EU Inc: Why Startups Gain – and Venture Capital Hesitates

The new optional legal form for startup companies EU Inc, launched last week as a so-called ‘28th regime’, is a strategic instrument aimed at promoting incorporation, innovation, and growth across the European Union. In a period of increasing geopolitical fragmentation, the importance of fostering a strong EU-wide ecosystem for innovative firms—and thereby strengthening Europe’s global competitiveness—can hardly be overstated. But does the EU Inc proposal live up to this ambition?

Initial reactions to the proposal have been mixed. Rather than assessing its merits in general terms, this post focuses on the more specific question of who the main beneficiaries of the regime will be. The European Commission seeks to address several target groups simultaneously: Entrepreneurs demand a quick and simple corporate framework; scaleups require flexibility and efficient mechanisms for growth and restructuring; and venture capital investors seek legal certainty, uniformity, and predictability.

When assessing the proposal, the distribution of benefits appears uneven. While the new regime will introduce a range of tools that are highly attractive to early-stage firms, it remains much less clear whether it meets the expectations of high-growth companies and of VC investors. The central argument of this post is therefore that EU Inc is a startup-friendly reform whose broader success depends on investor acceptance—an alignment that, at present, remains incomplete.

1. Startups as the Primary Beneficiaries

At its core, the EU Inc proposal is designed to remove frictions at the point of entry into the market. The measures aimed at startups are both concrete and, in many respects, transformative.

First, the promise of rapid and low-cost incorporation stands out. The proposal envisages company formation within 48 hours—albeit contingent on the use of standardised templates—and caps incorporation costs at €100 (Art 16). Combined with the abolition of minimum capital requirements (Art 62), this significantly lowers the barriers to entry across the EU.

Secondly, the proposal embraces full digitalisation. Incorporation, governance, and ongoing compliance are to be handled digitally (Art 10), supported by a ‘once-only principle’ under which firms submit information a single time for reuse across administrative processes (Art 20). This reflects a broader shift towards data-driven governance and has the potential to reduce administrative burdens substantially.

Thirdly, the introduction of a harmonised employee stock ownership plan (ESOP) framework—allowing employees to receive equity-based compensation with taxation deferred until exit (Art 78)—directly addresses a longstanding weakness in European startup ecosystems. By aligning employee incentives with company growth without immediate tax consequences, the proposal moves closer to the practices that have underpinned success in other jurisdictions.

Taken together, these features suggest that EU Inc is particularly well-calibrated to the needs of early-stage firms: it reduces transaction costs, accelerates market entry, and provides standardised governance tools that minimise the need for bespoke legal engineering.

2. Scaleups: Indirect Gains, Persistent Gaps

The strategic main target is however not the ordinary startup. The main policy imperative behind the plan is to support ‘high-growth’ firms with an innovative business model which promise to contribute to Europe’s economic independence. These firms usually grow fast and expand into several EU member states. 

For such scaleups, the benefits of the proposed regime are unfortunately more ambiguous. While these firms may profit indirectly from a more efficient startup pipeline, the proposal does not fully engage with their specific needs.

Scaleups typically face challenges related to cross-border expansion, regulatory fragmentation, and increasing organisational complexity. In principle, a harmonised legal form could alleviate some of these constraints. Standardised disclosure, digital registers, and uniform governance rules may reduce due diligence costs and facilitate investment.

However, key issues remain insufficiently addressed. Notably, the absence of a unified tax regime and the continued reliance on national systems in critical areas limit the extent to which EU Inc can function as a truly pan-European vehicle for growth. Similarly, the proposal does not yet provide a comprehensive framework for cross-border corporate transactions at later stages, where legal and fiscal frictions become more pronounced. Yes, there are rules for cross-border branches, but Art 41 refers the EU Inc for corporate mobility and cross-border mergers to the same cumbersome rules that apply to public companies. 

In short, while scaleups may benefit from improved upstream conditions and some incremental harmonisation, their core concerns are only partially met.

3. Venture Capital: A Missed Opportunity?

Perhaps the most critical perspective is that of venture capital investors, whose preferences have historically shaped the legal infrastructure of startup ecosystems.

The EU Inc proposal does respond to several of their demands. It introduces a centralised register with harmonised disclosure standards, enables digital share transfers without notarial involvement (Art 59), and recognises digital corporate certificates and powers of attorney (Arts 30–31). Moreover, it incorporates a range of modern corporate law features, including non-par value shares, flexible pre-emption rights, lighter rules on share buybacks, and an innovative creditor protection regime combining balance-sheet and solvency tests.

Despite these advances, the proposal falls short of delivering the full legal certainty and uniformity that venture capitalists have long sought. One of their key demands has been the creation of a fully autonomous legal regime. In this respect, the proposal is a step in the right direction insofar as it takes the form of a Regulation rather than a Directive, thereby ensuring a higher degree of uniformity through direct applicability across Member States. However, other elements of the proposal prevent the emergence of a truly self-contained regime.

