share capital is that the previously issued shares or quotas have been fully paid up.

Note that it is not necessary that the company is not loss-making. In fact, it is now accepted that all companies (not only startups) may resolve to increase share capital even in the presence of losses (in this sense, see the maxim of the Notary Council of Milan No. 122 of 2011).

However, it must be borne in mind that the services rendered in return for the shares allocated by startups in the form of an S.r.l. with a paid increase in capital must be guaranteed by appropriate surety policies or bank guarantees to be paid by the professionals offering the service, as is similarly the case for ordinary Srls pursuant to art. 2464 of the Italian Civil Code. In fact, according to the above-mentioned legislation, the following can be conferred: 

  • all the elements susceptible of economic evaluation, including work services; 
  • the expert entrusted with the task of estimating the value of the assets transferred in kind is appointed by the parties among the subjects enrolled in the register of legal auditors; 
  • the contribution must be accompanied by an insurance policy or bank surety to guarantee the performance of the work or services. 

The insurance policy and the bank surety can be replaced, should the company's memorandum of association so provide, by the payment of a corresponding cash deposit.


In the light of the above, Work for Equity represents an important incentive tool for startups and the professional providers themselves, but in practice it involves a series of costs that make its use unattractive. In fact, the provider of the work must obtain a surety or an insurance policy or release a sum as a deposit; in addition, there is the cost of the evaluation report, which contributes to making the entire operation more expensive, further discouraging the use of this form of incentive.


Valerio Capasso
Founder TORO Legal Hub


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