The EU is on a well-publicised mission to boost competitiveness. Guided by its 2025 "competitiveness compass", which sets an ambitious course, growth and innovation are at the heart of this mission, and venture capital and start-up businesses are key to its success.
"Getting agreement on any game-changing initiative from all 27 member states will always be challenging, and the EU's latest innovation – a "28th" company law regime, dubbed "EU Inc." – is no exception."
But, even if ambition is not in short supply, delivery is complicated. Getting agreement on any game-changing initiative from all 27 member states will always be challenging, and the EU's latest innovation – a "28th" company law regime, dubbed "EU Inc." – is no exception.
Company law is not harmonised across the EU, and this has led to barriers to growth and investment. Small and medium-sized businesses (SMEs) have felt this most acutely. Navigating these legal regimes makes scaling businesses cross-border difficult, slower and more costly, which can put investors off and stifle growth.
The proposed 28th regime – unveiled last week, after years in gestation – is an opt-in, harmonised legal framework that would enable companies to benefit from a single set of EU-wide rules wherever they invest and operate in the EU's single market, including in relation to aspects of corporate, insolvency, employment and tax laws. The regime aims to make it easier to set up and operate a business, to attract investment, and to sell it. The architects of the law hope this will broaden access for venture capital to businesses in the EU, which is crucial for their growth.
The new regime will sit alongside, rather than replace, national laws. Companies will choose a member state in which to incorporate – raising the prospect of a European Delaware – but all EU countries will have to operate the same rules. Those rules will facilitate quick and cheap establishment – registration in 48 hours at a cost of EUR 100 – with no minimum share capital requirements. They will permit different share classes with different economic or voting rights – vital for venture investors but still challenging in some member states. There will be simpler procedures, with an "EU central interface", which would transmit information submitted through it to the business register of the member state of incorporation (but no central register on day one), and a fully digital approach.
Together, these features will make it easier to start and grow a business and more attractive for investment. EU Inc. companies would also have simplified winding up procedures making it easier and cheaper to start again when a business fails, as well as benefitting from a harmonised employee stock option plan (EU-ESOs), which would have preferential tax treatment, to attract talent.
This is all positive, but many argue that the proposal is too timid. No doubt anticipating the barriers to getting agreement to a fully effective regime, the proposal already makes compromises that will significantly hamper adoption. Critics include Invest Europe and the campaign group, EU Inc. (see box). They have already pointed out that the current scope of the proposal risks limiting its attractiveness. In particular, the lack of a centralised court with business expertise – one of Delaware's key selling points – means that fragmentation across member states will remain an issue.
Clearly, the 28th regime is not the only show in town and other complementary initiatives are also designed to foster access to capital for innovative companies across the EU. These include, for example, a review of the European Venture Capital Fund Regulation (EuVECA). This regime, introduced in 2013 to enable venture funds to operate across borders, offers a harmonised rulebook and a single market passport for qualifying funds. But uptake has always been somewhat disappointing, and this review is a chance to relax some of the constraints. The European Commission has also been consulting more generally on the rules for venture and growth capital funds and is currently looking at how it can support private equity exits.
The reform agenda is full of good intentions, but there are significant obstacles to radical change, and reasons to be sceptical about the chances of success. Invest Europe has been among those urging the Commission to be bolder. Without that, Europe will still be lamenting its relative lack of venture backed unicorns a decade from now – which would be a missed opportunity, given the huge potential sitting in Europe's tech hubs. Regulators can only do so much, but they must play their part, and the industry should keep pushing them.
The EU Inc. campaign, a lobbying campaign backed by many of Europe's top founders, is a driving force behind the 28th regime (and its moniker has been co-opted as a synonym for the regime). It has stated to us that: "The Commission may have borrowed the name 'EU Inc.', but not yet the substance. The ambition was a single set of rules, a single registry, and a single court – a genuinely European regime. What has emerged instead is a harmonised layer over national systems, where outcomes may still diverge in practice.
A truly transformative regime would have removed the need to choose between jurisdictions. In its absence, that choice becomes decisive. Activity may concentrate where the framework works best, meaning fragmentation is not eliminated, only reshaped unless a single court ultimately interprets and applies an EU-wide regime."
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