EU-INC Glossary
Key terms and definitions for the EU-INC framework. 51 terms covering incorporation, governance, investment, equity compensation, and comparisons with existing company forms.
28th Regime
An optional, EU-wide legal framework that operates alongside the existing 27 national company law systems. Rather than harmonizing national laws, the 28th regime creates a new, uniform corporate form (EU-INC) that founders can voluntarily choose. The concept allows founders to "opt in" to a standardized set of rules without requiring member states to change their existing domestic law.
What Is EU-INC?Articles of Association
The constitutional document of an EU-INC company that defines its governance structure, share classes, shareholder rights, and operational rules. Under EU-INC, standardized templates are provided through the EU incorporation portal, reducing the need for expensive legal counsel. The Articles of Association must comply with the EU-INC regulation but can be customized within the framework's boundaries.
Beneficial Ownership
The natural person(s) who ultimately own or control a company, directly or indirectly. EU-INC companies must disclose their beneficial owners through the EU Business Register, in compliance with EU Anti-Money Laundering directives. Transparency of beneficial ownership is a key governance requirement for all EU-INC entities.
BSPCE
Bons de Souscription de Parts de Créateur d'Entreprise, a French equity incentive instrument that gives employees the right to subscribe for shares at a predetermined price. BSPCE is considered a best-in-class national ESOP model and has influenced the design of EU-ESOP. It features favorable tax treatment in France, with gains taxed as capital gains rather than employment income.
EU-ESOP ExplainedCap Table
Short for "capitalization table," a detailed record of a company's equity ownership structure showing all shareholders, their share classes, number of shares held, percentage ownership, and any outstanding options, warrants, or convertible instruments. A clean, well-maintained cap table is essential for fundraising, ESOP management, and corporate governance. Diluto provides cap table management tools designed for EU-INC companies.
Co-determination
A governance model, particularly strong in Germany and the Nordic countries, where employees have the right to participate in company decision-making through representation on the supervisory board. The application of co-determination to EU-INC is one of the most debated aspects of the legislative proposal, balancing startup flexibility with established European labor rights.
FAQ: GovernanceConvertible Note
A short-term debt instrument that converts into equity (shares) upon a specified triggering event, typically a qualified financing round. The note carries an interest rate and has a maturity date. Under EU-INC, convertible notes benefit from standardized conversion mechanics recognized across all member states, eliminating legal uncertainty that currently exists when using convertible instruments across different EU jurisdictions.
Corporate Tax Residence
The jurisdiction where a company is subject to corporate income tax, typically determined by the location of its registered office or place of effective management. For EU-INC, tax residence is established in the member state where the company registers its official seat. This is a critical strategic choice, as corporate tax rates vary significantly across the EU (from 9% in Hungary to over 30% in some jurisdictions).
FAQ: TaxCross-border Merger
The legal process of merging companies from different EU member states into a single entity. The EU Cross-Border Merger Directive (2005/56/EC, amended by 2019/2121) established the framework for such mergers. EU-INC simplifies the need for cross-border mergers by providing a single entity form that operates across all member states natively.
DECA (Digital European Company Act)
The legislative proposal from the European Commission that establishes the EU-INC framework. DECA covers the rules for incorporation, governance, share capital, cross-border operations, and EU-ESOP. It takes the form of an EU Regulation, meaning it has direct legal effect in all member states without requiring national transposition. The first draft is expected in March 2026.
Delaware C-Corp
A corporation incorporated under the Delaware General Corporation Law (DGCL) in the United States. Delaware is the dominant jurisdiction for US venture-backed startups due to its flexible corporate law, specialized Court of Chancery, and extensive legal precedent. EU-INC is designed to offer a European alternative with comparable investor-friendliness, removing the common pressure on European startups to reincorporate in Delaware for fundraising purposes.
EU-INC vs National FormsDigital Identity (eID)
An electronic identification mechanism that allows individuals to prove their identity online. Under the EU eIDAS Regulation, member states issue digital identities that are recognized across the EU. EU-INC uses eID for founder verification during the digital incorporation process, enabling fully remote company formation without physical appearances or notarization.
