EU Inc.: Brussels provides the first real alternative to the German GmbH

Anyone setting up a company in the EU today – whether as a startup, an acquisition vehicle, sales unit or holding platform – pays the price of national fragmentation. In Germany, this means authentication by a notary, share capital of at least €25,000 and a registration process lasting weeks. On 18 March 2026, the European Commission presented the proposed Regulation for the “EU Inc.” (European Commission, Proposal for a regulation of the European Parliament and of the Council on the 28^th regime corporate legal framework, 18 March 2026) (COM(2026) 321 final) – a pan-European company form with no minimum capital that can be set up entirely digitally within 48 hours for €100. It deserves attention in the startup scene but also far beyond and is the most consistent attempt to date to create a standardised corporate entity for the single market that is highly flexible and can be incorporated online.

If the proposal becomes law in its current form, the German limited liability company, or “GmbH”, will face its first serious competitor in its history. The EU Inc. is designed as a standard vehicle for tech-start-ups, project companies, group building blocks and M&A structures – not as an exotic option for start-ups. For international investors who have never been able to come to terms with the formalities of German company law, it will become the obvious alternative. And for the German legislature, it is a wake-up call: if an EU legal form is faster, cheaper and more flexible than the GmbH, there will be pressure to justify outdated requirements in national commercial and company law. Anyone who clings to the status quo now risks losing the competition for company formations.

A. Background: why now and why in this form?

The proposal is a response to the Letta („Much more than a market“, April 2024) and Draghi („The future of European competitiveness“, September 2024), reports, which identified the fragmentation of company law within the single market – with its 27 legal systems and more than 60 company forms – as an “invisible tariff” on cross-border growth. In March 2025, the European Council explicitly called on the Commission to take action (European Council, EUCO 1/25, 20 February 2025, p. 3 f.).

The choice of legal basis is strategically crucial: Article 114 TFEU rather than Article 352 TFEU, with a qualified majority in the Council rather than unanimity. This is the key lesson from the failure of the societas privata europaea (SPE) in 2014 (Jung, in Jung/Krebs/Stiegler, Gesellschaftsrecht in Europa [Company Law in Europe], 2019, section 5, para. 7.), but it carries a risk: Article 114(2) TFEU excludes tax and employment-related provisions. The rules on co-determination and EU rules on employee stock options (ESOs) contained in the proposal will have to stand up to a rigorous review of competences. This makes conflicts highly likely. But it is just these conflicts that show how serious Brussels is: the Commission is prepared to accept a procedural risk in order to push through the proposal that caused the SPE to fail back in 2014.

The Commission expects a political agreement to be reached by the end of 2026 and the first EU Inc. companies to be established from early 2028 (Article 109 states that the statute will apply 12 months after entry into force) (European Commission, press release of 18 March 2026). In the European Parliament, Pascal Canfin (Renew/JURI) has signalled a desire to move forward swiftly ( Canfin, Le 28e régime: un nouveau cadre juridique pour les entreprises innovantes (débat), 19 January 2026). The prospects are better than for any comparable previous initiative. Whether the final product will retain the impact of the current draft is another matter (see D.).

B. Key features: how the EU Inc. works

The EU Inc. is a limited liability company with its own legal personality, established by registration and recognised throughout the EU (Articles 3 and 5).

An overview of its key features:

• Formation in 48 hours for €100. Fast-track registration via the central EU interface (BRIS) using standardised EU templates (Article 16); five working days for customised articles of association (Article 17). Formation is possible from scratch or by converting existing companies – either domestically (section 190 and following of the German Reorganisation Act (Umwandlungsgesetz) or across borders (section 305 and following of the German Reorganisation Act; German Act on Co-Determination by Employees in Cross-Border Mergers (Gesetz über die Mitbestimmung der Arbeitnehmer bei einer grenzüberschreitenden Verschmelzung)). Identification is by eIDAS; physical presence is required only where there is reason to suspect misuse (Articles 10 and 14).