Most notably, proposed Art 4(2) provides that that ‘[m]atters that are not covered by this Regulation or by the articles of association shall be governed by national law […] which apply to relevant national legal forms in the Member State in which the EU Inc has its registered office.’ This gap-filling technique, which relies on domestic law, implies that in practice there will not be a single European company form, but rather national variants—a German-style EU Inc, a French-style EU Inc, and so on. Legal fragmentation therefore persists, and the anticipated reduction in information costs for investors is likely to remain limited. 

Similarly, the absence of fully harmonised insolvency rules and specialised courts undermines predictability in downside scenarios, which are central to investment decisions. The proposal offers only partial solutions in this regard. While it introduces a new fast-track insolvency procedure, this mechanism is confined to ‘innovative’ firms. At the same time, litigation will continue to take place before domestic courts, leaving scope for divergent interpretations across EU Member States. This risk may be mitigated, to some extent, by the possibility of referring contentious questions to the EU Court of Justice as the final arbiter.

More fundamentally, the proposal leaves key determinants of investment decisions largely unaddressed, including tax fragmentation, divergent insolvency regimes, and underdeveloped exit markets. From a VC perspective, these are not secondary concerns but central variables in risk assessment and return expectations.

In this sense, EU Inc represents a compromise: it moves the needle towards standardisation, but stops short of the level of harmonisation that many VC investors would have preferred. Not surprisingly, then, that many investors have shown lukewarm reactions to the proposal.

4. Interdependencies and Strategic Alignment

The interests of startups, scaleups, and venture capital investors are closely intertwined. Startups seek to attract external finance, scaleups depend on continued access to capital markets, and venture capitalists, in turn, rely on a steady pipeline of high-quality, investable firms. Any reform targeting one segment of this ecosystem will therefore inevitably have spillover effects on the others.

From this perspective, the EU Inc proposal adopts a largely bottom-up approach. By reducing incorporation costs, standardising governance structures, and improving the legal infrastructure at the entry stage, it aims to enhance the attractiveness and scalability of early-stage firms. To the extent that these measures make startups more legible, comparable, and investment-ready, they may indeed generate indirect benefits for investors and, ultimately, for the broader innovation ecosystem.

However, this logic cuts both ways. The success of a startup-friendly legal form ultimately depends on its acceptance by VC investors. If EU Inc does not sufficiently align with investor preferences—particularly in terms of legal certainty, uniformity, and enforceability—its uptake may remain limited. In that case, startups may be reluctant to adopt the new form, anticipating frictions in later funding rounds or cross-border transactions. The expected benefits at the incorporation stage would then fail to materialise fully, as the legal form would not function as a credible signalling device vis-à-vis investors.

This highlights a structural tension at the heart of the proposal. While improving the supply side of innovative firms is an important objective, it cannot be pursued in isolation from the demand side of capital. A legal form that is optimised for ease of entry but insufficiently tailored to the needs of investors risks falling short of its broader ambition: to create a truly integrated European market for high-growth firms.

In this sense, the effectiveness of EU Inc will ultimately depend not only on its ability to attract startups, but also on whether it can establish itself as a trusted and widely accepted vehicle within the venture capital community.

5. Conclusion: A Startup-Centric Reform with Conditional Impact

EU Inc is an ambitious and, in many respects, welcome initiative. It addresses longstanding inefficiencies in European company law by lowering entry barriers, standardising core governance features, and embracing digitalisation. For startups, in particular, the proposal offers a coherent and attractive toolkit that may significantly facilitate incorporation, early-stage growth, and cross-border operability.

However, the reform is ultimately startup-centric—and its broader impact remains conditional. As the preceding analysis has shown, the proposal only partially satisfies the preferences of high-growth firms that seek to scale, and of VC investors. Persistent references to national law, limited harmonisation in key areas such as insolvency, and the absence of a fully self-contained legal regime continue to generate legal fragmentation and uncertainty. From an investor perspective, these shortcomings are not peripheral but central, as they affect both risk assessment and transaction costs.

This asymmetry matters. The success of EU Inc will not be determined solely by its uptake among entrepreneurs, but by its acceptance within the wider financing ecosystem. If venture capital investors remain hesitant, startups may be discouraged from adopting the new legal form in the first place, anticipating frictions in future funding rounds or exit scenarios. In that case, the reform risks falling short of its transformative ambitions.

EU Inc therefore represents an important step—but not the final one. To realise its full potential, further efforts will be required to align the legal framework more closely with investor expectations, particularly in relation to legal certainty, insolvency, and institutional infrastructure. Only then can EU Inc evolve from a promising startup vehicle into a truly integrated platform for European innovation and growth.

The now beginning legislative process will therefore need to move beyond facilitating entry and address the deeper structural conditions of European VC markets.

Wolf-Georg Ringe is Professor of Law and Finance and Director of the Institute of Law & Economics at the University of Hamburg and Visiting Professor at the University of Oxford.