Planned EU Inc. Meets with Significant Concerns
The new company form “EU Inc.” proposed by the European Commission continues to attract criticism. Former judge of the Bundesverfassungsgericht (Federal Constitutional Court) Prof. Dr. Udo Di Fabio considers the proposed regulation, in its current form, to be unlawful according to a legal opinion commissioned by the Bundesnotarkammer. In his assessment, the draft is based on an incorrect legal basis for competence and could therefore fail before the Europäischer Gerichtshof (ECJ, Court of Justice of the European Union) or the Bundesverfassungsgericht.
The EU Inc., short for “European Incorporated,” is intended to be introduced as a uniform EU-wide legal form for corporations. The European Commission presented the corresponding proposed regulation on 18 March 2026. The draft bears the number COM(2026) 321 final and is being conducted in the legislative procedure under 2026/0074 (COD).
The Commission’s objective is to create a uniform set of rules intended to facilitate company formations and cross-border expansion within the European Union. The EU Inc. is not intended to replace the 27 national company law systems, but to exist alongside them as a so-called 28th regime.
Commission Draft for a 28th Regime
Formation and Target Group of the New Legal Form
According to the Commission’s concept, the EU Inc. is aimed in particular at start-ups and scale-ups that wish to operate in several Member States. They are to be spared the need to deal with different national company laws in each of the various states in which they operate.
The draft provides for a simple and largely digital formation process. According to the description in the source text, it should be possible to form an EU Inc. without minimum capital; formation within 48 hours is also intended to be possible. The draft also provides for a separate register procedure. Under this procedure, formation could take place via a newly established EU interface under Art. 15 of the proposed regulation or directly through the register authority under Art. 18 of the proposed regulation. The register authority would have to act as a central point of contact.
Criticism of Register Control and Transparency
Even before Di Fabio’s opinion, the draft had been criticised by legal advisory and notarial practitioners. In a guest article for Legal Tribune Online, notary Dr. Martin Thelen warned of a potential “gateway for money laundering and tax evasion.” The background to this criticism is that, according to this assessment, the Commission draft dispenses with preventive control, secure identification of founders and transparency through reliable public registers.
The proposed regulation expressly prohibits Member States from imposing additional formal requirements, including notarisation. The Deutscher Notarverein, through its president Christian Rupp, also views the planned legal form as a step backwards in anti-money laundering prevention and at the same time rejects criticism of costs from the start-up scene. The European Trade Union Institute has also clearly criticised the proposal.
Di Fabio Sees Incorrect Legal Basis for Competence
Dispute over Art. 114 TFEU
At the centre of Prof. Dr. Udo Di Fabio’s legal opinion is the question of whether the European Commission was entitled to base its proposed regulation on Art. 114 of the Treaty on the Functioning of the European Union (TFEU). This provision concerns the approximation of the laws, regulations and administrative provisions of the Member States for the establishment and functioning of the internal market.
In Di Fabio’s assessment, Art. 114 TFEU, on the basis of the settled case law of the Europäischer Gerichtshof, permits majority decisions only for the approximation of existing national law. According to this view, the provision does not authorise the creation of a new legal institution such as the EU Inc. The planned legal form does not merely approximate existing national company laws, but creates an additional regime alongside the 27 national legal systems.
In Di Fabio’s view, the Europäischer Gerichtshof has expressly ruled out reliance on internal market competence for such new legal forms. In his opinion, the proposed regulation by Commission President Ursula von der Leyen to create the EU Inc. is unlawful and will most likely be annulled by the Europäischer Gerichtshof or the Bundesverfassungsgericht.
Art. 352 TFEU as the Correct Basis in Di Fabio’s View
Di Fabio considers Art. 352 TFEU to be the relevant legal basis for competence. This provision may apply where action by the Union appears necessary within the framework of the policies defined in the Treaties, but the Treaties have not provided the necessary specific powers. Under Art. 352 TFEU, unanimity in the Council is generally required; in Germany, the Bundestag and Bundesrat would have to be involved.
