Upon close examination, the European Commission’s proposal for an EU Inc contains smart design choices and is excellent in substance and legislative quality.
Its adoption is critical to strengthening and modernizing European corporate law toward a real single market. A common entity for cross-border growth is a necessary (and obviously not sufficient) step toward holding our own in the face of pressing geopolitical challenges. This is an opportunity not to be wasted.
A Conversational Space
As the title suggests, ‘EU Inc law’ has the potential to fill a longstanding void. Its regime can and should become a focal point and conversational space for its stakeholders, including founders and investors, lawyers and scholars, judges and clerks, to policymakers and think tanks.
European universities, and everyone else, can enter into a new kind of conversation, such as this Oxford Business Law Blog series. The dialogue itself may prove even more valuable than any individual policy choice. Finally centered around a common conceptual core and growing understanding of each other’s traditions and solutions, the EU Inc creates the conditions for a marketplace of ideas where the best can shine. A look back at recent history underscores this need.
Fragmented Landscape
In the 20th century, national corporate law systems developed slowly. The early emergence of European private limited companies was affected by crises and wars, to start booming in the last quarter of the century. While the EU was widening, national lawmakers lacked appreciation and incentive to assimilate or transplant concepts from others or overseas, while implementing directives more or less willingly.
In the 21st century to date, this landscape started gently evolving with impulses by the ECJ (starting with Centros, Überseering and Inspire Art) and the SE (2001) and SCE (2003) joining the EEIG (1985) as supranational entities.
However, illusions of cross-border mobility for private limited companies were aggressively met with ‘defensive bureaucracy’ by local legal and tax industries, notably against the allegedly ‘deficient’ English Ltd. In this climate, the SPE (2008–2014), SUP (2014–2018), FE (2012–2015) and ECBA (2023–2026) failed to achieve unanimity.
These and other competitive tensions led to numerous new, modified or hybrid national legal forms, with more fragmentation and complexity. While ‘certain aspects’ of company law were sorted in Directive (EU) 2017/1132 alongside recent digitalization and mobility directives, its Annexes evidence over 60 national entities in the EU.
These entities are full of national and historical diversity, not just among but even within member states. They were not purpose-built to service markets, businesses and the four European freedoms, and they grew outside an efficient ‘marketplace of ideas’. The EU Inc can solve at least this piece of the puzzle.
Regulatory Capture and Paywalls
It is no secret that European corporate law reform has been frustrated by entrenched special interests, such as labor unions/chambers eager to impose employee participation on supervisory boards while uncomfortable with employees as shareholders, or notary public chambers with their vested financial interests in formal requirements.
Thus far, thus obvious. Less obvious perhaps is the isolation of discourse behind the paywalls of national legal publishers.
Also, some scholars or experts are less enthusiastic about changing complex national rules—for instance, after investing decades of work in leading treatises on those rules.
As an unfortunate consequence, legal discourse has largely remained contained in national silos, here and there opening up to jurisprudence from neighboring jurisdictions. Building the European corporate legal acquis has been delayed in transmission.
Open Source and AI
The Proposal thus comes at a perfect time, where open-source scholarship is rapidly gaining ground, while artificial intelligence is vastly accelerating the translation, summary and comparison of writings.
The shared vocabulary and falling language barriers will not eliminate the need for legal expertise, argument, and judgment, but rather allow ideas to travel faster than before, strengthening substance while reducing idiosyncrasies and special interests.
Subsidiarity by design
One of the Proposal’s positive features is the ‘subsidiarity clause’ of Art 4 (2) and (3), which refers matters not covered by regulation or the articles to the rules that apply to the corresponding national form that each Member State designates. For Austria, this is the ‘Flexible Company’ or ‘FlexCo’, an improved limited liability company launched in 2024.
This design choice is healthy Realpolitik: in sacrificing the advantages of a clean supranational regime and uniform institutions (court, register), the European Commission achieves a number of goals. One, it strengthens Art 114 Treaty on the Functioning of the European Union as the legislative basis. Two, it more closely replicates the success story of the Delaware Inc and LLC, which as state implementations of model acts are similar to those in other US states, but not uniform federal entities. Third, this generates beneficial competitive energy.
Competitive EU Inc
The Proposal aims for the best of all worlds: sufficient uniformity under the regulation, freedom of contract under the articles, and national variance by reference to the most suitable entity in each jurisdiction.
It pits all 27 EU Incs (even 30 including Iceland, Norway and Liechtenstein) to compete against each other, but also against 60+ national entities. It further incentivizes national registers to compete against each other, and importantly, the quality of decisions by national courts as well. After all, a large part of the Delaware success story is the speed, volume and quality of its judicial decisions as well as the business-friendly Secretary of State’s Division of Corporations.
Lessons Learned in Austria
After years of corporate law reform in Austria that led to the creation of a third corporate entity, the FlexCo, here are a few lessons we learned.
One, the reform was never limited to start-ups/scale-ups but about using their voice as a means toward improving antiquated, unflexible and bureaucratic corporate law rules for all.
Two, special interests need to be called out without fear. From our ministerial working group (40+ experts) to the final parliament vote, the chamber of notary publics tried to quash the reform. Their lobbying backfired and broad coalitions of stakeholders spoke up against empty bureaucracy. The Proposal’s ‘digital only’, in particular with respect to share transfers, reflects this.
Similarly, chamber of labor representatives opposed employee shares, worried they may lose employee-shareholders as constituents to their agenda.
Three, we are observing the dividends of reform compound: with some 1,800 FlexCos formed already, each day we learn of novel and interesting applications of the new legal concepts, from holding own (treasury) shares, over non-voting shares, authorized and conditional share capital, to share redemptions. Nobody anticipated the many use cases and combinations upfront. Daily, the market is unlocking new applications.
Fourth and finally, simple and bright line rules favor market acceptance, as opposed to long and complicated language full of exceptions and counter-exceptions. The Proposal shares a number of qualities with EMCA: simple default rules, less forcing law, and favor libertatis, room for the freedom of contract and private autonomy in the articles.
Overall, there is much to be gained from the Proposal. It deserves our support.
Keyvan Rastegar is a lawyer in Austria and holds a doctorate from the University of Vienna and an LLM from Harvard.
This post is part of the OBLB's series of posts on the EU Inc proposal.
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