EU Inc: A Constitutional Paradox At The Heart Of Article 4

The proposal for a regulation on the 28th Regime (the EU Inc Regulation) has prompted abundant commentary since its publication on 18 March 2026. Most of it has focused on substantive features: the 48-hour fully digital incorporation procedure, the removal of mandatory notarial intermediation for share transactions, the deferred taxation of employee stock options, the recognition of Simple Agreement for Future Equity (SAFE) and Keep It Simple Securities (KISS) instruments, and the rules on capital protection. Relatively little has been said about the constitutional foundations of the EU Inc Regulation—and, in particular, about a single provision whose ambiguity radiates outward to every other architectural choice in the Regulation: Article 4.

Article 4(2) EU Inc Regulation reads: ‘Matters that are not covered by this Regulation or by the articles of association shall be governed by national law’. Harmless on its face, the sentence carries the weight of two interlocking constitutional questions. First, is Article 114 of the Treaty on the Functioning of the European Union (TFEU) the appropriate legal basis for an instrument that creates a new corporate form across the Union? Second, what does the choice of Article 114 TFEU entail for the substantive design of the Regulation—in particular for the hierarchy of sources articulated by Article 4 EU Inc Regulation, and for the conditions of access to the new regime? The two questions cannot be answered separately. This contribution offers a reading of how they hold together and suggests three targeted clarifications that would consolidate the Regulation.

1. A narrow constitutional ridge

The constitutional position of the 28th Regime is best understood as a narrow ridge. To one side lies Article 50 TFEU, the lex specialis for coordinating Member States’ company laws, available only through directives. To the other lies Article 352 TFEU, whose predecessors provided the historical basis for European supranational corporate forms—Societas Europaea (SE), Societas Cooperativa Europaea (SCE), European Economic Interest Grouping (EEIG)—available only by unanimity in the Council. Article 114 TFEU is the only basis that permits the combination the Commission seeks: a directly applicable regulation adopted by qualified majority in the Council. But it is available only so long as the act qualifies as ‘approximation’ without falling off the ridge on either side.

If it operates as a self-standing supranational creation displacing national forms, it risks falling into Article 352 TFEU territory. If it operates primarily as a coordination of national company laws on matters those laws already cover, the more natural basis becomes Article 50 TFEU. Either drift would require, at the very least, a change of instrument or of voting rule. Every architectural choice in the EU Inc Regulation—the hierarchy of sources in Article 4, the conditions of access to the new regime, and the carve-outs imposed by Article 114(2) TFEU—must therefore be measured against the narrowness of that ridge.

2. Article 114 TFEU and the shadow of the SCE judgment

The Commission’s Impact Assessment devotes less than a page to the legal basis. It concedes that, for objectives relating to freedom of establishment, Article 50 TFEU could be the appropriate basis, but observes that Article 50 requires a directive. The initiative being ‘multi-pronged’—covering, among other things, investor exit options, third-country investor access, talent retention and Employee Stock Option Plans (ESOPs)—a regulation under Article 114 TFEU is, the Commission asserts, more suitable. The Impact Assessment then concludes that ‘the choice of the legal instrument would depend on the choice of the legal basis for the initiative’. 

The reasoning risks appearing instrument-driven rather than competence-driven: the intended regulation appears to have dictated the choice of legal basis. This is hard to square with settled doctrine. Since Case C-300/89 Titanium Dioxide and Case C-93/00 Beef Labelling, the Court of Justice of the European Union (CJEU) has held that the choice of legal basis must rest on objective factors amenable to judicial review, chief among them the aim and content of the measure. In other words, the legal basis determines the instrument, not the other way around.

More fundamentally, the choice of Article 114 TFEU stands in tension with Case C-436/03 Parliament v Council, in which the Court held that Regulation No 1435/2003 on the Statute for an SCE could not be based on Article 95 of the Treaty Establishing the European Community (EC) (now Article 114 TFEU) and required Article 308 EC (now Article 352 TFEU). The Court reasoned that the SCE Regulation ‘leaves unchanged the different national laws already in existence’ and could not therefore be considered as having as its object the approximation of national laws, but rather ‘the creation of a new form of cooperative society in addition to the national forms’. The same logic underpinned the SE and was already implicit in the EEIG Regulation, adopted on the only basis then available, and it lies behind the political failure of the SPE proposal of 2008, which was based on Article 352 TFEU and could not muster unanimity. More broadly, the history of European supranational corporate forms offers little support for Article 114 TFEU.[1]

The Commission’s gambit is therefore questionable. It seeks to use Article 114 TFEU for an instrument that looks close to the SCE: a new Union corporate form sitting alongside national company laws. Two doctrinal moves are available to defend the choice.

