The Ghost of the SE Haunts EU Inc.

European Horizons HEC Paris · Innovation & Policy · March 2026

By Charlotte Mahnke

The Commission's EU Inc. proposal addresses identifiable deficiencies in European corporate law with genuine analytical care. Whether it avoids the trajectory of its predecessor will depend on reforms that remain, as yet, substantially incomplete.

The European Union's ambition to establish a genuinely supranational corporate form is not new. The Societas Europaea (SE), introduced by Council Regulation (EC) No 2157/2001, was conceived as a pan-European vehicle that would allow limited-liability companies to operate across member states under a single, harmonised legal identity, thereby reducing the transactional costs associated with maintaining parallel national structures. Two decades after its entry into force, the evidence of its failure is difficult to contest. Commissioner Michael McGrath — the architect of its putative successor — acknowledged before the European Parliament that the SE had not worked. The proposal published by the Commission on 18 March 2026 under the designation “EU Inc.” represents a renewed attempt to address the structural problem that the SE left unaddressed.

This article does not contest the underlying diagnosis. Legal fragmentation across 27 national corporate law systems constitutes a genuine and measurable impediment to cross-border business activity, and the Commission's ambition to reduce it is well-founded. The argument advanced here is more specific: that EU Inc., as presently constituted, addresses the most legible dimensions of this problem while leaving its deeper structural causes — tax incoherence, the absence of a specialist judicial infrastructure, and an institutional capital deficit — substantially unresolved. Whether the proposal succeeds where the SE failed will depend not on the elegance of the form itself, but on the coherence of the broader reform ecosystem in which it is embedded.

The SE Post-Mortem: What actually went wrong

Post hoc analyses of the SE's marginal uptake tend to attribute its failure to excessive procedural complexity. This explanation, while not incorrect, is insufficiently precise. Three interrelated structural deficiencies are identifiable, each of which carries direct implications for the evaluation of EU Inc.

The first concerns the co-determination impasse. Divergent national traditions regarding employee board representation produced a legislative deadlock that delayed the SE statute by over a decade. Member states with established co-determination frameworks were unwilling to accept a corporate form that could be used to circumvent existing employee rights; states without such traditions were equally reluctant to accept their potential imposition. The Directive on employee involvement (2001/86/EC), adopted in parallel, represented a negotiated compromise that, in practice, rendered the SE unattractive to the growth-oriented firms it was ostensibly designed to serve. For early-stage and venture-backed companies in particular, the prospective burden of negotiating employee participation arrangements prior to incorporation constituted a prohibitive compliance cost.

The second deficiency was a structural bias toward incumbent firms. The SE statute imposed, as a prerequisite for formation, the existence of a cross-border element — typically requiring a pre-existing subsidiary, merger partner, or subsidiary in another member state — and mandated a minimum subscribed capital of €120,000. These thresholds effectively excluded the category of firm most in need of pan-European legal infrastructure: undercapitalised, early-stage companies with no established cross-border presence. Empirical analysis of SE adopters confirms this pattern: the form was disproportionately used by large, established multinationals — among them Airbus, Allianz, and BASF — primarily as a vehicle for corporate reorganisation. Studies further documented a systematic tendency for registered-office transfers under the SE form to coincide with relocations to lower corporate tax jurisdictions, suggesting that the form functioned as an instrument of regulatory arbitrage rather than economic integration.

The third deficiency was perhaps the most fundamental: the persistence of national legal fragmentation beneath the common label. The SE Regulation left substantive gaps to be filled by the national law of the member state in which the SE had its registered office, including provisions relating to taxation, competition law, and insolvency. A German SE and a Dutch SE were, in material respects, distinct legal entities operating under distinct national regimes. The formal unity of the corporate label concealed a substantive plurality that undermined investor confidence and precluded the development of a uniform body of transactional practice.

“Fewer than 5,000 SE registrations over two decades, the majority of which were inactive shelf entities. The empirical record suggests that the form was never successfully appropriated by the founders and growth-stage firms it was intended to serve.” (Report “Patents, Innovation and Economic Performance, OECD Conference Proceedings).

EU Inc.'s response to each of these failure points is substantive. The proposal imposes no EU-level co-determination obligations, leaving the application of national employee-involvement frameworks to each member state. It requires no minimum share capital and provides for digital registration within 48 hours at a cost not exceeding €100. The Commission has evidently incorporated the lessons of the SE's post-mortem. The more searching question, however, is whether those lessons are sufficient — or whether the SE's failure was determined not only by design errors internal to the form, but by the inadequacy of the surrounding legal and financial ecosystem.

