Concern grows over Commission’s plans for EU-wide company status

The European start-up community has warned that the European Commission’s plans to deliver the 28th regime would represent a “missed opportunity,” after a draft 2026 work programme suggested it wants to introduce the EU-wide company status via a directive.

Allied for Startups, the European Startup Network, EU-Inc and numerous national start-up associations wrote to Commission President Ursula von der Leyen on October 17 to share their “deep concern” that a directive would leave it up to EU member states to decide how to incorporate its objectives in their national law.

By giving companies the option to form a pan-European legal entity rather than incorporating in a single member state, the 28th regime could radically simplify the process of expanding into other EU countries. It could also empower investors to back start-ups across the bloc without having to understand the local corporate law. But there are concerns that national governments could introduce further fragmentation.

“A directive is not a 28th regime,” the letter reads. “It will mean 27 transpositions, 27 interpretations, and 27 opportunities for divergence and delay.”

There are also concerns that member states would be given two years to incorporate a directive into their national law, during which time start-ups would continue moving to the US and other regions. “That’s a huge amount of time that’s being lost,” Vasco Pereira da Silva, head of policy at Allied for Startups, told Science|Business.

Instead, the associations call for a regulation, which would apply immediately in its entirety across the EU.

According to the draft work programme, leaked to Euractiv, the Commission plans to propose a “28th regime for innovative companies” using articles 50 and 114 of the Treaty on the Functioning of the European Union. Article 50 specifically relates to directives, while article 114 leaves the form of the proposal open.

The reference to these articles does not necessarily mean the Commission intends to use a directive, said Apostolos Thomadakis, research fellow at the Centre for European Policy Studies and co-author of a report on the need for a 28th regime prepared for the European Parliament’s legal affairs committee.

“These articles define the legal bases, not the form of the act. Both can underpin either a directive or a regulation, depending on what the Commission wants to achieve,” he told Science|Business.

Thomadakis believes a regulation is the best solution, as a directive “would risk divergent transposition and undermine the regime’s optional but harmonised character.”

The final work programme has not yet been adopted, and Ekaterina Zaharieva, the commissioner responsible for start-ups, research and innovation, played down concerns that a decision had been taken.

“I believe it should be a regulation,” Zaharieva said on October 16, in response to a question on the work programme from Volt Europa MEP Damian Boeselager, during a meeting with the European Parliament’s industry, research and energy committee. She added that, “the discussions are ongoing.”

However, it is justice Commissioner Michael McGrath, not Zaharieva, who will lead the work to introduce the 28th regime.

Legal precedent

The reason the start-up associations are concerned is that the draft work programme suggests using both articles 50 and 114. If a proposal relies on several legal bases, and one of these specifies which type of act should be used, that usually dictates the form. In this case, this would suggest the combination of both articles would result in a directive.

Meanwhile, the lobbies do not believe a regulation would be possible under article 114 alone, due to a 2006 decision from the Court of Justice of the European Union on the regulation for a European Cooperative Society, in which the court concluded that this article was not appropriate for the creation of an optional framework on top of the existing corporate law systems at national level, which is the idea behind the 28th regime.

Instead, from its discussions with lawyers, Allied for Startups concluded that, unless the Commission has identified a legal workaround, a regulation for an optional 28th regime would have to be based on article 352 of the treaty, which is the legal basis for the European Cooperative Society, said Pereira da Silva. Article 114 would most likely apply only if the new regime replaced existing national corporate law.

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Unanimity needed

A regulation under article 352 would present its own challenges. This article sets out a special procedure by which the Council alone would negotiate the final text based on a proposal from the Commission, after obtaining consent from the Parliament. This would require a unanimous agreement from member states, which could be a major roadblock.

“The last time we wanted to create a corporate form on the basis of unanimity, it took us thirty years, and we were less member states than today,” said René Repasi, the Socialists and Democrats MEP who authored a draft European Parliament report on the 28th regime calling for a directive. He was referring to the Societas Europaea, a form of European company created in 2004 after protracted negotiations, which remains inaccessible to most start-ups.

Achieving unanimity in the Council would require so many compromises that the corporate form would resemble “Frankenstein's monster, full of bits and pieces from different national legal orders,” Repasi told Science|Business..

If the Council fails to reach a unanimous agreement, there is another option, referred to as enhanced cooperation, which allows a minimum of nine member states to get together and proceed on their own, as in the case with the EU’s unitary patent, but this could dilute the impact of the measure if it does not apply EU-wide.

Repasi says enhanced cooperation could even offer an “easy way out” for some of Europe’s largest countries if their conditions are not met. “A corporate form that is not recognised by major economies in Europe is not worth much,” he said. Nor would this process speed up adoption, since enhanced cooperation is only possible after legislating by all 27 member states has failed.

Moreover, Thomadakis points out that the enhanced cooperation mechanism is usually excluded in matters relating to the internal market of the EU, since the treaty states that it must not distort competition between member states.

A directive after all?

“I would personally also prefer a regulation over a directive. Yet, the treaties are very clear,” Repasi said. “The political choice is therefore: either a directive and qualified majority voting, or a regulation and unanimity voting.”

Due to concerns over the compromises needed to reach unanimity, “I would rather compromise on the legal instrument than on the applicable majority,” he said.

The German MEP disagrees with the start-up associations’ fears that a directive would result in 27 different national interpretations.

A directive can either set minimum standards, or oblige member states to introduce rules with both minimum and maximum standards, which is referred to as maximum harmonisation. Repasi’s report calls for the latter. In this case, the 28th regime would be delivered as “a national corporate form but with a label that is awarded if this corporate form meets all the requirements defined by the directive,” he said.

Only innovative companies?

The work programme’s reference to a 28th regime also raises questions as to whether it will be open to all businesses or only those meeting a future EU definition of innovative companies. The Commission’s wording aligns with European Council conclusions from March which urged it to propose an optional 28th regime “allowing innovative companies to scale up.”

“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,” Andreas Klinger, co-initiator of the EU-Inc campaign, recently told Science|Business.

Thomadakis does not believe the work programme necessarily suggests a legal limitation on participation. “The idea is to start with firms most exposed to cross-border growth barriers, typically start-ups and scale-ups, but the logic of a 28th regime is inherently horizontal and open to all firms that choose it,” he said.

Regimes targeted at certain categories of firms could be seen as more politically attainable, however, “they risk undermining the principle of equal access and may create a fragmented regulatory landscape,” he added.

The Commission is due to present its 2026 work programme to the European Parliament in Strasbourg this afternoon, October 21.