The first rests on a critical distinction with the SCE: the EU Inc does not require a cross-border element of constitution. The SCE Regulation required founders established in at least two Member States. The EU Inc, by contrast, is open to purely domestic situations. By covering those situations, the proposed Regulation does not merely add a parallel supranational form—it displaces national regulatory competence over the corporate matters it occupies for every company that opts in. That displacement is, on this reading, a form of approximation within Article 114 TFEU, even when the act takes the form of a regulation rather than a directive.

The argument has gained in weight since Case C‑106/16 Polbud and Directive 2019/2121 on cross-border conversions, mergers and divisions, which together reduced the significance of the second factor relied on by the Court in the SCE judgment, specifically the right to transfer the registered office without dissolution. The cross-border element of constitution therefore bears much of the weight of the supranational/approximation distinction drawn by the Court in 2006. Recent commentary has sought to revive the SCE qualification by applying the other criteria of C-436/03 Parliament v Council in isolation, but those criteria operated in combination with the cross-border element of Article 2 SCE Regulation, not as independent sufficient conditions. Removing that element, as the EU Inc does, removes the keystone that held them in place; what remains—the digital-only formation regime, the centralised interface of Articles 15 and 34 EU Inc Regulation—describes layers of administrative integration already absorbed by Directives 2017/1132, 2019/1151 and 2019/2121.

The argument is, however, not unassailable. The very feature that defeats the SCE qualification—the application to purely domestic situations—may work against Article 114 TFEU in another direction: it may make the EU Inc look like a general optional Union company form rather than an approximation measure. The safer course is therefore to ensure that the EU Inc Regulation itself clearly identifies the matters it harmonises and the matters it leaves to national law.

The second move is the broad reading of Article 114 developed in Case C-380/03 Tobacco Advertising II and Case C-58/08 Vodafone. The Union legislator may act to prevent the emergence of obstacles likely to arise from the heterogeneous evolution of national rules and may do so through a directly applicable regulation. The fragmentation of national company laws documented in the Impact Assessment—divergent incorporation procedures, capital requirements, digital incorporation regimes and start-up-specific instruments—supplies the empirical predicate for that move. The line of reasoning formed in Case C-491/01 BAT can then absorb the public-interest dimension of competitiveness and innovation policy, provided the predominant aim and content concern the internal market.

Two doctrinal limits must nevertheless be acknowledged. Article 114(2) TFEU excludes fiscal provisions, free movement of persons, and the rights and interests of employees. These exclusions cover several matters politically associated with the 28th Regime. The Commission has largely navigated the constraint by excluding or externalising them: codetermination is referred to the law of the Member State of the registered office; broader insolvency procedures are addressed separately; and the Impact Assessment records that harmonisation of employee participation rules was discarded because it would require a different legal basis.

Article 79 EU Inc Regulation—which provides for the deferred taxation of employee stock options—remains, however, the most vulnerable provision under Article 114(2) TFEU. Deferred taxation of employee stock options is not merely adjacent to tax law; it determines the timing of taxation. If retained in substance, it would be constitutionally safer as part of a parallel tax instrument, most naturally under Article 115 TFEU (requiring unanimity in the Council), rather than as a provision embedded in an Article 114 TFEU regulation. The argument articulated here is therefore one of constitutional sufficiency for the corporate-law core of the EU Inc Regulation, not a defence of every provision attached to it.

3. Article 4 between approximation and supranational creation

The legal basis question is not free-standing. It bears directly on Article 4 EU Inc Regulation—and on whether the provision can be read in the maximalist or minimalist sense.

The maximalist reading places the articles of association on a footing alongside the EU Inc Regulation, with national law applying only residually—to matters covered neither by the Regulation nor by the articles. On that reading, the articles can override mandatory rules of national company law, transforming them into default rules for companies opting into the regime. The Commission’s Explanatory Memorandum and Recital 6 EU Inc Regulation tilt in this direction. The contractual freedom thereby unlocked is, on the merits, the Regulation’s principal source of utility for innovative start-ups and scale-ups.