Dilution
The reduction in an existing shareholder's percentage ownership of a company when new shares are issued, typically during a fundraising round. EU-INC includes anti-dilution provisions and pre-emption rights to protect existing shareholders. Understanding and managing dilution is essential for founders, employees with stock options, and investors.
Due Diligence
The investigation and analysis process conducted by investors before making an investment, covering the company's legal structure, financials, intellectual property, team, and market. EU-INC simplifies due diligence by providing a standardized corporate structure, uniform governance rules, and transparent shareholder registries across all member states.
EMI Scheme
Enterprise Management Incentives, a UK tax-advantaged share option scheme for small and medium-sized enterprises. EMI allows qualifying companies to grant options with favorable capital gains tax treatment for employees. Like the French BSPCE, the EMI scheme has influenced the design of EU-ESOP, which aims to provide comparable tax advantages at a pan-European level.
EU-ESOP ExplainedEU Digital Single Market
The European Commission's strategy to ensure access to online activities for individuals and businesses under conditions of fair competition, consumer and data protection. The EU-INC framework is part of this broader vision, removing corporate law fragmentation as a barrier to cross-border digital business within the EU.
EU-ESOP
The standardized Employee Stock Ownership Plan component of the EU-INC framework. EU-ESOP provides a unified framework for granting stock options to employees across all 27 EU member states, with harmonized tax treatment at the point of exercise or sale. It eliminates the current situation where each member state has its own ESOP rules (or no rules at all), making cross-border equity compensation viable for the first time.
EU-ESOP ExplainedEU-INC
The proposed pan-European corporate form created under the 28th regime. EU-INC (European Incorporation) allows startups to form a single legal entity recognized across all 27 EU member states, with 48-hour digital incorporation, EUR 1 minimum capital, standardized governance, multiple share classes, and built-in EU-ESOP. It operates alongside existing national company forms without replacing them.
What Is EU-INC?European SAFE
A Simple Agreement for Future Equity adapted for the EU-INC framework. Based on the Y Combinator SAFE model, the European SAFE is a standardized convertible instrument denominated in EUR that allows startups to raise capital quickly without setting a valuation. It converts into EU-INC preferred shares upon a qualifying financing round, at a discount or valuation cap. The European Startup Standards Board (ESSB) is developing standardized European SAFE templates.
FAQ: InvestmentFranchise Tax
A tax levied by a jurisdiction for the privilege of being incorporated there, regardless of where the company earns its income. Delaware charges an annual franchise tax to all corporations incorporated in the state. EU-INC does not impose a franchise tax at the EU level, though the member state of registration may charge annual fees or taxes according to its national law.
GmbH
Gesellschaft mit beschränkter Haftung, the most common limited liability company form in Germany, Austria, and Switzerland. A GmbH requires EUR 25,000 minimum capital in Germany (EUR 12,500 paid up at incorporation) and involves notarized incorporation. EU-INC offers a lighter alternative with EUR 1 minimum capital, digital incorporation, and automatic cross-border recognition that the GmbH lacks.
EU-INC vs National FormsGovernance
The system of rules, practices, and processes by which a company is directed and controlled. EU-INC governance includes board structure (one-tier or two-tier), shareholder voting rights, director duties, transparency requirements, and shareholder protections. A key feature of EU-INC is that governance rules are standardized across all member states, unlike current national forms where governance varies by jurisdiction.
HNSW
Hierarchical Navigable Small World, a graph-based algorithm used for approximate nearest neighbor search in high-dimensional vector spaces. In the EU-INC context, HNSW may be used in AI-powered legal research tools and document similarity search to help founders navigate the regulatory framework and find relevant precedents efficiently.
IFRS
International Financial Reporting Standards, a set of accounting standards issued by the IFRS Foundation that provide a common global language for business affairs. EU-INC companies are expected to follow IFRS or a simplified version for smaller companies, ensuring that financial statements are comparable across member states and recognizable to international investors.