• Flexible financial structures. There is no minimum capital; shares are non-par by default. Creditor protection is not provided by a capital threshold, but through a combined balance sheet and solvency test for every distribution and buyback (Articles 61, 62 and 72). The Regulation also governs convertible instruments, i.e. convertible loans and similar instruments granting the holder the right to convert their claim into company shares (Article 2(26) and Article 68) for the first time at EU level. This creates a uniform legal framework for a core instrument of venture capital financing which up to now has been treated differently in each Member State and continues to raise questions in the German market as well (formal requirements, tax treatment). This flexibility in terms of capital is accompanied by a codified right of withdrawal for minority shareholders in the event of “oppressive” conduct by the majority (Article 52) – an instrument modelled on the English unfair prejudice remedy (see section 994 of the Companies Act 2006), which up to now has only been recognised in German law through judge-made law and whose contours the ECJ has yet to develop.

• Multi-voting shares (dual-class). Article 53 and following allows multi-voting and non-voting shares, a more liberal approach than section 135a of the German Stock Corporation Act (Aktiengesetz) and thus directly compatible with international VC structuring standards and the requirements of start-ups in particular, with their dynamic capital structure.

• Single-tier organisational structure. The sole governing body is a board of directors, with at least one member required to be resident in the EU; the shareholders’ meeting may issue binding instructions (Article 42), which brings the EU Inc. structurally closer to the German GmbH (section 37 of the German Limited Liability Companies Act (GmbH-Gesetz)) than to the German public limited company/stock corporation, or “AG” (section 76 of the German Stock Corporation Act). The business judgment rule is expressly codified (Article 44(3)(a)), comparable in substantive terms to section 93(1), second sentence of the Stock Corporation Act (Decisions of the Federal Court of Justice in Civil Matters (BGHZ) 135, 244 – ARAG/Garmenbeck).

• Fully digital governance. Shareholders’ meetings and board meetings may take place online (Article  47); the register of shareholders is “dematerialised” and digital (Article 53(1)).

• EU-wide employee stock option model (EU ESO). Tax is deferred until the shares acquired through the option are sold (from Article 78), which is functionally comparable to section 19a of the German Income Tax Act (Einkommensteuergesetz) (German Funds Location Act (Fondsstandortgesetz) 2021/German Future Financing Act (Zukunftsfinanzierungsgesetz) 2023), but without its threshold limit for SMEs (section 19a(3) of the German Income Tax Act), which results in fast-growing scale-ups in particular “outgrowing” the more favorable tax regime. The legislature will need to clarify the relationship between the two regimes.

• EU single market passport for the legal form. There is no requirement for local representation or a physical presence. EU Inc. documents are exempt from apostilles and similar certifications (Articles 32); a standardised EU company certificate (Articles 30) replaces national commercial register extracts in cross-border legal transactions.

C. Relevance: practical effects in Germany

The proposal has the potential to make established workarounds unnecessary. The German mini-GmbH, or “UG (haftungsbeschränkt)” – designed in 2008 as the German equivalent of the British Ltd. – will lose its primary raison d’être as soon as an EU Inc. becomes available without a minimum capital requirement and with fewer formalities. The same applies to companies incorporated abroad but operating as a domestic company in Germany (Scheinauslandsgesellschaften): anyone who has set up an Ltd. or B.V. to circumvent German formal requirements now has a genuine alternative under EU law in the form of the EU Inc., without the uncertainties under conflict of laws upheld by the Federal Court of Justice (Bundesgerichtshof) in its established case law for non-EU companies (see Decisions of the Federal Court of Justice in Civil Matters, 178, 192 – Trabrennbahn).