According to Di Fabio, the European Union also proceeded on this basis in the case of the European Company (SE) and the other European legal forms. The opinion therefore recommends that the Commission switch the draft to Art. 352 TFEU during the ongoing legislative procedure.
From his perspective, the choice of Art. 114 TFEU is evidently designed to circumvent the participation of the Member States in breach of the constitutional allocation of competences. The Bundesrat and the Legal Service of the Council have also expressed doubts about the selected legal basis. According to the available information, Germany has not yet objected to the legal basis.
Democratic Participation of the Member States
Significance of Unanimity and Parliamentary Involvement
The opinion emphasises that political expediency does not take precedence over the Grundgesetz (German Basic Law) and the European Treaties. In Di Fabio’s assessment, compliance with the existing allocation of competences is mandatory both under the rule of law and from the perspective of the principle of democracy. Anyone who calls this order into question for pragmatic reasons is shaking the foundations of the European Union as a community based on law.
The unanimity requirement and the involvement of national parliaments are intended to ensure that fundamental new legal institutions are based on a broad democratic consensus among the Member States. If the route via Art. 114 TFEU is chosen, the members of the German Bundestag and the Länder in the Bundesrat would, according to Di Fabio’s criticism, have no corresponding right of co-determination in the introduction of the new company form.
In his view, this would render the democratic connection back to the Member States and, indirectly, to the citizens of the European Union ineffective. The Bundesrat was informed of the submission on 27 April 2026 pursuant to § 2 EUZBLG (German Act on Cooperation between the Federation and the Länder in European Union Affairs). At its 1065th session on 8 May 2026, the Bundesrat adopted opinions on the EU Inc. documents pursuant to §§ 3 and 5 EUZBLG.
Status in the European Parliament
In the European Parliament, the Committee on Legal Affairs (JURI) has lead responsibility. The rapporteur is MEP Prof. Dr. René Repasi from the S&D Group, who presented his draft report on 29 June 2026.
A key difference compared with the Commission draft concerns employee co-determination. While the Commission draft refers to the state of registration, the draft report provides that the place of employment should be decisive. Where employees are employed in several Member States, the highest applicable level of protection is to apply.
Possible Consequences of Annulment
Invalidity Declared by the Europäischer Gerichtshof
In Di Fabio’s assessment, the planned regulation could be reviewed and annulled or declared inapplicable by two courts. If the Europäischer Gerichtshof were to declare the regulation void, it would in principle cease to exist retroactively under Art. 264(1) TFEU; the Court may maintain individual effects under Art. 264(2) TFEU, which the opinion regards only as mitigating, not as eliminating, the uncertainty.
According to the view taken in the opinion, this would have significant practical consequences. The EU Inc. is conceived as a company with limited liability. In principle, the company’s assets, not the private assets of the shareholders, are intended to be liable for obligations.
If the regulation were to cease to exist retroactively, this liability protection could also fall away according to the Bundesnotarkammer’s press release on the opinion. EU Inc. companies already formed could then be classified in Germany as an offene Handelsgesellschaft (OHG, general commercial partnership), Gesellschaft bürgerlichen Rechts (GbR, civil-law partnership) or sole proprietorship. In the case of these legal forms, personal and unlimited liability of the shareholders or operators with all their private assets may come into consideration.
Ultra Vires Review by the Bundesverfassungsgericht
In addition to review by the Europäischer Gerichtshof, Di Fabio also considers intervention by the Bundesverfassungsgericht possible. The European Union may act only in those areas in which competences have been conferred on it by the Member States. If it exceeds these limits manifestly and to a significant extent, an act may be “ultra vires,” i.e. outside the powers conferred.