The minimalist reading, articulated by Schmidt and Teichmann, reasons by argumentum e contrario from those provisions of the EU Inc Regulation that expressly empower the articles to depart from default rules otherwise applicable under national law—most clearly Article 55(2), on classes of shares, which Recital 40 reinforces by stating that ‘Member States should not prohibit or condition such distinctions by national law’. If the autonomy of the articles were intended as a general power to displace national law, those express empowerments would be redundant. The articles could therefore displace national law only where the Regulation expressly authorises them to do so. The omission of the formula familiar from Article 9(1)(b) of the SE Regulation—under which the articles operate only ‘where expressly authorised by this Regulation’—would then be a drafting infelicity, not a deliberate policy choice. 

The choice between the two readings is constitutional, not merely substantive. The maximalist reading makes the EU Inc look less like an approximation of national company laws and more like an autonomous Union company form coexisting with, and progressively displacing, national forms. The minimalist reading, conversely, restores a structural renvoi to national law and consolidates the EU Inc Regulation as an approximation; but pushed too far, it risks converting the Regulation into a measure of coordination of national company laws, which points back toward Article 50 TFEU.

The paradox is therefore sharp: the reading most attractive to start-ups is the one that most weakens the constitutional foundations of the EU Inc Regulation that would deliver it. The reading most defensive of Article 114 TFEU is the one that hollows out its substantive promise. Article 4 EU Inc Regulation does not resolve the conflict; it conceals it. The ambiguity is not benign. It leaves to the Court of Justice a choice that should be made by the legislator, in conditions where ex post correction would be far more costly than legislative clarification today.

4. Access conditions as a structural response

If the maximalist reading is to be retained—and the case for retaining it, on the merits, is strong—the conditions of access must be tightened. Universal access, in conjunction with a maximalist Article 4 EU Inc Regulation, exposes every Member State’s mandatory company law to substitution through opportunistic conversion of mature national companies.[2] The exposure is amplified by the Regulation’s other features: zero minimum capital, incorporation by a single individual, 48-hour fully digital procedure, and removal of mandatory notarial intermediation. On the maximalist reading, carefully drafted articles could neutralise significant parts of the mandatory company-law architecture otherwise applicable to the national reference form. The ‘race-to-the-bottom’objection therefore rejoins the constitutional objection.

Several filters could be envisaged. A cross-border element of constitution, on the model of the SCE Regulation, would be the most stringent—but would also reopen the very door C-436/03 Parliament v Council left open: with such an element, the EU Inc would look more like a supranational form requiring the use of Article 352 TFEU as a legal basis. An ex nihilo filter, excluding conversions altogether, would be constitutionally neutral but under-inclusive: young national companies already in existence, squarely within the cohort the project was built to serve, would be locked out for the contingent reason that they were not constituted ab initio as an EU Inc. Other filters could complement or substitute these: a time-limited use of the EU Inc form (eg a maximum of ten years, after which the company would convert into a national form), a going-public trigger (loss of EU Inc status upon listing or upon a public offering of securities, however defined), or a cap on the number of shareholders (though calibration would need to accommodate employee shareholding common in start-ups), or, in lieu of a temporal criterion, a size-based trigger defined by reference to the thresholds of the Accounting Directive. Each of these approaches has its own trade-offs in terms of investor predictability and effectiveness in containing the substitution risk.

Among these, an age criterion—calibrated, for example, at five years from initial registration and applied only to conversions—captures the concern without those drawbacks. The EU Inc Regulation already imposes a two‑year minimum waiting period before conversion (Article 21(4)), but that floor only deters the conversion of newly registered shells; it does not exclude conversions of mature national companies, which are the principal source of vertical competition. The age criterion proposed here acts as the ceiling that complements the existing floor. It leaves ab initio incorporations universally open; it captures the typical Series A / Series B window in which conversion to a start-up-friendly form genuinely matters; it aligns with the Italian start-up innovativa regime and remains within the limits of the French JEI regime; and it preserves EU Inc status indefinitely once acquired. Crucially, it introduces no cross-border element and therefore does not redirect the Regulation toward Article 352 TFEU. It also answers the concern that a substantive definition of ‘innovative company’ would be administratively unworkable; relative to a size-based threshold, it trades some precision in capturing the start-up and scale-up cohort for the operational simplicity of a single registration date, verifiable against any national business register.

