How to secure the benefits of an EU-wide incorporation regime

An EU Inc. plan for a common company regime should become more targeted and be underpinned by better system infrastructure.

On 18 March, the European Commission proposed a European Union-wide incorporation regime, dubbed ‘EU Inc.’ (European Commission, 2026). Conceived as a central element of the Commission’s competitiveness strategy, EU Inc. seeks to close the EU’s innovation gap with the United States and China by simplifying the rules on how companies are founded and scaled-up within the bloc.

Reactions to EU Inc. have argued that the proposal waters down the original ambition for a so-called 28^th regime, as advocated by, among others, the 2024 Draghi report on competitiveness by former Italian prime minister Mario Draghi (Draghi, 2024). In particular, the Commission proposal would extend the EU incorporation regime to all companies across the single market, rather than innovative startups and scalers (Enriques et al, 2026). The Commission counters that such a stipulation would create an “administrative burden to demonstrate compliance” and “complications when companies no longer meet the definition”, undermining efficiency gains from the regime (European Commission, 2026). Instead, it expects companies to make their own judgements about whether to opt in.

The question then is whether EU Inc. as proposed is sufficiently targeted to induce self-selected participation by the pivotal innovative scalers, and what changes can be made to build on the real strengths of the proposal and address its shortcomings.

Promising elements

The proposal begins well by setting out EU Inc. as a regulation, or law with uniform effect across the EU, rather than a directive, which would require implementation in conformity with minimum standards in each EU country. Ensuring that companies incorporating under EU Inc. can do so in the same way, and are recognised in exactly the same way across EU countries, is fundamental to effectively reducing operating costs across the EU. The proposal also explicitly prohibits EU governments from imposing additional legal barriers, such as requirements for notarial deeds for new shares or other practises that discriminate against the operations of EU Inc. companies.

The proposal has other strong elements. The regime’s main procedural and administrative architecture would involve fully digital incorporation via a central EU interface, the application of a ‘once-only’ principle to digital submissions of company information, a ‘fast-track’ 48-hour company formation procedure, at least if EU Inc. contract templates are used, and reduced application costs of €100. All this will make incorporation easier and faster and will have broad appeal, especially to startups and scalers that lack the time, resources or experience to deal with burdensome bureaucracy.

An EU-wide regime for employee stock options will also make the proposal attractive to innovative companies. The proposal’s requirement that all countries tax equity at sale will allow these firms to attract and retain key people (Scott Morton and Veugelers, 2025).  

The zero minimum capital requirement is also particularly attractive for innovative startups, which may be founded by people of ordinary means and are likely to be worth little at take-off. Other good elements are digital procedures for increasing capital and issuing and transferring of shares. Simple and standardised contracts and templates for investing in these firms will be critical to attracting capital. 

Finally, the insolvency procedures under the regulation would be designed to be attractive to innovative, high-risk projects. The Commission proposes a liquidation and insolvency process for EU Inc. companies in line with the digital ‘once-only’ principle. Interestingly, the proposal sets out a simplified insolvency process reserved for “innovative startups”. This provokes the question that if identifying innovative startups (to be done via delegated acts, or additional rules adopted by the European Commission, during the implementation process) is possible for the purposes of bankruptcy, why can’t such rules be applied for the regime as a whole?

The problems of an open-to-all regime

The decision to open the regime to all companies, rather than targeting innovative scalers specifically, is a serious flaw. 

First, it will hugely complicate negotiations on the finalisation of the legislation. If there is disagreement, as has been the case with past efforts on incorporation regimes (see Box 1 in Scott Morton and Veugelers, 2025), the EU might remain stuck with existing, restrictive rules, or with a text that will be a compromise to suit different stakeholders and that waters down the provisions that matter most for innovative fast-growing companies. In addition, allowing all companies to register means the administration of EU Inc. will need to have enough capacity to avoid being overburdened by off-target applications.

Second, while an open-to-all regime would lower administrative burdens for any business operating across Europe, that was not the original purpose of the idea of a 28^th regime. EU Inc. is intended primarily to promote the creation and expansion of innovative startups by removing bureaucratic and administrative barriers, helping the EU economy benefit from the growth such firms create (European Commission, 2026). Such a proposal is needed because very few European companies are in this category and Europe urgently needs more. Focusing narrowly on innovative startups with the potential for fast growth would thus address a critical growth constraint for the EU, while sidestepping what would otherwise be unsurmountable opposition to harmonisation of corporate rules for all.

EU Inc. as proposed risks generating compromises that will not address the specific barriers faced by innovative companies when they incorporate, scale up and exit. For instance, the template for incorporation may neglect typical issues of importance for innovative companies and their financers, such as multiple share classes, preferred equity, vesting or anti-dilution clauses. As such issues are critical for innovative scalers and their financiers, this may exclude them from the speed and low-fee advantages of a general template. 

