Borenius’ Tech Blog: Is European Startup Community’s Proposal on “EU Inc.” Becoming a Reality?

In October 2024, a broad coalition within the European startup community launched an ambitious petition calling for a new European-wide company form: the EU Inc. The initiative attracted prominent participation from leading Finnish founders and advocates. The petition set out a detailed blueprint covering the key features of the proposed legal structure, alongside related tax and employment frameworks, with the explicit goal of making it easier for startups to raise financing, hire talent and implement competitive incentive schemes across Europe. Developed collaboratively across the ecosystem, the proposal attracted significant attention from policymakers and investors alike.

The path towards EU Inc. took a big step forward last week when the European Commission published its detailed proposal for the regulation for creation of the EU Inc.

Europe's growth and productivity have lagged behind the United States for years. The core issue is not a lack of ideas or technology – it is the ability to scale. Europe continues to struggle to translate innovation into commercialisation, and companies seeking growth are hindered by fragmented and inconsistent regulatory frameworks. As a result, many founders turn to US venture capital and scale their businesses in the United States. This trend is also visible in Finland, where several startups have established parent companies in the US in preparation for larger growth financing rounds – see our blog post here.

One reason for this problem is limited access to financing for startups. The European venture capital ecosystem remains fragmented across national borders, making it difficult for startups to raise large growth rounds and compete effectively with US peers. For example, Europe had a number of ride-hailing startups comparable to Uber, yet almost none of them – Bolt being the notable exception – was able to compete with Uber, who had access to large-scale financing from US financial markets.

This is not the first time the EU has tried to create a European level company form. The Societas Europaea (SE) shows that it is not easy to attract market players to adopt a new legal form. Will the second attempt prove more successful?

EU Inc. is essentially an attempt to unify the European financing market for emerging companies. It is an optional EU-wide company form that would sit alongside national company forms and be available across Member States under one harmonised rulebook. Startups could decide to use EU Inc. instead of other existing company forms.

Another objective of EU Inc. is to remove excessive and obsolete formalities still existing in many member states. EU Inc. would be managed 100% through digital online systems without a need for physical presence in any corporate dealings or transactions. In addition, shareholder meetings can be conducted online. For Finnish startups this would not bring many new benefits, as the Finnish company law is flexible and all dealings related to share issuances, share transfers, shareholder resolutions and dealings with the Trade Register can be handled online already now. Where EU Inc. could feel more transformative is in Member States where company lifecycle events still involve heavy formalities. Germany is a good example: the sale and transfer of German GmbH shares require mandatory signing before a notary after the contract is read aloud! From a Finnish perspective, this sounds entirely antiquated and – frankly, insane.

EU Inc. is not corporate law "from nothing." The company is governed by the regulation, and anything not covered falls back to the national law applicable to a Member State‑designated "relevant national legal form" where the EU Inc. is registered. So, it would still matter where the company is registered.

That said, the EU-level core sets out all main principles for the new corporate structure, such as directors' duties (articles/good faith/best interests/reasonable care), introduces a business‑judgment‑rule style liability shield. For corporate law nerds the new regulation, if passed, will open very interesting new debates: which issues are "covered" by the Regulation (so uniform), and which fall into national backfill (so potentially divergent), how the new corporate principles should be interpreted and applied in different scenarios, and how different national practices will impact the interpretation. There will sure be debates on which jurisdiction will be most beneficial for a EU Inc. startup to be registered in.

Perhaps the most interesting aspect of the proposal relates to incentive schemes for employees. According to the proposal, taxable income from employee options of EU Inc. would be deemed not to accrue at grant, vesting, or exercise; it would arise – and be taxed – only when the shares obtained on exercise are disposed of, with the taxable amount harmonised as FMV at disposal minus acquisition price. Other than that, taxation would be in accordance with national law and taxed by national tax authorities.

Employee options must be non-transferable and must include a mandatory waiting period of at least 24 months before exercise. Further, the consideration for new shares on exercise must be paid in cash, fully paid up on issue, but it does not appear to impose an EU-level minimum exercise/strike price, such as a "must be FMV at grant" rule. The 24-month waiting period could cause some complications, but generally the rules on options are rather flexible and this new option regime would be a very positive development.

The uniform employment law framework for EU Inc. companies was not included in the proposal, perhaps because it was concluded that it was simply not realistic. The result may very well be that the proposal on taxation of employee incentives is simply too ambitious and will not pass. It is a brave attempt by the Commission to meddle with member states' taxation.

From a Finnish point of view, EU Inc. is not a dramatic conceptual leap. Finland already allows private limited liability companies to be founded without share capital, the corporate rules are flexible and non-bureaucratic, and incorporation and dealing with public authorities is digital by default. The tax rules for employee incentives would be a significant positive change – although my expectation is that Finland would be moving towards the same direction anyway.

From the Finnish perspective the biggest change and leap forward would be the hoped-for development of market dynamics: development of a European-wide financing ecosystem for scale-ups.

A European-wide venture capital market is not created by law-makers, but by market actors: the companies and investors should embrace the new scheme, and the new scheme should enable European-wide scale-ups and financing. This will require also harmonisation of deal terms and contractual documentation. Shareholders' agreements, subscription agreements, practices in liquidation preferences, anti-dilution, qualified majority decisions, exit processes and so on would need to be harmonised between member states. This will remain a source of friction in cross-border deals. Therefore, drawing on the US experience with NVCA-style templates, we need a process to develop EU-wide templates.

But first the proposal for EU Inc. must be passed and approved without getting spoiled on the way. As always within a European context, there will be opposition and there will be delays – and there will be changes and compromises. The process to navigate this regulation through in practical form will be a test case on whether Europe is serious about regaining competitiveness for scale-ups. I am not holding my breath.

If you have any questions regarding this blog post, don't hesitate to contact our Venture Capital & Growth Equity team.