The Promises and Perils of a 28th Regime for European Innovative Companies

Few recent issues in European politics attract as much consensus as Europe’s competitiveness problem. The Letta Report (April 2024), the Draghi Report (September 2024), and the Commission’s 2025 Competitiveness Compass all diagnose the same malaise: Europe is falling behind the US and China in innovation and growth. This diagnosis has translated into a strong policy appetite for bold initiatives, including the creation of a so-called ‘28th regime’ in corporate law facilitating the cross-border operation and growth of European innovative companies. In a forthcoming paper, on file with the author, I analyse this project and formulate a series of policy recommendations.

Debates on the 28th regime have coalesced around two reform projects. The bold version is supported by industry actors, coordinated by the EU Inc initiative, and the Draghi and Letta Reports. It entails a fully-fledged, optional European corporate form governed exclusively by EU law. Companies could opt into this regime instead of using national forms such as the German GmbH or French SARL. While the ambition is clear, no detailed reform project has yet been produced.

The second is the cautious version, set out in the European Parliament’s draft report. Rather than creating a brand-new corporate form, it proposes targeted harmonisation for existing national vehicles, grouped under the label ‘European Start-Up and Scale-Up companies’ (ESSUs). Measures would include a pan-European corporate register, reforms facilitating employee share ownership, model documents for articles of association and shareholder agreements, and a dedicated dispute resolution mechanism.

Industry respondents quickly dismissed the Parliament’s report as unambitious, bureaucratic, and divorced from business needs. To what extent are these reproaches justified, and how can European law best address innovative companies’ needs? To answer these questions, we first need to understand how Europe’s corporate law framework constrains innovative firms.

1. The Problem: Challenges Posed by Existing Corporate Laws in Europe

European innovative companies face mainly three challenges. The first is red tape. Early-stage firms, already cash-strapped, bear disproportionate costs of incorporation, notarisation, and formalities in some jurisdictions. The German system, in particular, has been criticised particularly heavily as too costly and formalistic, primarily because of notaries’ intervention. By contrast, Estonia’s fully digitised register has been praised as a lighter, more cost-effective alternative.

The second challenge involves private ordering. Innovative firms often rely on venture capital (VC) funding, which in turn requires the implementation of complex corporate and contractual engineering, including convertible instruments and liquidation preferences. Many European legal systems constrain this flexibility with tight mandatory corporate rules.

The last key challenge pertains to regulatory fragmentation. While companies themselves are mostly subject to a single set of corporate rules, investors operating on a cross-border scale need to navigate a new legal system each time they invest in a new jurisdiction. Fragmentation thus indirectly imposes significant legal costs on investors, and ultimately on companies themselves.

2. Political and Technical Challenges

The creation of a pan-European corporate form, with its own set of rules immune from the interference of national laws, has been praised as an ideal solution to the problems faced by innovative companies. Yet such an ambitious reform is unlikely to succeed, for both political and technical reasons.

We start by noting that the creation of a new corporate form would require the adoption of a European regulation, which in turn requires Member States’ unanimous consent. Decades of harmonisation efforts and attempts at creating pan-European corporate forms have shown that securing such consent is exceedingly difficult.

The European Company (SE), proposed in 1970, emerged three decades later in watered-down form, covering only limited aspects of public company law. The two subsequent projects—the European Private Company (SPE) and Single-Member Private Company (SUP)—were much less ambitious than the SE. They nevertheless collapsed amid resistance from Member States concerned about issues such as codetermination, labour protections, and regulatory arbitrage, compounded by active lobbying from intermediaries with a strong interest in preserving existing rules.

Even setting politics aside, a truly pan-European corporate form would remain tied to national systems ‘on the books’ and ‘in action’. Courts would inevitably interpret European concepts differently, through their own national prisms. The promise of uniformity would therefore likely prove illusory.

Attempting a grand reform package risks repeating past failures. A rejected proposal would waste political capital and may even set back more achievable reforms.

3. The Solution: Functional and Modular Harmonisation

The paper argues in favour of targeted harmonisation measures addressing concrete business needs, while avoiding major political and technical challenges.

This approach would involve, first, the designation of a harmonised corporate form in each Member State, to which all harmonisation measures benefiting innovative companies would apply. The chosen corporate forms should logically be those that leave the greatest room for private ordering in each Member State. Companies using these forms could bear a suffix signalling their harmonised status.

Harmonisation efforts should focus on areas of corporate law that would benefit the most from harmonisation. For instance, harmonising the regime of share issuances and guaranteeing the legality of a set of commonly used shareholder agreement provisions would allow investors to invest in companies from various jurisdictions without having to solicit legal advice in each Member State.

Harmonised rules could be designed in such a way as to leave little room for judicial interpretation, thereby limiting the permeation of meta-rules. Conversely, harmonising the regime of fiduciary duties would make little practical sense and would likely be technically daunting. From a substantive perspective, the reform package would also be an occasion to increase the room for private ordering in VC funding agreements.

Other measures advocated by most reform projects, such as the creation of a pan-European corporate register and favourable rules on employee share ownership plans, could be implemented in parallel. Finally, private associations should be encouraged to produce model shareholder agreements and term sheets, building on the US experience with NVCA templates, as suggested by the EP Report.

Fifty years of failed attempts caution against the pursuit of a new European corporate form. What the EU needs most, and can afford, is a package of targeted, technically sound, and politically feasible reforms that cut red tape, enhance venture capital flexibility, and reduce fragmentation. Done right, such reforms could substantially deliver the same benefits as those attributed to a new pan-European corporate form.

Paul Oudin is an Assistant Professor of Law at ESSEC Business School.

A draft version of the paper can be requested from the author at paul.oudin@essec.edu.