The Delaware Fallacy

The comparative reference to Delaware incorporation has become a near-obligatory feature of European startup policy discourse, and EU Inc. is no exception to this framing. The analogy is instructive only up to a point, but its widespread use obscures as much as it clarifies and risks creating expectations that the reform is structurally incapable of meeting.

The attraction of the Delaware model lies in its combination of standardised legal forms, minimal incorporation costs, and administrative efficiency. These features map relatively directly onto EU Inc.'s design objectives, and the Commission's proposal is, in this regard, appropriately ambitious. What the Delaware analogy systematically underweights, however, is that Delaware's competitive advantage in the market for corporate charters rests on a set of institutional preconditions that cannot be reproduced through legislative fiat at the European level.

The first and most significant of these is a mature specialist legal ecosystem. The Delaware Court of Chancery has developed, over several centuries, a body of corporate jurisprudence that is characterised by depth, consistency, and predictability. Transacting parties, that is investors, founders, and acquirers alike, have access to a settled body of case law that renders contractual outcomes relatively foreseeable, and to a specialist bar with the expertise to advise on it. The EU Inc. framework, by contrast, lacks any analogous judicial infrastructure. The Commission's proposal can encourage member states to establish specialist chambers for commercial disputes, but it cannot compel them to do so, nor can it ensure doctrinal coherence across 27 national systems. The legal certainty premium that Delaware commands — and that investors effectively pay a premium to access — cannot be approximated through soft coordination measures.

The second precondition concerns investor familiarity and transactional standardisation. Delaware's dominance in venture-backed company formation is partly self-reinforcing: because the overwhelming majority of US VC-backed companies are incorporated in Delaware, investors, law firms, and financial intermediaries have standardised their documentation, due diligence processes, and exit mechanics around that legal form. EU Inc. will require years, and arguably decades, of consistent adoption before it generates comparable network effects. In the interim, European growth-stage companies seeking investment from US venture capital funds are likely to continue facing pressure to reincorporate in Delaware as a condition of funding, irrespective of their country of origin or the availability of EU Inc.

The third concerns integration with exit markets. Delaware's corporate form is functionally embedded in the US capital markets ecosystem: Delaware-incorporated companies can access US public markets, be acquired through standardised transactional structures, and benefit from a well-developed M&A advisory industry. EU Inc. does not materially alter the structural fragmentation of European capital markets, the relatively thin liquidity of European public equity markets, or the persistently lower valuations that European technology companies achieve at IPO relative to their US counterparts. The path to liquidity for a EU Inc.-incorporated company in 2027 will not be fundamentally different from that available today.

The Tax Timebomb: HOT[1], BEFIT[2], and the Investor Uncertainty Premium

The most consequential unresolved question surrounding EU Inc. concerns not its corporate law architecture, but its interaction with the tax regimes of member states. This dimension of the proposal merits close analytical attention, both because of the specific difficulties it raises and because of the historical precedent — the SE's capture by tax arbitrageurs — that it risks repeating.

The Commission has stated explicitly that EU Inc. will not function as a vehicle for corporate tax regime selection. Officials have insisted that the new form will not permit companies to cherry-pick lower national tax rates by establishing a notional registered office in a low-tax jurisdiction. This commitment is substantively important. However, the regulatory architecture required to give effect to it is not yet in place, and the timeline for its enactment is uncertain.

The Commission's primary instrument for addressing cross-border tax compliance for SMEs is the Head Office Tax (HOT) directive, which would permit companies expanding through branches in other member states to file a consolidated tax return with their home member state's tax authority, which would then distribute the relevant revenue to host states. In structural terms, HOT and EU Inc. are complementary measures: the former addresses corporate form, the latter tax compliance. As a legislative matter, however, they are on divergent trajectories. The HOT directive has been effectively stalled in the Council of the European Union, where tax directives require unanimous approval. Given the persistent heterogeneity of member state tax policy preferences — and the demonstrated capacity of individual member states to block EU tax harmonisation initiatives — there is no credible basis for confidence that the HOT directive will be enacted within a timeframe consistent with EU Inc.'s own legislative schedule.

“The regulatory architecture required to prevent tax regime arbitrage is not yet in place. For institutional investors engaged in cross-border transactions, the resulting uncertainty constitutes a material risk factor that will be reflected in deal pricing.”(Fani, Kalanoski & Bertrand, 2023).

This temporal and political mismatch has a direct consequence for capital market actors. A company that incorporates under EU Inc. upon the regulation's entry into force will obtain certainty regarding its corporate structure but will operate in an environment of genuine ambiguity regarding its cross-border tax treatment. For institutional investors conducting due diligence on cross-border investments, this ambiguity is not merely an inconvenience — it is a variable that must be priced. Transactions involving EU Inc.-incorporated entities may attract a risk premium, or require additional structuring, until a settled body of tax practice develops.