Incorporation Portal
The centralized EU-level digital platform through which EU-INC companies are registered. The portal handles identity verification (via eID), document submission, compliance validation, and issuance of the European Business Register number. It is designed to enable 48-hour incorporation entirely online, without notarization or in-person appearances.
Investor-Friendly Governance
Corporate governance structures that protect investor interests and facilitate venture capital investment. For EU-INC, this includes multiple share classes (common and preferred), liquidation preferences, anti-dilution protections, drag-along/tag-along rights, information rights, and board representation for investors. These features are standardized in the EU-INC framework, making European companies as investable as Delaware C-Corps.
Liquidation Preference
A provision that determines the order and amount investors receive when a company is liquidated, sold, or undergoes a liquidity event. Preferred shareholders typically receive their investment back (sometimes with a multiple) before common shareholders receive anything. EU-INC supports standardized liquidation preference structures across all member states, providing legal certainty for investment agreements.
Minimum Capital
The minimum amount of share capital that must be contributed by shareholders when a company is formed. EU-INC requires just EUR 1, a dramatic reduction from EUR 25,000 (German GmbH), EUR 37,000 (French SA), or EUR 120,000 (Societas Europaea). This low threshold removes a significant barrier to startup formation and aligns with modern best practices seen in jurisdictions like the UK (GBP 1) and Estonia.
National Entity
A company incorporated under the domestic law of a specific EU member state, such as a German GmbH, French SAS, Polish sp. z o.o., or Dutch BV. National entities are only automatically recognized in their home jurisdiction and must qualify separately in other member states. EU-INC provides an alternative that is recognized across all 27 member states from day one.
Notarization
The legal process of having a document authenticated by a notary public, typically involving an in-person appearance. Many European jurisdictions require notarization for company formation (Germany, Austria, Poland). EU-INC eliminates the notarization requirement for incorporation, replacing it with digital identity verification through the EU portal, making the process faster and cheaper.
Once-Only Principle
An EU e-government principle stating that citizens and businesses should only have to provide information to public authorities once. Under EU-INC, information submitted during incorporation is shared across relevant registries and authorities automatically, reducing administrative burden and duplicate filings.
Pan-European Entity
A corporate form that is valid and recognized across all EU member states without requiring additional registration, qualification, or subsidiary formation in each country. EU-INC is designed as a pan-European entity, alongside the existing Societas Europaea (SE). The key difference is that EU-INC is accessible to startups from day one, while the SE is designed for large, established companies.
Permanent Establishment
A fixed place of business in a country that creates a tax nexus, potentially requiring the company to pay corporate tax in that jurisdiction. For an EU-INC operating across multiple member states, establishing offices or employing people in different countries may create permanent establishments, triggering tax obligations in those jurisdictions in addition to the country of registered office.
Posted Workers Directive
EU legislation (Directive 96/71/EC, revised by 2018/957) that sets rules for the working conditions of employees temporarily sent to work in another EU member state. Under EU-INC, when employees work across borders, the Posted Workers Directive ensures they receive at least the minimum employment protections of the host country regarding wages, working hours, and health and safety.
Registered Office
The official address of a company as recorded in the commercial register, which determines the company's corporate law jurisdiction, tax residence, and primary court jurisdiction. An EU-INC must have its registered office in one of the 27 EU member states. Unlike the Societas Europaea, cross-border transfer of the registered office is expected to be streamlined under EU-INC.
RSU (Restricted Stock Unit)
A form of equity compensation where shares are granted to an employee but vest over time or upon meeting certain conditions. Unlike stock options, RSUs have inherent value at the time of vesting (not dependent on a strike price). EU-ESOP may include provisions for RSU-like instruments alongside traditional stock options, providing companies with flexibility in designing equity compensation plans.
S24 (Polish Digital Formation)
Poland's online company registration system that enables formation of a sp. z o.o. (limited liability company) within 24 hours through the S24 electronic platform. S24 is often cited as a national best practice that inspired aspects of EU-INC's digital incorporation approach. However, S24 is limited to Polish entities and does not provide cross-border recognition.
