Europe stands out as one of the most reliable and lucrative regions for entrepreneurs seeking to establish a new company. With a large internal market, stable political environment, and highly developed infrastructure, it provides everything a business needs to thrive.
Starting a business in Europe also opens the door to a highly skilled workforce, extensive trade networks, and strong consumer purchasing power. The European Union (EU) ensures transparency, investor protection, and simplified cross-border trade within its single market of 27 member states.
Navigating incorporation procedures, tax requirements, and local regulations can be complex – but with proper planning and legal guidance from experienced professionals, entrepreneurs can start and operate their businesses efficiently and compliantly across the EU.
Understanding Company Formation in Europe
Company formation in Europe involves registering a new legal entity under the laws of a specific European country. Each jurisdiction offers unique advantages, but all share key characteristics: well-defined company laws, transparent registration systems, and harmonized EU standards that protect investors and consumers alike.
There are two main levels of incorporation:
- National company formation, which follows the domestic legal system of each country.
- European company formation (Societas Europaea, SE), which allows a company to operate under a unified EU framework across multiple member states.
Choosing between these depends on your business goals. National incorporation is ideal for small and medium enterprises focusing on one country, while a European company structure suits businesses planning cross-border operations.
Advantages of company formation in Europe:
- Access to the EU single market
- Reputation and investor confidence
- Competitive tax regimes in certain countries
- Efficient digital registration systems in nations like Lithuania and Estonia
- Legal stability and protection under EU directives
Common Legal Entities in Europe
When you start a company in Europe, one of the first and most important decisions is choosing the right legal entity. The structure you select will determine your company’s legal status, tax obligations, ownership flexibility, and reporting requirements.
Below are the main types of business entities commonly used across European jurisdictions:
1. Limited Liability Company (LLC)
A Limited Liability Company – often known as a Private Limited Company or UAB in Lithuania, GmbH in Germany, or SARL in France – is the most popular structure for small and medium-sized enterprises (SMEs).
It offers limited liability protection, meaning shareholders are only responsible for the company’s debts up to the amount of their contribution.
Key features:
- Can be founded by one or more individuals or legal entities.
- Requires a relatively low minimum share capital (for instance, €2,500 in Lithuania).
- Profits can be distributed as dividends or reinvested in the business.
- Simplified management structure – usually one director and one shareholder are sufficient.
- Well-suited for consulting firms, tech startups, and import-export businesses.
Because of its flexibility and protection, the LLC remains the preferred option for entrepreneurs starting a business in Europe.
2. Joint-Stock Company (JSC)
A Joint-Stock Company is designed for larger enterprises, especially those planning to raise capital or go public. It allows shares to be issued, transferred, or listed on a stock exchange.
Key features:
- Suitable for medium and large companies with multiple investors.
- Requires a higher minimum share capital (often between €25,000 and €50,000, depending on the country).
- Must have a board of directors and a supervisory council in some jurisdictions.
- Subject to more detailed financial reporting and audit obligations.
- Enables growth through equity financing and public investment.
This structure is ideal for corporations, manufacturing firms, or enterprises with long-term expansion goals in the European market.
3. Branch Office or Subsidiary
Foreign companies that want to expand into the EU without forming a new independent entity can establish either a branch office or a subsidiary.
A branch office is not a separate legal entity but an extension of the parent company, operating under its name and liability. It’s suitable for businesses testing new markets or offering local services under an existing brand.
A subsidiary, on the other hand, is a separate company registered under local law but owned by a foreign parent company. This structure provides limited liability and greater operational independence.
Key features:
- Allows non-EU companies to operate legally within the EU.
- Branches have fewer administrative requirements but no legal autonomy.
- Subsidiaries can enjoy local tax benefits and limited liability protection.
- Both must register in the relevant national company register and comply with EU business regulations.
Establishing a branch or subsidiary is a common choice for international corporations expanding into Europe’s diverse and competitive markets.
4. Sole Proprietorship
A Sole Proprietorship – or self-employed entity – is the simplest business structure in Europe, ideal for freelancers, consultants, and small traders.
It is owned and operated by a single individual who bears full responsibility for the business’s liabilities.
Key features:
- Fast and inexpensive to register.
- Suitable for low-risk, small-scale businesses or professionals offering personal services.
- Income is taxed as personal income rather than corporate tax.
- No distinction between personal and business assets – full liability applies.
While easy to start, this model is less suitable for international investors or those planning to scale operations, since it lacks the legal protection of incorporated entities.
Each of these structures has its own advantages depending on the nature and scale of your business. When planning company formation in Europe, consulting with experienced legal professionals such as Lawhill can help you select the optimal entity type, ensuring that your company is both strategically structured and fully compliant with European legal standards.
Step-by-Step Process: How to Start a Company in Europe
The process of starting a company in Europe is structured but can differ from one country to another. Below is a detailed step-by-step guide applicable across most European jurisdictions:
Step 1: Choose the Country and Legal Structure
Select the most suitable country based on your business needs, taxation level, and administrative simplicity. For example, Lithuania is known for its affordability and fast registration, while Estonia offers a fully digital e-Residency program.