One technical safeguard would suffice to neutralise the obvious circumvention strategy: eligibility should be calculated against the earliest registration date among the entities contributing substance to the conversion, so that a young shell incorporated for the purpose of absorbing a mature national company through merger, division or contribution of assets cannot be used to short‑circuit the criterion. Properly framed, the age filter strengthens the Article 114 TFEU base by aligning the instrument with its stated policy target without importing a cross-border condition.

5. Three clarifications to stay on the ridge

The EU Inc project seeks to address the fragmentation of European corporate law, the absence of a recognisable European corporate brand for start-ups and scale-ups, and the overdue digital and contractual modernisation of company law. Whether the EU Inc Regulation, as drafted, will deliver these benefits is contested; that debate is for others. Our concern lies elsewhere: political support is not a substitute for constitutional robustness. The point is not to constitutionalise the project out of existence, but to align its legal form with its political ambition.

To that end, three targeted clarifications would consolidate the EU Inc Regulation without altering its substantive aims.

First, Article 4 EU Inc Regulation should be redrafted to articulate the relationship between the Regulation, the articles and national law in unambiguous terms. Our preference is for an explicit maximalist option: the articles should prevail over national law on any matter they address, subject to a closed list of non‑derogable matters—but reconstructed around four structuring choices that a wholesale transposition of Article 9 SE Regulation could not deliver. An explicit but light hierarchy should make the EU Inc Regulation the pivot, leave the articles to organise the company’s internal organisation and functioning in the spaces it opens, and confine national law to matters governed by neither—and only as necessary to ensure the legal existence and proper functioning of the company. The Member State designation of a national ‘reference form’ should be framed by functional criteria rather than left to discretion. A short sectoral safeguard (‘without prejudice to national provisions governing specific regulated activities’) would prevent collateral conflicts. The Article 4(2) EU Inc Regulation reference to provisions ‘transposing Union law’ should be removed or clarified, its autonomous normative bearing being doubtful.

Second, access by way of conversion should be limited to companies registered for fewer than five years at the date of conversion, subject to a targeted anti-circumvention rule. EU Inc status should be preserved without time limit thereafter. Ab initio access should remain universal.

Third, the recitals should engage candidly with the constitutional question: the lex specialis status of Article 50 TFEU, the precedent of C-436/03 Parliament v Council, and the textual constraints of Article 114(2) TFEU. The reasons for choosing Article 114 TFEU—and the corresponding scope and limits of the EU Inc Regulation—should be articulated rather than passed over in silence. The legislative process is the right moment to do so. A CJEU judgment is the wrong one.

These three clarifications would not reduce the ambition of the EU Inc project. They would equip it to survive the constitutional and political tests ahead—by ensuring that the EU Inc Regulation stays, deliberately and visibly, on the only politically viable path the Treaties leave open to it.

The European Company Law Experts (ECLE) comprise professors Franca Contratto, Sofie Cools, Paul Davies, Rui Dias, Guido Ferrarini, Klaus J. Hopt, Erik Lidman, Adam Opalski, Eva Micheler, Alain Pietrancosta, Andrés Recalde Castells, Markus Roth, Rolf Skog, Martin Winner, Eddy Wymeersch.

This post is part of the OBLB's series of posts on the EU Inc proposal.

Endnotes

[1] The SCE was proposed by the Commission on Article 95 EC before being adopted on Article 308 EC; the SE travelled a more complex path that also ended on Article 308 EC, despite the 1989 amended proposal (COM(89) 268) having been based on Article 100A EEC. Earlier acts cannot determine the legal basis of a new measure and the acquis has shifted considerably since 2001. The precedent therefore weighs on political plausibility rather than on constitutional necessity.

[2] On the same diagnosis of the universality problem but addressed through specific amendments to Article 60 on access to capital markets rather than through an entry filter, see G. Strampelli, “The Limits of the EU Inc‑for‑All Approach”, Oxford Business Law Blog, 14 May 2026.