Jian Junbo: Setting "EU Company" to Promote Innovation Awaits Verification

Does the transfer of member states’ sovereignty by AI affect the implementation of EU companies?

On the 18th, the European Commission (EC) officially proposed legislation to create a legal form for pan-European companies, called EU Inc., serving as the vehicle for the “28th system” mentioned in the “European Competitiveness Report.” The goal is to promote innovation among European businesses and enhance Europe’s economic competitiveness.

In recent years, the core demand for the “EU company” proposal has been repeatedly discussed, and it was officially announced today. Under this rule, startups can register a company within 48 hours through an EU-level online interface connecting various national business registration systems, at a cost of no more than 100 euros, with no minimum share capital requirement. Additionally, from submitting company information once, automatically obtaining a tax number, to company liquidation, businesses can operate digitally throughout their entire lifecycle. This mechanism simplifies financing and exit procedures, standardizes investment documents, and streamlines share transfer processes, reducing cross-border financing barriers. It also allows founders to test and refine innovative ideas and restart if needed. Furthermore, in terms of talent incentives, joining the “EU company” enables the introduction of employee stock option plans, with taxation only applied when options are sold for profit. The EU emphasizes that European startups have the right to choose not to become an “EU company,” meaning these measures do not replace existing company laws in the 27 member states but add a “new option” for businesses.

The EC proposed this initiative for several reasons. First, fundamentally, although the EU is nominally a single market (established as a “single market” legally in 1986), in practice, the market remains fragmented. Currently, the 27 member states have 27 different legal systems and over 60 types of company laws. This lack of uniformity results in high costs for businesses, difficulties in handling administrative expenses, adapting to complex compliance processes, and legal uncertainties, which hinder innovation investments. Therefore, a “unified company law” is needed to promote market integration. Second, from the perspective of businesses, Europe’s innovation landscape is relatively lagging. Data shows that although many startups emerge annually in the EU, by early 2025, the EU will have only 110 unicorns, compared to 687 in the US and 162 in China, with many European innovative companies continuing to relocate abroad. In response, the EU has released the “Draghi Report,” the “Lieta Report,” and last January launched the European “Competitiveness Guide,” all aiming to foster innovation and support startup growth. The creation of the “EU company” is intended to boost innovation and startup development. Third, from the practical demand side, the “EU-INC” movement, composed of many European entrepreneurs and investors, has collected tens of thousands of signatures and submitted detailed policy proposals, continuously pressuring EU institutions. This grassroots effort is a key driver behind the EC’s proposal.

The EU’s initiative has the potential to improve Europe’s innovation environment and enhance the competitiveness of European companies. On one hand, it could reduce compliance costs and attract talent. Estimates suggest that over the next decade, this proposal could save up to 440 million euros for around 300,000 companies. It also offers a simple, tax-advantaged way to incentivize talent, strengthening Europe’s ability to compete globally for skilled workers. On the other hand, it could promote cross-border investment. Standardized legal frameworks and administrative procedures lower costs and legal risks for international investors, who can invest without mastering the complex rules of all 27 EU countries. Based on these benefits, once implemented, the law could theoretically boost innovation among European firms and improve the EU’s international market competitiveness.

However, if the EU cannot address certain challenges, these benefits remain theoretical. For example, the “EU company” is an optional legal form, and member states’ laws do not require major revisions. But this legal patchwork could lead to 27 different versions of “EU companies,” meaning European businesses would still face the existing 27 legal environments plus new regulations and oversight. Consequently, this new law might not lead to greater market unification but could result in increased regulation and bureaucratic procedures. Additionally, for member states, complying with the EU rules would require ceding some sovereignty, including regulatory authority over employee benefits, business operations, and financial oversight, as well as potential fiscal losses. This could lead to political struggles during approval and difficulties in domestic enforcement afterward. Perhaps most fundamentally, the law does not fundamentally solve the core problem of insufficient innovation investment in Europe. While it aims to reduce costs, it does not directly address the urgent need for significant growth in innovation funding.

Therefore, although the EC’s proposal touches on the deep issues of reforming EU innovation, whether it can successfully navigate these challenges and create a truly supportive regulatory environment for European innovation depends on future political negotiations and practical implementation. Ultimately, solving Europe’s innovation deficit requires addressing structural issues like overregulation and lack of risk capital. If these are not resolved, the “EU company” will likely remain just another “beautiful soap bubble” blown by the EC, without truly catalyzing European innovation. (Author: Director of the Fudan University China-Europe Relations Research Center, Deputy Secretary-General of the Shanghai European Studies Association)