In Di Fabio’s assessment, such a legal act could not claim validity in Germany. Accordingly, the Bundesverfassungsgericht could declare the regulation inapplicable upon a constitutional complaint filed by any person entitled to vote.
In its statement, the Bundesnotarkammer also points to possible liability risks. If the regulation were to fall away as a result of court proceedings, founders, investors and participating employees could be personally liable with all their private assets because the protection of the EU Inc., conceived as similar to a GmbH (German limited liability company), would fall away.
Further Criticisms of the Proposed Regulation
Assessments of Regulatory Objective and Follow-up Costs
As early as 18 June 2026, a German university professor of company law and a co-author from a German university concluded, in an opinion commissioned by the Bundesnotarkammer, that the draft fails to achieve its regulatory objective and requires fundamental revision. They summarised their assessment in 18 theses.
According to this assessment, the EU Inc. would not eliminate the fragmentation of European company law. Rather, it could deepen fragmentation through at least 27 additional national variants.
A short expert report by DIW Econ also concludes that the introduction of the EU Inc. could trigger considerable additional costs for companies, legal transactions and public budgets. According to this report, the draft uses an overly narrow concept of costs.
Insolvency Law Provisions and Criticism from Associations
Chapter 10 of the proposed regulation contains provisions on insolvency winding-up proceedings. Several associations called on the Federal Government on 19 June 2026 to reject this chapter in the Council.
According to the available information, 113 position papers and 879 responses to the call for comments were submitted in the consultation procedure on the proposal. This shows that the draft has attracted considerable attention from business, associations and institutions.
The key points of dispute include in particular:
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the choice of legal basis for competence,
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the structure of formation and registration,
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issues of anti-money laundering prevention and identity verification,
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the scope of liability protection in the event of subsequent judicial annulment,
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employee co-determination,
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insolvency winding-up rules,
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possible follow-up costs for companies, administration and legal transactions.
Decisive Deliberations in the Council
Vote in the Committee of Permanent Representatives
According to the press release of the Bundesnotarkammer, the decisive vote in the Committee of Permanent Representatives (AStV/Coreper) to establish a Council position was scheduled for Friday, 23 October 2026. The European Parliament and the Council are currently deliberating on the draft. According to the DIHK, negotiations on the EU Inc. are expected to be concluded by the end of 2026.
BNotK President Dr. Markus Sikora supports Di Fabio’s call to place the draft on a viable legal basis for competence. He points out that while founders and investors need speed, they also need a reliable company form. On the basis chosen so far, in his assessment the EU Inc. entails a liability risk that is scarcely foreseeable.
Sikora also warns that no investor will invest millions in a company whose existence a court could retroactively eliminate. Anyone wishing to create a European success model must place it on a viable foundation.
Discussion About Watering Down the Commission Proposal
According to further reports, Member States wish to water down the Commission proposal. Founders are opposing this in an open letter. The debate shows that the discussion is not confined solely to the competence issue, but also concerns the practical design of the planned legal form.
Whether the concerns raised will lead to changes in the further legislative procedure remains open. At present, the only certainty is that the draft is being assessed controversially on several central points.
Significance for Companies and Investors
For companies, investors and founders, the discussion surrounding the EU Inc. touches on fundamental questions of European company law, the distribution of competences in the European Union and the reliability of future legal forms. It is particularly significant that the criticism concerns not only the expediency of individual provisions, but the basis of the entire proposed regulation.
If the EU Inc. were introduced and later retroactively eliminated by a court or declared inapplicable in Germany, considerable uncertainties could arise according to Di Fabio’s assessment. This concerns in particular the question of whether the intended liability protection would remain in place and how companies already formed would be classified.
MTR Legal Rechtsanwälte advises companies, investors and high-net-worth private individuals on matters relating to European and national public economic law as well as public-law framework conditions for business activities. In the event of legal questions concerning the distribution of competences in the European Union, legislative projects and their effects on companies, individual legal advice in corporate law from MTR Legal may be advisable.
