For decades, European policymakers have aspired to create a single capital market capable of financing innovation on a scale comparable to that of the United States. Yet, as reiterated by the recent Letta and Draghi Reports, that ambition remains unfulfilled. Fragmentation persists – not just in capital markets, but in the legal and institutional frameworks that underpin them. The result is a structural disadvantage for European startups and scale-ups: a patchwork of national rules, regulatory rigidity, and complexity that stifle cross-border growth and discourage risk-taking.

Europe’s Legal Fragmentation

Legal fragmentation may seem secondary when compared with cultural or linguistic barriers. But unlike those, it is amenable to reform. In the field of business law, as I explain in a book chapter, the European Union’s patchwork contrasts sharply with the United States’ integrated model. There, corporate law is formally decentralized yet functionally unified through the internal affairs doctrine: The company’s internal affairs are governed exclusively by the law of the state of incorporation, wherever it operates across the U.S.

Delaware’s dominance as the preferred state of incorporation emerged organically, not by political design. Its appeal rests on three pillars: flexibility, predictability, and credible institutional commitment. Specialised courts, responsive legislation, and enabling corporate law rules make Delaware uniquely suited to accommodate the contractual innovations that underpin, inter alia, venture capital financing (Romano 1993).

By contrast, in Europe, partial harmonization and national enforcement perpetuate complexity and legal uncertainty. Even after Centros and its progeny of cases, which facilitated regulatory arbitrage, no “European Delaware” has emerged. Firms remain largely captive to their domestic legal systems, with few incorporating or migrating elsewhere in the Union.

Why Delaware’s Model Matters for Innovation

The contrast becomes stark when we look at venture capital contracting. In recent joint work with Casimiro A. Nigro and Tobias Tröger (2025a; 2025b), we show that many of the standard clauses used in U.S. venture capital deals – such as liquidation preferences, conversion rights, or punitive buy-out provisions for underperforming founders – cannot be easily replicated under German or Italian law.

The obstacle is rarely an explicit statutory prohibition. Rather, it lies in deeply ingrained judicial doctrines and interpretive practices aimed at protecting shareholders from expropriation. Courts often rely on general clauses, reasoning by analogy, or anti-avoidance principles to limit contractual freedom. The result is a legal environment resistant to private ordering – the very feature that makes Delaware law responsive to venture capitalists and entrepreneurs’ needs.

Simply repealing mandatory provisions would not solve the problem. The rigidity we observe reflects deeper legal cultures that distrust flexibility and view deviations from the statutory model as threats to fairness or potentially harmful to weaker parties within the corporation (Enriques & Nigro 2025).

Two Paths Forward: Harmonization and Competition

European policymakers face a choice between two broad, non-mutually exclusive reform strategies. The first is further harmonisation through, for instance, a “28th regime” such as an Innovative European Company Statute. This idea, advanced in the Letta and Draghi Reports and echoed in a 2025 Commission Communication, would create a uniform corporate law framework tailored to startups and scale-ups. Its success, however, would depend on avoiding the hybrid design that characterized the Societas Europaea and would lead to the prevalence of often rigid national doctrinal interpretations.

A genuinely enabling statute would need to be fully European and explicitly constrain judicial interpretation by embedding meta-rules that privilege contractual freedom. It could, for example, require that any limitation on party autonomy be narrowly construed in light of proportionality. Model charters and shareholder agreements – perhaps drafted by private associations such as Invest Europe – could function as recognized safe harbors providing legal certainty while allowing adaptation to evolving market practice.

The second approach is regulatory competition through an EU-wide, legislatively approved internal affairs doctrine. This would prevent host states from imposing their own corporate law rules on companies incorporated elsewhere in the European Union, empowering entrepreneurs to select their preferred jurisdiction – potentially their “European Delaware.” Such mutual recognition could harness market forces to stimulate legal innovation.

Yet both paths face formidable political economy constraints. Harmonization risks lowest-common-denominator outcomes and partial uniformity; regulatory competition challenges entrenched national interests. Government-backed venture capital funds often require domestic incorporation as a condition for investment, and national legal professions have little incentive to loosen jurisdictional ties. Overcoming these obstacles would demand EU-level political discipline and an unusual degree of institutional courage.

A Pragmatic Way Forward

Europe’s problem is not a shortage of good ideas but a shortage of credible commitment to flexibility. Whether through a European statute or an internal affairs doctrine, reform must embed predictability, private ordering, and mutual trust among member states. The temptation to legislate grandly but rigidly should be resisted. Instead, the EU should design frameworks that evolve with practice – precisely the formula of Delaware’s enduring success (no matter how under threat that formula is following recent legislative activism). Only a calibrated blend of harmonization and competition, combined with the political will to accept that some member states will become more attractive venues for incorporation than others, can move Europe closer to a truly integrated market for innovation.

This post comes to us from Luca Enriques, a professor of business law at Bocconi University. It is based on his draft chapter, “EU Corporate Law Reforms to Create an Integrated Market for Innovation,” available here and forthcoming in The EU’s Strategic Autonomy and the Innovation-Finance Nexus, edited by Lorenzo Moretti and Katarzyna Kornosz-Koronowska (European University Institute). A version of this post appeared in the Oxford Business Law Blog, here.