Step 2: Check Company Name Availability
Before registration, ensure your chosen name is not already in use by searching the national or EU company register. Most registers allow online verification.
Step 3: Prepare the Incorporation Documents
You will need to draft and notarize documents such as:
- Articles of Association
- Memorandum of Incorporation
- Proof of registered office address
- Shareholder and director details
These documents must comply with the chosen country’s legal requirements and, in some cases, translated into the local language.
Step 4: Deposit Share Capital
Certain European countries require an initial capital deposit before incorporation. In Lithuania, the minimum share capital for a UAB (private limited company) is €1,000, while a small partnership (MB – Mažoji Bendrija) can be established with a starting capital of just €1. Other countries may have higher thresholds.
Step 5: Submit Registration to the Company Register
Submit your documentation to the relevant national business registry. Once approved, the company receives a registration number confirming its legal existence.
Step 6: Register for Tax and VAT
All companies must obtain a tax identification number and, if applicable, a VAT number to operate legally and trade within the EU.
Step 7: Open a Business Bank Account
Opening a European bank account ensures smooth financial operations. Some jurisdictions allow remote bank account setup, making this step easier for non-resident investors.
Step 8: Obtain Licenses and Meet Sectoral Regulations
If your business operates in regulated sectors (finance, transport, healthcare, etc.), you will need specific licenses or permits from the relevant authorities.
Once all these steps are completed, your company is ready to trade, hire staff, and issue invoices within Europe and beyond.
EU Company Register and Compliance Requirements
The EU company register is a network of national registries that record official information about businesses across the European Union. It provides transparency, allowing investors, clients, and regulators to verify the existence and status of companies.
Each country maintains its own register, but many are interconnected through the European Business Register (EBR). This system makes it easy to access company data, ownership information, and financial statements online.
Compliance is an essential aspect of maintaining your company’s good standing in Europe. Common obligations include:
- Submitting annual financial statements
- Filing corporate tax returns
- Holding shareholder meetings and recording minutes
- Reporting any structural changes (e.g., new directors, address changes)
- Maintaining accurate accounting records
Failing to comply with these obligations can result in fines, administrative penalties, or removal from the register. Working with experienced legal professionals ensures your company remains compliant with both national and EU-level requirements.
Costs of European Company Formation
The total cost of forming a company in Europe depends on several factors, including the country, business structure, and level of professional support required. On average, costs can range between €800 and €3,000, though some jurisdictions are more affordable than others.
Typical expenses include:
- Government registration fees
- Notary and translation costs
- Share capital deposit (varies by country)
- Legal and accounting services
- Registered address or local representation
Western European countries such as Germany or France generally have higher costs due to complex regulations, while Eastern European countries like Lithuania, Latvia, and Estonia offer more cost-effective incorporation options with simpler administrative processes.
Businesses looking to start trading immediately can consider ready-made companies, which have already been registered and meet all legal requirements. This approach reduces waiting times and can sometimes be more cost-efficient, especially for foreign investors.
Lawhill offers ready-made Lithuanian companies that include a legal address and registration certificate – enabling investors to start operating within days.
Tax and Legal Considerations When You Incorporate in Europe
Before you incorporate in Europe, it’s vital to understand the local and EU-level tax and legal obligations that affect your business.
Corporate taxation across Europe ranges from 6% in Lithuania to 25% in some Western European states, though many countries offer tax reliefs for startups and foreign investors.
Key tax aspects to consider:
- Corporate Income Tax (CIT): Paid on company profits.
- Value-Added Tax (VAT): Required for businesses trading goods or services within the EU.
- Double Taxation Treaties: Prevent taxation of the same income in two jurisdictions.
- Dividend and Withholding Taxes: Applied when distributing profits to shareholders.
Legal aspects include:
- Residency requirements for directors
- Data protection compliance under GDPR
- Proper corporate governance and shareholder agreements
- Employment law and labor contract regulations
Some countries, such as Lithuania and Estonia, are particularly attractive due to competitive tax systems and simple reporting structures.
Explore 10 Lowest Corporate Tax Rates in Europe (2025) here.
Common Challenges When Starting a Business in Europe
While the benefits of starting a company in Europe are significant, foreign entrepreneurs often encounter specific challenges:
- Bureaucracy and Documentation: Some jurisdictions require multiple filings or notarizations.
- Language Barriers: Legal and accounting documents may need certified translations.
- Banking Restrictions: Opening accounts remotely can be difficult for non-residents.
- Tax Complexity: Different rates, incentives, and filing procedures across member states.
- Regulatory Differences: Sector-specific licenses or permits may vary widely between countries.
Overcoming these challenges requires proper preparation and expert support. Legal partners like Lawhill streamline the process by providing complete assistance – from registration and document preparation to ongoing compliance and representation – ensuring entrepreneurs can focus on growing their business rather than navigating red tape.
