It’s now or never for EU-wide company status

The final months of 2025 will be the “tipping point” that determines whether the European Commission’s plans for a new EU-wide company status are a success, according to one of the policy’s most prominent advocates.

The Commission will present its proposal early next year for a new corporate legal framework allowing companies to grow more easily across borders, after a public consultation period ended on September 30.

Policymakers “need to decide now if they want to do this law for start-ups, with the start-up ecosystem, or focus on the interests of legacy players,” said investor Andreas Klinger, co-initiator of EU-Inc, a campaign which put forward a series of specific recommendations for the new pan-European legal framework.

The so-called 28th regime would not replace national rules but exist alongside them. Companies would then decide whether to register at national or EU level. A European company status already exists, under the name Societas Europaea, but is primarily used by large multinationals.

If done right, Klinger believes the new legal entity could represent a revolution similar to the introduction of the euro. With the common currency, businesses and citizens no longer think twice when ordering products from another European country. “We want that kind of thinking in investing, as well,” he told Science|Business.

The idea of the 28th regime is to enable companies to set up shop quickly and easily in multiple EU countries and seek financing from a larger pool of investors. Today, investors usually operate in a single country and are hesitant to back start-ups in countries where they are not familiar with the legal system. This affects companies across the EU, but especially in smaller member states where there is less venture capital, and hinders the momentum that is crucial for start-ups in the early years.

More start-ups are launched annually in Europe than in the US, but these companies often struggle to secure the large investments they need to scale up. Deep-tech start-ups face even greater challenges as they often require very large funding rounds and investors who are willing to accept a large degree of risk, two things that are often missing in Europe. As a result, many innovative European companies choose to move their operations to the US.

Earlier this year, the Commission presented a start-up and scale-up strategy to address challenges including access to finance and regulatory hurdles. It is also working on a savings and investments union to harmonise capital markets and a European Innovation Act to support the commercialisation of research results. But these efforts could be in vain without an effective 28th regime.

A set of EU-wide rules would help to level the playing field with US companies, which often choose to incorporate in the state of Delaware for its favourable tax and legal structures and are easily able to operate and raise capital across the entire country.

What will it look like?

The founders and investors behind EU-Inc will judge the Commission’s proposal according to three main criteria. They want a single standard across Europe; open to every company, not only start-ups; and accompanied by a new pan-European digital company registry.

During a speech at the Italian Tech Week earlier this month, Commission President Ursula von der Leyen promised “a completely new approach to how innovative companies operate across Europe,” based on “one single and simple set of rules all over our Union. It will be the same in Turin as in Lyon, Barcelona or Munich, Sofia or Bucharest.”

It was a positive signal that the same standard will apply throughout the EU, but this should not be limited to what EU lawmakers deem to be innovative companies, Klinger said.

“From our point of view, it’s the wrong way to say that Brussels now defines what is an investment-worthy company and what isn’t,” he said. He cited Germany’s FlixBus as an example of a business that has successfully grown across the world without significant technological innovations.

To ensure the new legal framework is open to all companies, EU-Inc says it should not touch taxes or employment law, over which national governments will want to retain control. Otherwise, countries are likely to want to limit the number of eligible companies. In that scenario, governments would fear that their largest companies would pretend to be “five start-ups in a trench coat” to gain tax and regulatory benefits, and would therefore try to reduce the scope even further, Klinger said.

Instead, “goodies” such as tax and employment harmonisation should take place in special economic programmes or sandboxes as part of the 28th regime, which could have stricter eligibility rules, outside of the basic legal entity, which would be for everyone.

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When it comes to employee stock options, a hot issue for high-tech start-ups, the EU-Inc proposal says that they  should be harmonised under the new legal entity and treated as capital gains. This would mean they are always taxed at the point of sale, but the rate of tax would differ from country to country.

It remains to be seen whether the pan-European company status will be immediately available in all EU member states, or if it will begin with a handful of willing participants. Eventually, Klinger hopes it will be valid across the EU as well as in additional countries such as the UK, Norway and Switzerland.

In a recent speech marking one year since the publication of his influential report on EU competitiveness, former European Central Bank president Mario Draghi called for greater urgency, and said the 28th regime would likely be limited initially to a digital business identity, due to “uncertain backing from member states.”

Franco-German backing

The overall concept of the 28th regime has received support from key EU leaders. At a meeting on August 29, the French and German governments adopted a joint economic agenda, which includes a pledge to work together on the Commission’s project to establish a 28th regime.

“Particular attention should be given to ensuring that this company form is well-suited to the needs of young and innovative companies, while remaining broadly available for all types of businesses,” they said. They also support the creation of a European status for “young innovative companies,” to channel investments towards start-ups and scale-ups.

The European Parliament is divided on the issue, however. In a draft report published over the summer, René Repasi of the Socialists and Democrats group recommended introducing a directive that would give member states more flexibility over implementation, rather than a regulation that would have to be applied in its entirety across the EU.

Start-up associations are concerned a directive would not be enough to tackle the regulatory fragmentation that prevents companies from scaling across the bloc. In an amendment yet to be voted on, European People's Party MEPs Axel Voss and Angelika Niebler instead propose a regulation.

While the average citizen is unlikely to have heard of the 28th regime, the EU-Inc campaign has gained traction among founders and investors outside of the Brussels policy bubble. Klinger said he was “positively surprised” by how unified the European start-up ecosystem is on the topic. That enthusiasm was on display in September, as photos of supporters wearing EU-Inc baseball caps spread across social media. “We have more caps than people who actually filled out the consultation,” he said.

The Austrian investor believes the upcoming law change represents a “once in a lifetime chance” to improve the prospects of European start-ups. At the end of the 20th century, political leaders pulled off an unlikely feat, convincing countries to give up the management of their own currency. “The question now is, do we have a generation of politicians to believe that something similar is still possible?”