The historical parallel with the SE is instructive on precisely this point. Empirical research on SE adoption documented a systematic pattern whereby firms that transferred their registered office using the SE mechanism relocated disproportionately to member states with lower corporate tax rates. In the absence of a coherent supranational tax framework, the SE form was progressively colonised by corporate tax planning strategies, rather than being used for its stated purpose of facilitating cross-border operational integration. The risk that EU Inc. replicates this dynamic, absent the simultaneous enactment of HOT or an equivalent instrument, is not hypothetical. It is the expected outcome, given what the SE precedent demonstrates about the incentive structures of sophisticated corporate actors.

The argument advanced here is not that EU Inc. should be delayed pending the resolution of these tax questions. It is that the Commission should be explicit about the incompleteness of the current package, and that the political capital required to advance HOT through the Council should be treated as integral to the success of EU Inc., rather than as a separable legislative objective.

The Capital Gap That EU Inc. Cannot Fix Alone

The preceding sections have addressed deficiencies that are, in a meaningful sense, addressable within the EU Inc. legislative framework or through companion measures. The institutional capital deficit is of a different order: it reflects structural features of European financial markets that corporate law reform alone is not equipped to resolve.

The empirical evidence on the European venture capital gap is well-documented. Annual startup funding across the European ecosystem has stabilised at approximately $44 billion, against US private technology investment of $177 billion in the first nine months of 2025 alone — a disparity that has proved resistant to incremental policy intervention. The Draghi Report, which provided much of the analytical foundation for EU Inc., identified three proximate causes: fragmented capital markets, low institutional risk appetite, and deficiencies in talent retention and mobility. EU Inc. addresses the third of these only tangentially, and the first two not at all.

The pension fund allocation differential is particularly significant from a structural perspective. European pension funds allocate capital to venture and growth equity at approximately one-third the rate of their US counterparts. Estimates produced by leading European VC data providers suggest that, were European pension funds to match US allocation rates, an additional $210 billion could be mobilised for European venture investment over the following decade. This figure is of an entirely different magnitude to any efficiency gain attributable to reduced incorporation costs. Yet the regulatory constraints that govern pension fund investment, which are primarily a function of Solvency II, national pension regulation, and fiduciary duty frameworks are entirely outside the scope of EU Inc.

The growth-stage financing gap that results from this structural deficit has a compounding character. European technology companies that are unable to access adequate growth capital domestically are typically confronted with two alternatives: accepting investment from US venture capital funds, which frequently require Delaware reincorporation as a condition of investment, or accepting a suboptimal growth trajectory that constrains both employment and innovation outcomes. As Atomico has observed in successive State of European Tech reports, the attrition of mature European companies to US incorporation, and the consequent loss of knowledge-intensive employment, ecosystem density, and tax revenue, represents a structural drain on European competitiveness that precedes and exceeds any formation-stage friction that EU Inc. addresses.

Conclusion: A Necessary but Insufficient Reform

EU Inc. represents the most substantively serious attempt since the SE to provide European businesses with a genuinely supranational corporate identity. Its design improvements over the SE are real: the elimination of minimum capital requirements, the removal of co-determination obligations at the EU level, and the introduction of a digital-by-default, low-cost registration process address identifiable barriers that the SE's architecture failed to overcome. For early-stage companies engaged in cross-border expansion within the EU, the proposal offers a material improvement over the status quo.

The analytic framework advanced in this article, however, suggests that EU Inc.'s success cannot be evaluated in isolation from the reforms that surround — or fail to surround — it. The SE's failure was not exclusively a product of poor legislative design; it was also a product of the institutional ecosystem into which it was introduced. EU Inc. faces analogous structural challenges: a tax framework that is incomplete and politically contested; a judicial infrastructure that the Commission can encourage but not mandate; and a capital market environment in which the determinants of growth-stage financing are wholly external to the corporate law domain.

The question that EU Inc. ultimately poses is not whether a simplified corporate form is desirable — it self-evidently is — but whether the Commission and the member states are prepared to treat it as one element of a coherent and sequenced reform programme, rather than as a stand-alone measure. If EU Inc. is to avoid replicating the SE's trajectory — initial enthusiasm followed by marginal adoption and instrumental capture — it must be understood, and resourced, as the corporate law component of a broader structural project whose most consequential elements remain unfinished.

“The history of the SE is not an argument against EU Inc. It is an argument for the intellectual honesty to acknowledge what EU Inc. cannot, on its own terms, achieve — and for the political commitment to advance the complementary reforms on which its success ultimately depends.” (“An EU Corporate Legal Framework by the European Commission”, European Law Institute, 2025).

[1] Head Office Tax

[2] Business in Europe: Framework for Income Taxation