The EU Inc. is likely to be particularly attractive to foreign investors who are put off by the strict formal requirements of German company law. Anyone who has ever had to explain to an Anglo-Saxon investor why the dismissal of a managing director requires a notarised entry in the commercial register (section 39 of the German Limited Liability Companies Act read with section 12 of the German Commercial Code (Handelsgesetzbuch)) knows exactly what we are talking about. The EU Inc. offers fully digital governance without the need for a notary for day-to-day resolutions. The same applies to transfers of shares, although in Germany the due diligence obligations previously performed by notaries (title to property, anti-money laundering, tax reporting) must be redistributed. Specific areas of application: Startups, as well as acquisition vehicles (bidcos), sales companies, representative offices, and holding platforms can be established as EU Inc.s—without the overhead associated with a GmbH. Even branches of foreign companies might have an incentive to convert if this removes the burden of dual registration requirements. One example that is symptomatic of Germany’s approach: although the German Act to Modernise the Law on Partnerships (Gesetz zur Modernisierung des Personengesellschaftsrechts) was intended to largely do away with the corporate domicile theory (Sitztheorie) in 2024 (Bundestag Document 19/27635, pp. 126-127), practitioners continue to discuss whether it still applies to specific IPR scenarios. Courts still rely on case law from before 1998 when interpreting company law provisions, perpetuating issues that the legislature has long since resolved. It is to be hoped that this will also serve as a model for the German legislature.

For existing structures, the EU Inc. becomes relevant as an option for converting a company’s legal form: Article 21 allows a change of legal form both domestically (section 190 and following of the German Reorganisation Act) and across borders (section 305 of the Reorganisation Act). Transfers of shares follow the principle of free transferability (Article 58). While the restriction on transferability in articles of association that is customary for GmbHs (see section 15(5) of the German Limited Liability Companies Act) remains permissible, it must be expressly agreed. Shareholding agreements should include restructuring clauses, drawing on established practice (privileged transfers), particularly from the field of VC-funded start-ups.

D. Challenges

The proposal is ambitious, and therefore encroaches on areas that for decades have been among the most fiercely defended domains of national legislators. The key areas of conflict:

