Europe’s proposed new corporate framework promises to make it easier for startups to operate across borders. But can a common company structure overcome the deeper fragmentation holding back European innovation?
Europe has no shortage of scientific excellence, technological talent, or entrepreneurial ambition. Its universities produce world-class research, its startups develop cutting-edge technologies, and its innovation ecosystem attracts substantial investment. Yet turning this potential into globally competitive companies remains a persistent challenge.
The problem is not simply Europe’s capacity to innovate. It is Europe’s ability to commercialize innovation at scale.
Despite decades of European integration, startups seeking to expand across the continent still confront different legal systems, tax regimes, administrative procedures, and financing environments. The European Single Market, although impressive in principle, remains far from seamless in practice.
The European Commission’s proposed EU Inc. framework, presented in March 2026, aims to change that. But will it finally help Europe overcome its fragmented innovation economy, or become another initiative in an already complex policy landscape?
EU Inc.: A European Company for a European Market
EU Inc., the proposed corporate framework at the center of the broader 28th Regime initiative, would introduce an optional, harmonized legal structure for companies operating within the European Union.
Under the Commission’s proposal, entrepreneurs could establish an EU Inc. company digitally within 48 hours, for no more than €100, without minimum share capital requirements. Simplified digital procedures for company administration, share transfers, financing, and insolvency would reduce some of the barriers that currently complicate cross-border business activity.
The ambition is straightforward: make it easier for entrepreneurs to build European companies without having to navigate an entirely different corporate framework whenever they expand.
For startups operating in smaller European economies, such reforms could be particularly important.
Yet EU Inc. is still a legislative proposal, not an operating framework. And even if adopted, its effectiveness will depend on how far a common corporate structure can overcome the administrative and economic differences that remain between member states.
The central question is whether Europe can create a genuinely integrated environment for business growth without adding yet another layer of regulation.
Fragmentation Beyond Company Law
The challenges facing European startups extend well beyond incorporation procedures.
A company expanding from Estonia into Germany, for example, may encounter different administrative requirements, while entering France introduces additional tax, employment, and reporting obligations. Recruiting internationally requires navigating national immigration and labor rules. Raising growth capital means dealing with venture capital markets that remain unevenly developed across Europe.
For capital-intensive sectors such as energy, clean technology, and advanced manufacturing, the obstacles can be even greater. Different grid requirements, permitting procedures, and environmental regulations complicate expansion into neighboring markets.
These differences translate into real costs, delays, and lost opportunities.
The European Investment Bank’s January 2026 study on startup relocation confirms the consequences. Drawing on research into innovative European businesses, it identifies access to venture capital, large unified markets, regulatory conditions, and experienced commercial talent as important factors driving companies to relocate activities outside the EU.
The Draghi report on European competitiveness estimated that approximately 10% of EU scaleups relocate abroad, around 85% of them to the United States.
In other words, Europe risks developing the technologies of tomorrow while losing the companies that commercialize them.
The Baltic Experience: Innovation Without a Large Home Market
The Baltic states illustrate both the opportunities and the limitations of Europe’s innovation economy.
Entrepreneurs in Estonia, Latvia, and Lithuania operate in relatively small domestic markets. International expansion is often essential rather than optional. This has encouraged outward-looking business models, digital entrepreneurship, and an emphasis on developing products for international customers from an early stage.
Estonia’s pioneering approach to digital government and online business administration demonstrates how reducing administrative complexity can make entrepreneurship easier.
Lithuania’s startup ecosystem similarly places considerable emphasis on internationalization, helping young companies establish connections beyond their domestic market.
But these approaches do not eliminate the difficulties of operating across European borders.
A software company may be able to incorporate regulatory requirements into its products and internal processes. It cannot, however, simply automate away differences in national employment law, tax administration, or financial regulation.
For hardware-intensive startups, the challenges are still more substantial. Expanding a climate-tech business across Europe may involve distinct national energy systems, infrastructure requirements, and regulatory approval processes.