SAS (Société par Actions Simplifiée)
A flexible French corporate form popular among startups and venture-backed companies. The SAS allows customizable governance, multiple share classes, and has no minimum capital requirement since 2009. Its flexibility and the BSPCE equity incentive scheme make it the most commonly used vehicle for French startups. EU-INC borrows several design principles from the SAS model but extends them to work across all 27 member states.
EU-INC vs National FormsSingle Market
The EU's internal market that allows free movement of goods, services, capital, and people across all member states. EU-INC extends the single market principle to corporate law by creating a company form that operates freely across all 27 member states without the friction of varying national company laws, effectively completing the single market for startup incorporation.
Societas Europaea (SE)
An existing pan-European public limited company form established by Council Regulation (EC) No 2157/2001. The SE requires EUR 120,000 minimum capital, can only be formed through cross-border mergers or by existing companies, and references national law for many operational aspects, creating 27 "flavors" of SE. EU-INC is designed as a startup-friendly alternative that addresses the SE's limitations.
EU-INC vs National Formssp. z o.o.
Spółka z ograniczoną odpowiedzialnością, the most common limited liability company form in Poland, equivalent to a German GmbH or French SARL. A sp. z o.o. requires PLN 5,000 minimum capital (approximately EUR 1,100) and can be formed online via the S24 system. Diluto's cap table and ESOP management platform currently serves Polish sp. z o.o. companies and will expand to EU-INC.
EU-INC vs National FormsStock Option
A contractual right granted to an employee, advisor, or contractor to purchase a specific number of company shares at a predetermined price (the exercise or strike price) within a specified period. Stock options are a primary form of equity compensation for startups. EU-ESOP standardizes stock option treatment across all EU member states, aiming for favorable tax-at-exercise or tax-at-sale timing.
Tax Residence
The jurisdiction in which a person or entity is subject to tax on their worldwide income. For an EU-INC, tax residence is determined by the location of the registered office. Choosing the right tax residence is a key strategic decision, as corporate tax rates, incentives for R&D, and tax treaty networks vary significantly across EU member states.
Transfer Pricing
The rules and methods for pricing transactions between related entities or between different parts of the same entity in different jurisdictions. For an EU-INC with permanent establishments in multiple member states, transfer pricing rules govern how profits are allocated between jurisdictions, following OECD Guidelines and bilateral tax treaties.
Trilogue
The informal tripartite negotiation process between the European Commission, the European Parliament, and the Council of the European Union to reach agreement on proposed EU legislation. The EU-INC proposal (DECA) will go through trilogue negotiations after the Commission publishes its draft, where key details such as co-determination thresholds, non-EU founder access, and tax treatment of EU-ESOP will be negotiated.
UK Ltd
A private company limited by shares incorporated under the UK Companies Act 2006. Before Brexit, UK Ltd companies benefited from EU single market access. Post-Brexit, UK Ltd companies face additional regulatory requirements when operating in the EU. EU-INC offers EU-based founders the flexibility and English-language legal system of a UK Ltd with the added advantage of automatic recognition across all 27 EU member states.
EU-INC vs National FormsVAT One-Stop Shop (OSS)
An EU system that allows businesses to declare and pay VAT on cross-border B2C sales of goods and services through a single online portal in their home member state, rather than registering for VAT in each country where they sell. EU-INC companies can use the OSS to simplify their VAT compliance when selling across borders, reducing administrative burden.
Vesting Schedule
The timeline over which an employee or other equity recipient earns the right to exercise their stock options or receive their granted shares. A typical startup vesting schedule is four years with a one-year cliff (no vesting in the first year, then monthly or quarterly vesting). EU-ESOP provides a standardized vesting framework that is recognized across all member states, providing certainty for both companies and employees.
Voting Rights
The rights of shareholders to vote on corporate matters such as board elections, share issuances, amendments to the articles, and major transactions. EU-INC supports differentiated voting rights per share class, enabling dual-class structures where founders retain control through super-voting shares. Voting can be conducted electronically through the EU-INC digital platform.