• Co-determination – the main source of conflict. Article 12(1) subjects EU Inc. companies to the co-determination law of the country of domicile. For Germany, this means the One-Third Participation Act (Drittelbeteiligungsgesetz) from 500 employees or the German Co-Determination Act (Mitbestimmungsgesetz) from 2,000 employees. Unlike with the SE (section 1 and following of the German Act on the Participation of Employees in an SE (Gesetz über die Beteiligung der Arbeitnehmer in einer Europäischen Gesellschaft) there is no “before-and-after” protection if the company is formed from scratch; bypassing co-determination requirements by choosing a suitable domicile is structurally inherent in the EU Inc. The trade union ver.di has criticised this as a “step backwards” (ver.di, Gesetzesentwurf EU Inc.: Drohender Rückschritt für Arbeitnehmerrechte [Draft act on the EU Inc.: impending setback for workers’ rights], 19 March 2026); Renegotiations will take place during the “trilogue” negotiations, with the risk of significantly restricting the legal form for companies beyond the start-up phase.
• Notarial preventive control. Article 14 leaves the choice of control mechanism to the Member States, but the 48-hour time limit and €100 cap on costs (Article 16(2)) are in direct conflict with the German Act on the Costs of Non-Contentious Proceedings for Courts and Notaries (Gesetz über Kosten der freiwilligen Gerichtsbarkeit für Gerichte und Notare), which bases costs on the value of the matter. The Federal Chamber of Notaries (Bundesnotarkammer) warns of “Delawareisation” (Federal Chamber of Notaries (Bundesnotarkammer), EU Inc.: Ein 28. Regime der Unsicherheiten [EU Inc.: A 28th regime of uncertainty], 20 April 2026 ) as adjusting the law on costs would be inevitable. While this concern is understandable, the correct response would be to modernise the Act on the Costs of Non-Contentious Proceedings for Courts and Notaries, not to block the legal form. Digital authentication by a notary under section 16a of the German Notarisation Act (Beurkundungsgesetz) shows that the two are compatible and that modernisation within Germany simply needs to be thought through to its logical conclusion.
• Reference to national law (Article 4(2)). Germany has to designate a legal form as a reference (Article 4(3)); the choice between a GmbH and UG determines whether section 30 onwards of the German Limited Liability Companies Act, section 15b of the German Insolvency Code (Insolvenzordnung) and liability for destruction of a company (Federal Court of Justice, New Legal Weekly (BGH NJW) 2007, 2689 – TRIHOTEL) apply to the EU Inc. The temptation will be great to use the national legal form designated as a reference to transfer the complexity of German company law to the EU Inc. through the back door. Of particular relevance to companies operating in the capital markets: if Germany were to choose the GmbH as the reference legal form, the GmbH itself would need to be opened up to the regulated market so that the EU Inc. can realise its full financing potential – a far-reaching issue that the legislator has not yet placed on the agenda.
• Delegated acts as a black box. The contents of the standard EU templates (Article 8) are delegated entirely to future implementing acts. Whether they can accommodate complex share class structures remains to be seen and will determine the practical viability of the fast-track procedure.
• Risk of watering down during trilogue negotiations. The greatest practical risk lies in the procedure itself: four aspects of the proposal simultaneously tread on minefield territory: co-determination, the requirement of notarisation, the equity doctrine and the theory of corporate domicile. Anyone following the discussions surrounding the failed SPE, the SE reforms or the Company Law Package will recognise the pattern: national special interests often lead to compromises during the trilogue process that fall significantly short of the ambitious targets. “There must be no watering down!” warns the German Startup Association (German Startup Association (Startup-Verband), press release of 18 March 2026). It is this dilution that is the greatest procedural risk today.
• Risk of challenge of competences. Relying on Article 114 TFEU is strategically wise, but open to challenges. Article 114(2) excludes tax and employment-related provisions; both Article 12 (co-determination) and Article 78 and following (EU ESO) fall into a grey area. The risk is twofold: actions for annulment by individual Member States under Article 263 TFEU (likely by Germany, Austria) and ultra vires reviews by national constitutional courts, in Germany following the PSPP case law (Decisions of the German Constitutional Court (BVerfGE) 154, 17). However, this risk is manageable: the recitals should be drafted in sufficient detail to enable the ECJ to defend the statute more robustly. The Commission could also transfer the co-determination provisions, modelled on the SE Regulation/SE Directive, to a separate directive under Article 153 TFEU. Finally, the Council could accommodate Member States entitled to bring an action politically through statements to be recorded in the minutes and a stricter review clause.

E. Outlook and summary

The Commission is aiming for the first EU Inc. companies to be established from early 2028 (European Commission, press release of 18 March 2026). The Federation of German Industries (BDI)(Federation of German Industries (BDI), press release of 18 March 2026), Bavarian Industry Association (vbw) (Bavarian Industry Association (vbw), press release dated 20 March 2026 ) and BusinessEurope (BusinessEurope, press release dated 18 March 2026) support the proposal. Although there is no immediate pressure on investors and founders to act, strategic decisions should be made now. We recommend actively monitoring the Council negotiations (COMPET) and the JURI Committee focusing on the key issues of co-determination, the national legal form designated as a reference and template design.

The proposal to introduce the EU Inc. is the most ambitious attempt at harmonising company law since the SE Regulation, and the first with a realistic potential of being implemented. If it becomes law in its current form, the GmbH will face a serious competitor for the first time. The EU Inc. could replace the UG and companies incorporated abroad but operating as a domestic company in Germany and, above all, offer international investors and start-ups – who rely on such structures to scale their business models – a genuine European alternative to the GmbH. The proposal could also trigger new reforms in German commercial and company law. The crucial question is whether the legislative process will preserve this groundwork or grind it down during the trilogue negotiations. We see the proposal as an opportunity rather than a threat. However, public opinion in Germany has yet to take shape.