The Baltic experience therefore offers an important lesson, though perhaps not yet a complete playbook: European startups can become highly skilled at navigating fragmentation, but that does not mean fragmentation itself has disappeared.
When Innovation Policy Becomes Part of the Problem
Europe has not been passive in confronting these challenges.
Horizon Europe, the European Innovation Council, European Digital Innovation Hubs, InvestEU, and numerous national and regional initiatives provide valuable support to entrepreneurs, researchers, and innovative businesses.
Each addresses a legitimate need. Collectively, however, they also reveal another dimension of Europe’s fragmentation problem.
Europe is attempting to overcome fragmented markets through a growing collection of programs that do not always form a coherent pathway from research to commercialization and cross-border growth.
For startups, navigating this institutional landscape can require significant time and resources. Funding mechanisms have different eligibility criteria, administrative requirements, strategic priorities, and geographical mandates.
A company may receive support for research, struggle to finance early commercialization, and then confront an entirely different set of institutional requirements when seeking growth capital or entering another European market.
The result is not necessarily a shortage of assistance, but a lack of continuity.
This raises a question that European policymakers should take seriously: Is Europe inadvertently making its innovation problem worse by creating more programs instead of ensuring that its existing markets and institutions work together?
EU Inc. could represent a departure from this approach if it simplifies the underlying conditions for doing business rather than merely adding another support instrument.
But that outcome is far from guaranteed.
A Common Framework Is Not Yet a Common Market
EU Inc. offers the prospect of reducing unnecessary differences in corporate law, but it cannot resolve every obstacle facing Europe’s startups and scaleups.
Tax systems, national employment protections, immigration arrangements, administrative practices, and sector-specific regulations would continue to shape the business environment.
Nor would simpler incorporation automatically solve Europe’s shortage of large-scale growth capital.
European companies in deep-tech, energy, and advanced manufacturing often need substantial investment long before they become profitable. Public grants and early-stage venture funding remain important, but they cannot substitute for deep, integrated capital markets capable of financing international expansion.
This is where EU Inc. must be understood as one component of a broader European competitiveness agenda rather than a comprehensive solution.
There is also a legitimate political dimension to fragmentation.
Differences between European countries do not exist solely because integration has failed. They also reflect national priorities, institutional traditions, and different social and economic models.
A fully uniform regulatory environment may therefore be neither politically realistic nor economically desirable.
The challenge is to distinguish differences that serve legitimate purposes from administrative duplication that unnecessarily obstructs cross-border business.
The goal should not be to eliminate Europe’s diversity, but to prevent that diversity from becoming a structural disadvantage for European enterprises.
From European Innovation to European Scale
The success of EU Inc. should ultimately be measured not by how many businesses adopt its corporate structure, but by whether it makes it meaningfully easier for companies to grow across Europe.
Can entrepreneurs establish and expand businesses without repeatedly navigating incompatible administrative procedures? Can companies attract international talent and investment more easily? Can promising technologies move from research institutions to commercial markets without encountering a succession of institutional obstacles?
And can Europe’s numerous innovation programs become part of a more coherent system that supports companies throughout their development?
These questions are particularly important for smaller economies, where internationalization is essential to business growth.
EU Inc. represents a promising opportunity to address part of Europe’s fragmentation problem. Its greatest contribution, however, would be to establish a different principle for European innovation policy: that integration should simplify the conditions in which businesses operate, rather than require businesses to become experts in navigating complexity.
Europe does not need another impressive initiative that leaves the underlying barriers largely unchanged.
It needs a Single Market that innovative companies can actually experience as a single market.
EU Inc. will be an important test of whether Europe is finally prepared to move from supporting innovation within fragmented markets to creating the conditions for innovation to scale across them.
Resources:
European Commission’s EU Inc. proposal
European Investment Bank’s study on startup relocation
