EU Inc could shake-up Germany’s corporate system

The EU Inc. regime, proposed by the European Commission earlier this year, remains subject to agreement by EU lawmakers. However, if adopted in its current form, it would create a new corporate framework that companies could choose to use across the EU.

Businesses would be able to incorporate under a single European legal regime rather than navigating separately through national company law rules in each member state. The problem of navigating separately through national company law is primarily addressed at the level of incorporation. For other matters, businesses have to rely on national legal systems.

Below, we examine the EU Inc. proposals in more detail and consider what they mean for companies operating in Germany.

A brief summary

The EU Inc. option is likely to be most attractive to innovative, growth-oriented businesses operating across multiple EU member states or seeking to raise international investment.

In particular, software, artificial intelligence (AI), fintech, biotechnology and other deep-tech businesses could benefit from a single European corporate framework designed to support cross-border growth.

The proposal may also appeal to venture capital-backed businesses and founder-led companies seeking flexible financing arrangements, digital incorporation procedures and simplified corporate administration.

By contrast, many traditional small to medium-sized enterprises (SMEs) and domestically focused businesses may see fewer advantages in adopting the new structure. Germany’s limited liability company, the Gesellschaft mit beschränkter Haftung (GmbH), is a well-established and trusted company form familiar to entrepreneurs, investors, banks and public authorities.

The GmbH is the closest equivalent to the proposed EU Inc. Both structures offer separate legal personality and limited liability, while relying on relatively straightforward governance frameworks. Under the GmbH model, management is conducted by one or more managing directors under the oversight of shareholders. Similarly, the proposed EU Inc. would be governed by a board of directors and a general meeting of shareholders.

However, unlike the GmbH, which requires minimum share capital of €25,000, the proposed EU Inc. would not impose any minimum capital requirement.

As a result, uptake in Germany is likely to be moderate overall but potentially significant among start-ups, scale-ups and internationally active businesses that value flexibility and cross-border scalability.

Incorporation and capitalisation

Compared to the incorporation of a GmbH, the proposed EU Inc. would offer a considerably more streamlined and digitalised incorporation process.

Under the proposal, an EU Inc. could be incorporated online through a standardised procedure via a future EU central interface or through national registers, which reflects the guiding principle of ‘digital only’. In addition, an EU Inc. could be incorporated by way of conversion. Companies using standardised constitutional documents would be incorporated within 48 hours at a cost of no more than €100.

This so-called ‘fast-track’ procedure may, however, only constitute an exceptional procedure. Meanwhile companies opting for customised articles would still benefit from a maximum incorporation period of five working days.

Another guiding principle is the principle of ‘once-only’. The once-only principle seeks to reduce administrative burdens by enabling information submitted by companies to one authority to be reused by other public authorities, rather than requiring repeated submissions of the same information.

Germany has modernised its incorporation procedures in recent years, introducing online incorporation mechanisms in 2022. However, the formation of a GmbH still typically requires notarisation of the articles of association and registration with the commercial register, with notarial involvement remaining mandatory throughout the process. Even the option of online notarisation does not result in a significantly faster process.

While the proposed EU Inc. could be incorporated within 48 hours, a typical GmbH incorporation process generally takes between three and six weeks depending on document preparation, bank account opening arrangements, notarial availability and commercial register processing times.

The proposed framework would also remove a number of formalities that remain characteristic of German incorporation procedures. Although bilingual articles are commonly used in international transactions, German commercial registers generally require certified German translations of foreign-language documents. The incorporation process also involves various certification and verification requirements, including identify checks, notarised powers of attorney and, in some cross-border situations, apostilles or legalisation formalities.

Material differences would also arise in relation to capital requirements and capital maintenance rules.

Under German law, a GmbH requires minimum share capital of €25,000, with at least €12,500 being paid up at incorporation. This minimum share capital requirement is primarily justified by the need to protect creditors, which only becomes fully clear when the requirement is considered from a historical perspective. The German Limited Liability Act (Gesetz für die Gesellschaft mit beschränkter Haftung, GmbHG) dates back to 1892. At the time the amount of minimum share capital had a very different relationship to the value of money than it does today. Since the minimum capital requirement has not further evolved in line with ongoing changes in the value of money, inflation has gradually diminished its importance for the protection of creditors.

The proposed framework takes a fundamentally different approach not requiring any minimum capital and instead seeking to protect creditors alternatively. In particular a balance-sheet test and a solvency test shall protect creditors. Therefore, the question may rise as to whether a fixed minimum capital requirement remains an appropriate and effective means of creditor protection, or whether more flexible mechanisms may provide a more meaningful form of protection.