For innovative startups, acquisition is a common exit mode, often involving merger review. The status quo of inconsistent and fragmented treatment by national competition policy authorities of potential ‘killer acquisitions’ is a specific barrier for innovative ventures and their financers. This can be addressed by placing the job of review of acquisitions involving EU Inc. firms into the hands of the European Commission, which has the perspective and skills to evaluate them (Scott Morton and Veugelers, 2025).

On the exercising of employee share options, a provision that would exclude those who hold more than 25 percent of the voting rights and impose a 24-month waiting period makes EU Inc. significantly less attractive in terms of attracting and motivating the key people behind innovative startups with fast growth potential.

Targeting innovative scalers is essential

The Commission’s justification for an open-to-all regime – to avoid the difficulties of defining innovative companies and the administrative burdens of demonstrating compliance with this definition and establishing when companies no longer meet it – overstates the problem, for two reasons.

First, the problem that definitions might be wildly misplaced arises only when they are overly specific and applied mechanically without discretion. This risk can be significantly reduced if the definition is based on information that allows some degree of interpretation. For example, the innovative growth potential of startups could be assessed based on their business plans: is the proposal innovative, does it include cross-border growth plans, is the firm searching for risk-capital to scale up? The bar for existing firms to game this system could be set high simply by requiring already-incorporated companies to shut down before they can re-incorporate within the EU Inc. regime.

Second, the burden of identifying candidates that are not innovative, or that would not benefit from cross-border incorporation, can be reduced by targeting the regime’s rules to the distinctive needs of the group it is supposed to benefit. The design itself would then do most of the filtering. This approach would require careful tailoring of rules to ensure they appeal to target firms while being much less attractive to non-targeted firms (see the previous section). Lastly, if some less-innovative firms incorporate under EU Inc., this does not cause any harm, so the review should be constructed to minimise false negatives.

Enhancing the EU single interface

The modest ambition of EU Inc. is most prominent in the minimalist design of the EU single digital interface, the proposal’s chief tool to reduce administrative burdens.  

The EU Inc. digital interface will be built on the existing Business Registers Interconnection System, which connects all member states’ business registers. This system will be extended to allow the digital registration of EU Inc. companies, but will otherwise remain limited to managing registrations and organising the transfer of information between different EU countries. This is clearly an insufficient scope. Another problem is that the expansion of the system depends on member-state, rather than EU-level, investment and thus is likely to be under-resourced. A poor system will constrain the capacity and functionality of the interface and severely limit its agility.

The question of how to design EU Inc. templates well enough to address critical bottlenecks for innovative scalers is delegated entirely to future implementing acts. In Scott Morton and Veugelers (2025), we argued that an EU single digital interface – we call it Hub0 – must be active beyond registration to reduce legal uncertainty and costs not only at incorporation, but also during growth.

To aid growth, an improved EU single interface could provide tools for comparison of tax rules and labour regulations in all EU countries, allowing innovative companies to make better-informed choices about where to locate their activities. The current proposal includes no provision of information, nor any comparison tool.

The Commission proposal is also silent on how the EU single interface could support enforcement of the non-discrimination aspect of the regime. However, tasking the interface with some of these enforcement activities of the EU Inc. regime would be useful. For example, the interface can work as a one-stop-shop for filing of cases by EU Inc. companies facing discriminatory regulations or procurement. It could also serve as a first-instance mediator, before escalating disputes to a dedicated EU-wide fast-track court system, specialised in EU Inc. matters.

The bottom line: a flawed proposal that can be fixed

Overall, while EU Inc. aims address the EU’s shortfall in innovative growth, its for-all design and inconsistent approach to corporate rule harmonisation makes it insufficiently focused to be useful to the firms it is targeting. With political negotiations and idiosyncratic member-state implementation likely to throw up further stumbling blocks, it is essential that the proposal be improved now.

Two main fixes are needed: 

1. The proposal should make the targeting of innovative startups and scalers explicit, introduce a sufficiently flexible screening mechanism to identify them and make the design of the EU Inc. regulation more targeted to them (Scott Morton and Veugelers, 2025).
2. The EU single interface must be improved by committing the necessary capacity at EU and member-state level, to truly centralise the incorporation and growth process, while making the platform the first stop for dispute resolution and hosting information and comparisons that innovative starters and scalers need to locate employees, comply with labour regulations and pay taxes.

Establishing an EU-wide incorporation regime should be an iterative process, with milestones defined and checked and adjustments implemented when needed. Regular independent evaluations should assess whether it is on track to reach its goals of boosting EU growth, innovation and competitiveness. This evaluation should not simply count the number of companies incorporated or the average savings made in reducing their administrative burdens, but must define and measure how many innovative startups are being created as EU Inc. companies, and how many of these are able to successfully scale up across the EU and the gains in competitiveness and catching up in EU innovation and growth they bring.  

Source : Bruegel