EU Inc and the Missing Link Between Company and Intellectual Property Law

The European Commission’s proposal of 18 March 2026 seeks to create a new harmonized European corporate form, the EU Inc, designed to reduce regulatory fragmentation, enhance competitiveness, and facilitate the growth of innovative startups and scale-ups across the European Union. The proposal has generated considerable academic debate. While scholars differ in their assessment of its merits, most discussions share a common assumption: although originally conceived to support innovative firms, the EU Inc should ultimately be available to companies of any age, size, and sector.

This post challenges that assumption. Research in the economics and sociology of innovation demonstrates that innovative firms—especially startups and scale-ups—constitute a distinct model of productive organization. Their objective is not merely to conduct ordinary business activities but to develop and commercialize new products and processes characterized by high growth potential. These firms typically rely on flexible and collaborative organizational structures rather than rigid hierarchies, and they depend heavily on the entrepreneurial and creative contributions of founders, technical experts, venture capitalists, business angels, and other stakeholders.

From a legal perspective, promoting innovative firms requires a regulatory framework focused on growth and economic development rather than on the traditional corporate law objective of allocative efficiency. Likewise, fairness in innovative enterprises should not be understood solely as the protection of minority shareholders and creditors, but also as the protection of innovative entrepreneurship and creative work. A point that is often overlooked is that such principles are more closely associated with intellectual property law and competition law than with ‘classical’ corporate law. Broadening the perspective in that direction could provide useful insights.

Rigidity of the Proposed Regulation for the Financial Structure of the EU Inc

A major weakness of the EU Inc proposal lies in its inability to provide a clear and uniform framework for venture capital financing instruments. Article 4 broadly refers unregulated matters to national law and to the company’s articles of association. As a consequence, national legal restrictions may continue to interfere with financing arrangements commonly used in innovative firms.

This issue is particularly significant because agreements between founders and investors frequently take the form of shareholder agreements or contracts that fall outside the articles of association. As a result, they remain vulnerable to national mandatory rules that may not be suitable for innovative businesses.

A notable example is the prohibition of societas leonina, a principle traditionally intended to prevent excessively unequal agreements among shareholders. Although this prohibition may be justified in ordinary companies, it can obstruct efficient financing arrangements in innovative startups and scale-ups. Venture capital investments are characterized by extraordinary risks, high uncertainty, and significant information asymmetries. Consequently, contractual provisions that grant investors preferential rights or asymmetrical economic benefits are often economically justified.

An interesting aspect is that a limited derogation from the prohibition of societas leonina for innovative firms would also be consistent with principles already recognized in intellectual property law. Businesses investing in innovation frequently enter into agreements under which creators share in future profits only after the company has recovered its research and development costs. Such asymmetrical arrangements are accepted because they reflect the economic realities of innovation.

Intellectual Property Assignment and Protection of Creative Contributions

A second and even more significant weakness emerges when the proposal is examined through the lens of intellectual property law. In innovative companies, intangible assets such as inventions, software and know-how represent the most important component of corporate value. Consequently, questions regarding the ownership of intellectual property rights and the distribution of the value generated by their exploitation are central to the governance of innovative enterprises.

Intellectual property law, especially in European countries, has long developed mechanisms that pursue two complementary objectives. On the one hand, it facilitates the transfer of exclusive rights from inventors and creators to the firm, thereby enabling commercialization and investment. On the other hand, it protects creators by recognizing their entitlement to fair compensation for their intellectual contributions, even when exploitation rights are transferred to the company.

These principles promote both dynamic efficiency and substantive fairness in the context of innovative firms. Yet the EU Inc proposal largely ignores them. The proposal contains several mandatory corporate law protections designed to ensure fairness among shareholders, including information rights and withdrawal rights in cases of oppressive conduct. However, it fails to address fairness issues that are specific to innovative firms and their reliance on intellectual assets. 

First, the proposal does not provide harmonized rules governing the allocation of intellectual property rights created by shareholders, directors, employees, or consultants. The absence of uniform European standards may generate legal uncertainty and disputes, thereby undermining one of the proposal’s principal objectives.

Second, the proposal does not address bargaining power asymmetries in negotiations concerning the allocation of corporate value. In particular, it does not establish any principle requiring adequate and proportionate remuneration for intellectual contributions. As a result, founders who are also inventors may agree to financing arrangements that effectively transfer most of the value generated by their innovations to investors. Certainly, innovative companies require sufficient contractual freedom to attract venture capital and address information asymmetries and moral hazard problems. Nevertheless, complete regulatory silence creates significant risks. Since the value of start-ups and scale-ups largely derives from their technology and intellectual assets, unregulated negotiations between founders and investors may produce outcomes that conflict with the fairness principles embedded in European intellectual property law. The issue is even more relevant for employees and consultants providing creative contributions to the firm.

The absence of a specific legal framework may also harm venture capital itself. Without rules tailored to innovative firms, courts and regulators may be more inclined to apply traditional mandatory corporate law doctrines, such as the prohibition of societas leonina, thereby creating uncertainty for investors. The proposal fails to address this issue despite its importance.

Conclusions and Reform Proposals

The fundamental flaw of the EU Inc proposal lies in its decision to extend the new corporate form to all companies. The proposal would be more coherent and effective if it were reserved exclusively for innovative enterprises, particularly start-ups and scale-ups.

Limiting the EU Inc to innovative firms would allow the adoption of corporate law rules specifically designed to foster innovation without raising concerns about the circumvention of protections intended for ordinary companies. At the same time, it would make it possible to address the distinctive challenges posed by intellectual property, innovation financing, and the allocation of value among founders, inventors, and investors.

A common objection is that defining an ‘innovative enterprise’ is difficult and would create uncertainty for businesses. However, this concern appears overstated. The European Commission itself has already adopted definitions of innovative enterprises in other legal instruments and even refers to such definitions within the EU Inc proposal in relation to insolvency procedures for innovative startups.

Practical difficulties could be overcome through objective criteria, such as levels of research and development investment, ownership of patent rights, or other indicators that reliably signal innovative activity. Additional proxies could include financing from venture capital funds or other investors specialized in innovation.

For these reasons, a more targeted approach would better achieve the proposal’s stated objectives. By focusing exclusively on innovative startups and scale-ups and by integrating principles derived from intellectual property law into corporate governance, the EU Inc could become a more effective instrument for promoting innovation, growth, and competitiveness within the European Union.

Paolo Cuomo is an Associate Professor of Business Law at the University of Udine.