The EU Inc Proposal: Structural Flaws, Neglected Safeguards, and a Trojan Horse for the Single Market?

The European Commission’s proposal COM(2026) 321 final for an ‘EU Inc’—a harmonised limited liability company as a 28th regime of European Company Law—is ambitious but structurally flawed. The draft fails to address the root causes of Europe’s competitiveness gap, risks repeating the mistakes of the Societas Privata Europaea, and dismantles preventive safeguards that protect the single market against money laundering, sanctions evasion, and corporate fraud. 

The True Problem: A Lack of Capital, Not Corporate Forms

Both the Draghi Report (September 2024) and the Letta Report (April 2024) identify a continuously widening investment gap between the EU and its competitors. Private equity investment in the US reached approximately €780 billion in 2024; in Germany, this figure was a mere €14.4 billion. Venture capital per capita stood at €510 in the US versus €90 in Germany. Only 5% of global risk capital flows into European companies, compared to 52% for US firms. This asymmetry is structural and cannot be overcome by company law reforms alone.

At the same time, the empirical evidence supporting the idea of a startup exodus driven by legal form issues is far weaker than the political debate suggests. A recent JRC study finds that the relocation rate of European VC-backed startups is merely 3.3–4.3%, dropping to 0.3–0.5% for comparable non-VC-backed firms. Of those that relocate, 97% do so only partially, maintaining operations in the home country. VC-backed firms are ten times more likely to relocate than comparable peers, suggesting that to investor pressure—rather than legal form deficiencies—that is the true driving factor. This significantly qualifies the narrative, advanced for instance by Enriques, Nigro, and Tröger in their recent OBLB post, that European startups are haemorrhaging to the US due to corporate law barriers. The JRC data tells a different story: the problem is capital supply, not legal form supply.

Article 4: The Constructive Flaw

Even when allowing for the hypothesis of a need for corporate law stimulus from the EU, the draft remains flawed all the same. Its fundamental weakness lies in Article 4, which subjects all matters not covered by the Regulation or the articles of association to the national law of the registration state. This is not a residual clause but the structural principle governing the entire regime. The result, as Enriques, Nigro, and Tröger have rightly observed, is ‘27 different versions of the EU Inc’—replicating the design error of the Societas Privata Europaea. For an institutional investor assessing a Polish-registered EU Inc, the question remains: which national law governs director duties, capital maintenance, or shareholder remedies?

Instead, the draft should aim for normative self-sufficiency in substantive law—a closed catalogue covering capital structure, governance, director duties, minority protection, and restructuring—while leaving procedural matters to the Member States. Substantive uniformity ensures predictability for investors; procedural competition, on the other hand, ensures a high level of quality competition and allows founders to have access to simple, fast and secure proceedings.

The Trojan Horse: Gutted Controls and the Delaware Warning

Equally worrisome is the draft’s dismantling of preventive controls. Article 14 prescribes ‘preventive administrative, judicial or notarial control’ for incorporations, yet at the same time Article 14(2) limits review to formal requirements, mandatory minimum content, name and purpose compliance, authority to act, and contribution conformity. Recital 20 confirms this as exhaustive. There is no requirement for genuine identity verification, capacity checks, or substantive legal advice — all safeguards that public preventive control, as provided by notaries in most continental legal systems, is well-proven to protect.

This problem multiplies at the share transfer stage, with Article 59(5) prohibiting public preventive control, such as notarial requirements, for transfers, and Article 67(6) doing likewise for new issuances. The result is to the detriment of the entire single market: A company whose shares can change hands overnight and without institutional oversight becomes the perfect vehicle for money laundering and the circumvention of sanctions—mobile throughout the internal market, recognised everywhere, yet opaque to authorities seeking to detect illicit flows.

While ‘a Delaware for the EU’ was called for by some during the discussions on a potential 28th regime, it is rather a cautionary precedent that should have us worried. Delaware has served for years as a hub for shell companies used to circumvent sanctions and facilitate money laundering, attractive not for robust safeguards but for weak publicity requirements. An EU Inc without appropriate public preventive control risks creating a European analogue: a Trojan horse endowed with single-market legitimacy but lacking the institutional architecture to prevent misuse. This is especially troubling given that the EU reinforced the importance of preventive public controls just last year in the Second Digitalization Directive (EU 2025/25). Instead of proceeding down this path and continuing to provide European businesses with the important geographical advantage of legal certainty, the new draft negates the acquis and looks to import a flawed system unfit to overcome existing hurdles and that will bring along severe problems.

How to Save Time and Money: Prevention Is Cheaper Than Litigation

The political debate oftentimes frames preventive control as a ‘cost burden’. However, this inverts economic logic. Continental civil law notarial systems provide for public preventive control to catch potential problems, disputes and defects before they even arise; the US system, lacking comparable preventive mechanisms, shifts the cost to ex post litigation. Transfer errors—defective assignments, capacity issues, missing consents—are a frequent source of post-M&A disputes that notarial review prevents at a fraction of the cost. Standard notarial fees for a German GmbH share transfer at nominal value rarely exceed €600. The alternative is not ‘no cost’, but the far higher cost of legal opinions, title insurance, and litigation when things go all wrong.

When introducing the new EU Inc., the EU legislator should make use of the well-proven systems already in place – national public preventive control as a three-tier building block for successful businesses across Europe: full public control at incorporation and structural changes; continued institutional control for share transfers; and harmonised register liability as a backstop for good-faith acquisition. All this can be provided digitally and should be built on national procedural systems, fostering competition among Member States on the quality and speed of their incorporation infrastructure.

Scope and Regulatory Competition

The draft extends to all companies of any size and age — far beyond the startup focus that motivated the initiative. This over-breadth risks paralysing the proposal, as the failed Common European Sales Law (CESL/GEK) experience demonstrates, and threatens the productive regulatory competition among Member States. Thus, the EU Inc should be limited to startups, defined by cumulative criteria: age, size thresholds, and a group clause preventing circumvention by subsidiaries.

The Way Forward: How to Make the EU Inc. a Success

Going forward, priority should lie outside of company law. An amendment to the IORP-II Directive enabling pension funds to allocate to venture capital would address the structural capital deficit that the JRC data confirms as the real relocation driver. Tax incentives modelled on the UK’s EIS/SEIS schemes, standardised financing documentation, and specialised English-language commercial courts are complementary measures.

The 28th regime could be a productive impulse—but only if normatively self-sufficient, accompanied by capital market reform, appropriately scoped, and equipped with preventive controls that safeguard the single market. In its current form, the draft risks becoming a Trojan horse that trades the EU’s well-proven protective standards for a false promise of simplicity.

The author’s complete work is available here. 

Michael Denga is a Professor of Civil Law, Commercial and Corporate Law at Martin-Luther-Universität Halle-Wittenberg.