EU Inc: A Vision for a Unified European Corporate Structure

By Christopher Grew, Patrick Driscoll and James Badge

November.01.2024 | 6 minute read

The concept of a pan-European company has garnered renewed attention, with an online petition launched in mid-October amassing over 10,000 signatures in two weeks. The petition advocates for the creation of EU Inc., a new company vehicle envisioned as Europe's answer to the Delaware C-Corp – one corporate structure that would transcend national boundaries across Europe.

The Case for Change

Former European Central Bank President Mario Draghi has highlighted how the fragmentation of European nations drives high-growth companies overseas, particularly to the U.S., where entrepreneurs find a more unified market and better access to venture capital. This exodus depletes Europe's innovation pipeline and hampers development of its capital markets.

A growing political consensus says European companies would benefit from a simpler, harmonized set of rules for businesses to foster a more unified single market and enhance EU competitiveness. While the single market has achieved considerable progress in goods and services integration, corporate structuring and broader legal frameworks remain firmly anchored in national jurisdictions. That often creates friction in cross-border operations and restricts investment flows.

The startup community has emerged as the driving force behind the EU Inc. movement. Prominent supporters include founders from Stripe, DeepL, Wise and Rohlik, alongside major investors from Atomico, Index Ventures and Sequoia. Their collective voice emphasizes the urgent need for reform, with the petition scheduled for submission to the EU on December 1 to coincide with the incoming EU commissioners' agenda-setting.

The proposal envisions a company vehicle that would apply in EU countries as well as in the UK and Switzerland.

The Vision: Beyond the Societas Europaea

While the European Company (Societas Europaea or SE) has existed since 2004 as a cross-border legal form for European businesses, its adoption has been limited. It is seen as impractical for startups and high-growth companies due to its relative complexity, rigid structure and incorporation cost.

EU Inc. offers a more ambitious, practical and integrated framework built on four key pillars that leverage the full potential of the single market:

Standardized Investment Processes

• Drawing inspiration from the success of model documents from the British Venture Capital Association (BVCA) and National Venture Capital Association (NVCA), EU Inc. would feature template investment documents that work across European borders and align with global investment markets.
• These documents could even improve on the BVCA and NVCA standards by incorporating recent changes in market practices and deal terms, setting a strong precedent.
• In tandem, a fast digital signing process could remove wet ink signature requirements that remain common in several European countries.
• These standardizations could lower barriers to entry, reduce legal friction in financing negotiations, accelerate capital deployment and draw global investment to Europe.

Unified Stock Options Framework

• The proposal includes a standardized approach to equity compensation.
• Though we imagine tax treatment would remain localized for employees, a unified framework for granting stock options could include a recognised stock valuation system (akin to the 409A process in the U.S.) and a generally accepted approach to vesting and exercise terms.
• A user-friendly system could generate an attractive equity culture for Europe's vast talent pool.

Simplification of Cross-Border Operations

• At the heart of the EU Inc. proposal is the concept of a so-called "28^th regime," envisioned as separate from the directives and local laws of the EU's 27 member states. It would apply to incorporation, capital structure and governance.
• By incorporating as an EU Inc., a European startup would opt into a specialized company legal regime recognised throughout Europe without fully integrating into or adhering to local EU laws.
• As a recognised limited liability company, it would be free to contract with customers, suppliers and staff in European jurisdictions. Its ownership and capital-raising would remain governed by the laws of this 28^th regime.
• The success of Delaware in the U.S. offers a valuable precedent. Delaware's corporate laws and Court of Chancery provide a robust legal framework for U.S. startups. Adopting similar principles for EU Inc. could ensure legal certainty and consistent adjudication of corporate disputes.

Digital-First Incorporation

• Following successful models in the UK and Estonia, EU Inc. would offer fully digital, English-language incorporation processes that companies could complete in hours, backed by robust security and compliance measures.
• The system also may be able to advance recent progress in the transparency of public company registers and improve boardroom management of shareholder relations. It could do that, for example, by tracking share ownership through a live settlement system and enhancing “shareholder democracy” through direct voting platforms.
• The goal is to make innovative European companies more scalable and attractive to investors. EU Inc. could become a powerful tool for economic growth and market integration, helping European tech compete for global capital, resources and talent at the same level as companies in the U.S.

Implementation Considerations

The path to developing and implementing EU Inc. will not be without challenges. Key considerations include:

Creating a Corporate Governance Framework

• Legislators will need to create the legal system in which an EU Inc. operates, covering directors’ powers and duties, shareholders’ rights, capital maintenance, insolvency procedures, dispute resolution and an enforcement regime.
• In the context of diverse company law regimes in Europe, the regime would be best established through a regulation rather than a directive, to minimize differences in national implementations.
• Building this framework will undoubtedly be complex, but the end result must be simplified to achieve the buy-in of the VC community.

Standardizing the Investment Model

• Setting model investment terms will require consensus among the European VC community.
• Balancing views on “market approach” between sector, geography and stage-specific investors – each with differing perspectives, norms and practices – may be challenging.
• Successful startups should help develop these terms to adequately represent company interests.

Corporation Tax Treatment

• Policymakers will need to consider whether an EU Inc. can operate within one tax administration and what tax arbitrage strategies may evolve as a result.
• They also will need to develop tax-neutral mechanisms to convert existing businesses easily to the EU Inc. structure. Further tax integration policy may be required.

Divergences in Treatment of Equity

• Stock option schemes with favourable tax treatment have contributed significantly to the growth of the U.S. VC industry.
• In Europe, however, wide variation exists in the effective tax rate on stock options – from around 7% to 70%.
• Similar variation exists in investment schemes at national levels to incentivize growth in certain geographies and sectors.
• While some variation is expected, and national fiscal sovereignty will be preserved, greater differences in the tax treatment of equity likely will lead to increased fragmentation of financial capital and human talent.

Looking Forward

Full implementation may be years away given the effort involved, but EU Inc. represents a crucial initial step toward enhancing Europe's global competitiveness. Success will require careful study of existing models, particularly Delaware's corporate framework, along with sustained dialogue between policymakers, investors and entrepreneurs.

The initiative's timing is particularly significant as Europe seeks to strengthen its position in tech and innovation. The success of EU Inc. would align with and potentially accelerate other EU initiatives, particularly the Capital Markets Union and Digital Single Market strategies.

By removing administrative barriers and creating a more unified market, EU Inc. could help unlock Europe's full economic potential and create a more vibrant ecosystem for startups and scale-ups alike.