EU Inc: A Flexible but Incomplete Blueprint for European Startup Finance

On 18 March 2026, the European Commission published its proposal for a regulation establishing the EU Inc as a new harmonised corporate legal form and framework for company law in the 28th regime (‘Proposal’). This post examines Articles 61 et seq, which govern the financing of the EU Inc and constitute a key element of the proposal. These provisions are designed to ease the process of starting a business and foster growth and scaling up across the EU, reflecting an ambitious regulatory effort. However, the central finding is that, while the Proposal delivers genuine and substantial gains in flexibility, it falls short of the level of harmonisation needed to support the cross-border financing of European start-ups and scale-ups.

The abolition of minimum share capital and no-par value shares.

The EU Inc regime eliminates the requirement for minimum share capital and introduces genuine no-par value shares. While the abolition of the minimum capital requirement does not significantly impact the initial contributions of shareholders, which in many Member States already amounts to a nominal sum (one euro or less), it does break the link between shareholders’ contributions and the capital maintenance regime. This means that statutory reserves, mandatory capital reductions for losses and the organisational function of capital as a benchmark for shareholder rights all become optional. Under Article 61, no par value shares reinforce this flexibility by allowing issue prices to be set freely. This enables down rounds and convertible instruments, such as Simple Agreements for Future Equity (SAFEs) and Keep It Simple Security (KISS) notes, which would otherwise be blocked or difficult to implement under a strict par value regime.

The regime of distributions to shareholders

As the EU Inc bylaws may eliminate the minimum legal capital requirement, the framework for distributions to shareholders, as set out in Article 72, replaces the traditional capital-based model of creditor protection with a dual test derived from US law: a balance sheet test and a solvency test. Directors must certify that the company’s assets will exceed its liabilities following the distribution, and that the company will be able to pay its debts as they fall due over the subsequent twelve-month period. This represents a significant shift from ex ante creditor protection, where preserved capital acts as a structural buffer, to ex post protection centred on director liability. This aligns with existing frameworks in Belgium (2019) and the Netherlands (2012). Article 72 also permits the articles of association to empower the board of directors to declare distributions instead of the general meeting, thus aligning EU Inc with Delaware norms and addressing a governance issue frequently highlighted by European venture investors.

Convertible instruments and the limits of Article 68

Article 68 establishes the regulatory framework for warrants, convertible shares, and similar instruments entitling holders to new shares. Specifically, it addresses the scenario in which the exercise price of a convertible share falls below par value, enabling the shortfall to be covered by distributable funds. As explained in recital 51 of the Proposal, this provision is intended to facilitate SAFE- and KISS-like financing structures. However, the popularity of SAFE and KISS in the United States stems not from corporate law provisions, but mainly from standardised contractual templates developed by Y Combinator and other accelerators that are recognised and accepted uniformly by investors. These templates are combined with well-defined tax and accounting treatment, which shapes how investors structure them in practice.

Although market practitioners have developed a standard template known as EU-FAST to facilitate the Europeanisation of start-up and scale-up financing, SAFE-like financing is not harmonised across Member States, with different instruments being used. For instance, the Italian Tech Alliance promotes a Subscription Agreement for Future Equity (SAFE) structured as an aleatory contract, whereas France uses the BSA-AIR, a warrant governed by the Code de commerce. Germany primarily relies on convertible loans (Wandeldarlehen), which are favoured for tax reasons. While Article 68 can remove certain corporate law constraints on these instruments, it cannot establish the uniform contractual language that investors require. Tax and accounting considerations drive divergences between national SAFE variants. The Proposal leaves these considerations to national discretion, creating a barrier to cross-border investment that Article 68 does not address.

Another complication is that several national SAFE variants are contractual rather than financial instrument structures, meaning they fall entirely outside the Proposal’s scope and remain governed by national civil law under Article 4. Without specialised EU Inc courts, national judges will interpret investor protection clauses according to their own legal traditions, resulting in inconsistent outcomes that will further discourage cross-border investment.

Assessment

In conclusion, while the EU Inc’s financing provides significant flexibility, it falls short of what is needed for cross-border investment in terms of harmonisation.

In terms of flexibility, the Proposal demonstrates that a functioning limited liability company regime does not require the entire legal capital system, including minimum capital, statutory reserves, mandatory capital reductions and par value constraints. The experiences of Belgium and the Netherlands have already demonstrated this at a national level, and the EU Inc makes a more flexible regime available to all Member States. For countries whose company law is still burdened by such rules—Italy being one example—this creates pressure to reform domestic legislation. The Article 4 gap-filling mechanism, which is often criticised for causing fragmentation, could incentivise modernisation for two reasons. Firstly, companies can still opt for one of the national laws as an alternative to the EU Inc regime. Secondly, Member States could choose to adapt their national legislation to align with the Proposal in order to compete to attract EU Inc incorporation, otherwise they would be at a disadvantage compared to Member States like Belgium and the Netherlands, whose legislation already aligns with the EU Inc regime to some extent, making them more attractive locations for incorporation.

The picture on harmonisation is considerably less encouraging, with significant challenges to be addressed. Firstly, Article 68 leaves the tax and accounting treatment of convertible instruments to national law entirely, meaning that investors face different fiscal treatment in each Member State. Secondly, several widely used financing instruments are civil law contracts that fall outside the scope of the proposal. The gap-fill provision in Article 4 means that the contractual framework of EU Inc financing will continue to vary by jurisdiction. Thirdly, the absence of specialised courts will lead to divergent national judicial interpretations of investor protection clauses, creating legal uncertainty and discouraging cross-border investment. Consequently, EU Inc risks offering instruments that, although technically more flexible, remain unappealing to cross-border investors due to issues that cannot be resolved through corporate law reform alone. 

Therefore, while a definitive assessment of EU Inc’s ability to effectively meet the financing needs of the most innovative companies must await implementation of the broader 28th package of measures—which encompasses fiscal, labour, and capital markets reforms—a targeted measure to enhance the proposal’s impact could be considered. As the proposal proceeds through the ordinary legislative procedure under Article 114 of the Treaty on the Functioning of the European Union (TFEU), co-legislators could introduce a model financing contract. One option would be an EU SAFE template, potentially built on the existing EU-FAST framework, adoptable by all Member States. While barriers stemming from unharmonised tax and accounting treatments persist, such a template would encourage consistent start-up financing practices throughout the EU, while preserving the flexibility afforded by Article 68 and accommodating alternative contractual formats that may emerge through evolving market practice.

Giovanni Strampelli is a Professor of Business Law, Bocconi University and an ECGI research member.