Why Legal Experts Are Divided on EU Inc

The Promise vs. The Fine Print

The announcement of EU Inc was met with enthusiasm across Europe's startup ecosystem. But as legal experts began examining the detailed proposal, a more nuanced picture emerged. Several prominent scholars and practitioners have identified significant concerns that could undermine the initiative's ambitious goals.

The Article 4 Problem

Perhaps the most fundamental criticism centers on Article 4 of the proposal, which states that matters not covered by the regulation shall be governed by the national law of the member state where the EU Inc has its registered office.

This seemingly innocuous provision has far-reaching implications. As the Oxford Law Blog analysis points out, many critical areas of corporate governance — including creditor protection, minority shareholder rights, and insolvency procedures — are not fully addressed by the EU Inc regulation itself. This means that in practice, an EU Inc registered in France may operate under significantly different rules than one registered in Estonia.

The 28th regime risks becoming not one unified framework, but 27 different versions of the same framework, each colored by the national law that fills its gaps.

27 Versions of One Company

Critics argue that this referral to national law creates exactly the fragmentation that EU Inc was supposed to eliminate. Consider a practical example: if an EU Inc registered in Germany faces a dispute with a creditor, the resolution process will be governed by German insolvency law. The same company registered in the Netherlands would face Dutch rules. For an investor or partner, this means the legal protections they receive depend entirely on where the EU Inc chose to register — undermining the very idea of a single European company form.

Specific Gaps Identified

Legal analysis has highlighted several areas where the regulation is incomplete:

• Creditor protection mechanisms — left largely to national law
• Director liability and fiduciary duties — only partially harmonized
• Shareholder agreements — not fully addressed in the proposal
• Dispute resolution — defaults to national court systems
• Employee representation on boards — varies wildly by member state

The Tax Question

Another major concern is the deliberate exclusion of tax harmonization from the proposal. While EU Inc simplifies the corporate structure, it does not touch the 27 different tax regimes that companies must navigate. Critics argue this is a missed opportunity that limits the practical impact of the reform. A company still needs local tax advice for every market it operates in — the corporate wrapper may be standardized, but the fiscal reality is not.

The Defenders' Response

Proponents of EU Inc acknowledge these limitations but argue that perfection should not be the enemy of progress. They contend that:

• The proposal covers the most critical aspects of company formation and basic governance
• National law gap-filling is a pragmatic compromise necessary to gain political support from all 27 member states
• The framework can be expanded over time as the concept proves itself
• Even imperfect harmonization is vastly better than the current situation of 27 entirely separate systems

Historical Precedent

It's worth noting that this debate echoes previous attempts at European corporate harmonization. The Societas Europaea (SE), introduced in 2004, was similarly criticized for its heavy reliance on national law — and has indeed seen limited adoption, with fewer than 4,000 SEs registered across the EU. Critics fear EU Inc may follow the same path if these gaps are not addressed.

What Needs to Change

Most legal experts agree that the concept behind EU Inc is sound. The disagreement is about execution. Key recommendations include strengthening the core regulation to cover more governance areas directly, creating a specialized EU Inc dispute resolution mechanism, and establishing clearer rules on director duties that don't default to national law.

The legislative process ahead provides an opportunity to address these concerns. Whether lawmakers seize it will determine whether EU Inc becomes the transformative reform its advocates envision or another well-intentioned but underutilized European initiative.

Source: Oxford Law Blog