European Union member states have agreed to dilute plans for a new legal framework intended to enable companies to operate more seamlessly across the 27-country bloc, officials said following lengthy negotiations that concluded this week in Brussels.

The initiative, known as “EU Inc,” was originally proposed by the European Commission earlier this year as a voluntary company form designed to address regulatory fragmentation that critics say hampers investment and growth. Under the original proposal, businesses registered as EU Inc could operate across the entire EU without needing to establish separate subsidiaries in individual member states. Incorporation could be completed digitally within 48 hours, and no minimum starting capital would be required.

However, key elements of the initial proposal were removed after member states expressed concerns over complexity and national sovereignty. Notably, plans to create a single EU-wide company register—a centralized database where investors could access company accounts and director identities—were abandoned. Officials cited implementation difficulties as the primary reason for this rollback. Additionally, the proposal’s simplified insolvency regime tailored for start-ups was discarded.

Michael McGrath, the European Commissioner overseeing the legislation, emphasized the importance of the insolvency provisions, noting that the high cost of business failure impedes entrepreneurial activity. He indicated that including streamlined insolvency rules would have strengthened the overall initiative. The International Monetary Fund has estimated that harmonizing insolvency laws across the EU could contribute significantly to economic growth, potentially increasing the bloc’s GDP by 3.3% over the next decade, with 1.8% attributed to insolvency law reforms alone.

Taxation provisions also faced tightening constraints, with member states agreeing to limit the deferral of taxation on employee share options—the feature most sought after by start-ups to attract talent—to companies with fewer than €150 million in turnover and no more than 750 employees. Many early-stage companies exceed these thresholds quickly, and the limitation underscores the challenge of aligning national tax sovereignty with broader EU market ambitions.

The agreement reached by member states now requires negotiation with the European Parliament before it can be enacted into law. However, some lawmakers have expressed reservations, particularly regarding concerns that companies might exploit the new legal form to sidestep national co-determination regulations, which grant workers influence over corporate governance in certain countries. Trade unions have remained wary of any measure perceived to weaken labor protections or employee representation rights.

Despite the setbacks, McGrath remained optimistic about the legislation’s potential to enhance the EU’s competitiveness. “Europe needs to think not just at a European scale but at a global scale,” he said, adding that EU Inc could be instrumental in this effort.

Enrico Letta, former Italian prime minister and author of a report on strengthening the EU’s internal market, described the proposals as “a game-changer,” warning that member states should resist lowering standards in pursuit of consensus.

The final structure of EU Inc remains subject to ongoing discussions, with stakeholders across the political spectrum weighing the balance between deepening integration and preserving national prerogatives.