The EU Inc.: Innovation, failure and the limits of harmonisation

Although Europe plays a significant role in innovation, many European companies struggle to scale, attract capital and operate across borders. Compared to other major economies, the EU still sees fewer companies grow into global market leaders. According to the European Commission (EC), this is largely due to legal fragmentation, as companies must navigate 27 different legal frameworks. Against this background, the EC has proposed the EU Inc., a European legal form intended to strengthen the EU’s competitiveness.

According to the EC, the EU Inc. could be adopted by around 300,000 companies over the coming decade. At that scale, the ability to exit efficiently is no longer incidental but becomes structurally relevant to the functioning of the legal form. The following sections therefore examine how the newly proposed legal form approaches exit and failure. 

The proposal aims to simplify and accelerate the exit of both solvent and insolvent companies within the EU. The proceedings are designed to be digital, including electronic communication and electronic lodging of creditor claims. The use of standard forms further reduces complexity, while transparency is ensured through publication in a newly established EU-wide business register.

Within this framework, a fast‑track for straightforward cases and a separate procedure for insolvent innovative startups are introduced. 

The fast-track procedure is reserved for solvent EU Inc. companies that have ceased activity and have no assets or liabilities, allowing them to be removed from the business register within approximately three months. The procedure may also apply where limited liabilities remain, subject to creditor consent. Given the limited complexity, no liquidator is required, and the company may be represented by a director or another authorised person. To protect creditors, information is publicly available in the business register and directors remain liable for claims that are not yet (fully) submitted during the procedure.

The proposed procedure displays a resemblance to the Dutch turboliquidation. Although directors remain liable and information is publicly available, it remains to be seen whether these measures sufficiently enable creditors to assess the company’s financial position at the time of liquidation.

The proposal also introduces a simplified proceeding for EU Inc. companies that qualify as innovative startups, a category yet to be further defined. For now, an innovative startup is a small, autonomous company that is established in the last 10 years and is actively engaged in innovation.

For these startups, the proposal explicitly lowers the threshold to exit. The inability to pay debts as they fall due is sufficient to trigger simplified proceedings. The aim is to minimise time and costs, reflecting the limited assets, high failure rates and constrained resources typical for startups. Creditors’ claims are deemed admitted unless objections are raised, shifting the traditional burden of verification. Proceedings are expected to be concluded within six months, involving minimal formalities and without mandatory legal representation. As a rule, however, a liquidator is appointed, subject to justified exceptions by the competent court or authority. Where no assets of economic value remain, the competent authority may close the estate immediately.

The EC presents the EU Inc. proposal as a harmonised framework covering the full company lifecycle, including exit procedures. Insolvency, however, remains an area in which outcomes are substantially shaped by national law. Insolvency regimes differ significantly across Member States in their structure, concepts and institutional practice, including matters such as ranking of claims and director’s liability. As a result, insolvency outcomes may vary per Member States, raising the question whether the EU Inc. may, in practice, give rise to 27 different national variants.

Introducing two EU Inc. insolvency tracks further adds to the complexity. While the distinction between a lightweight and more robust approach is conceptually clear, it introduces practical questions of classification. Whether an EU Inc. qualifies for a fast-track procedure, or for the simplified innovative startup procedure, directly determines the applicable procedure. For an EU Inc. that falls outside both categories, insolvency proceedings seem to remain governed by the national law of the Member State of registration.  

As a result, the coexistence of national insolvency procedures and EU Inc. specific regimes may reduce clarity and create uncertainty. 

Another relevant consideration concerns employee participation. As noted by the FD, the EU Inc. framework makes it easier for companies to compensate employees with equity options rather than cash salaries. While this is attractive from a startup perspective, the FD rightly pointed out that this model becomes complicated in insolvency scenarios. If a company fails, equity granted instead of salary may lose all value, exposing employees directly to the consequences of insolvency. 

This reduced reliance on traditional forms of protection is also reflected in the role assigned to the liquidator. Under Dutch insolvency law, the liquidator traditionally serves as a central safeguard, providing independent oversight and protecting the collective interests of creditors. This role, however, entails investigation and requires time, whereas speed is precisely what the EC prioritises. That said, this approach is not entirely unknown in The Netherlands. Instruments such as the WHOA demonstrate that restructuring proceedings can function effectively without an appointed liquidator. 

The EU Inc. framework reflects the view that the costs of failure should not be excessive, especially for startups and scaleups. By providing faster and more proportionate exit procedures, it seeks to enable founders to close and restart businesses without being trapped in long and expensive processes. Failure is consequently treated as an inherent element of innovation. 

Whether the proposal will ultimately simplify winding-up and insolvency proceedings for cross-border companies, remains to be seen and will depend on the developments during the legislative process. While, the EU Inc. proposal places a promising emphasis on the beginning of the corporate lifecycle, its ultimate success, will depend on how EU Inc. insolvency rules interact with national insolvency regimes in practice. 

The EU Inc. proposal has also been analysed from a corporate and transactional perspective by Kennedy Van der Laan’s Corporate M&A and Commercial & International Trade teams. For this overview, see Proposal for European corporate law: EU Inc.