Why the 28th Regime Needs a Fallback Plan: the EU Inc Zone

In September 2024, Draghi's report called for a true 28th regime—a voluntary EU-wide rulebook harmonising corporate law and insolvency, ‘as well as a few key aspects of labour law and taxation, to be made progressively more ambitious’. Over 24,000 founders signed the EU Inc petition calling for a pan-European corporate form. In January 2026, the European Parliament voted 492 to 144 urging the Commission to act. On 18 March 2026, the Commission responded with COM(2026) 321—a proposal for a regulation establishing a harmonised EU-wide corporate form. It is now before the JURI Committee.

The proposal is a step forward. But it is not a 28th regime.

A true 28th regime would give companies a single, self-contained legal environment—one set of rules, one interpretation, one experience regardless of where in the EU they register. COM(2026) 321 harmonises the corporate form. It explicitly excludes labour law and tax law—the very areas Draghi called to harmonise (Recital 83). That exclusion alone means an EU Inc registered in Paris will operate under fundamentally different employment and fiscal conditions than one registered in Tallinn. The ‘28th regime’ becomes 27 regimes before a single company is formed.

But the fragmentation runs deeper than labour and tax. Article 4(2) states that matters not covered by the Regulation or the articles of association shall be governed by national law. Article 4(3) requires each Member State to designate the relevant national legal form whose rules fill these gaps. Employee participation follows the law of the registered office (Article 12). Directors face harmonised core duties but remain subject to additional national liability rules (Recital 34). Insolvency proceedings are simplified only for EU Inc companies classified as ‘innovative startups’ under national criteria (Chapter X)—every other EU Inc company, including mature businesses that convert into the form, falls under national insolvency law.

And there is no institutional infrastructure to prevent divergence from compounding. Court specialisation is suggested but non-binding—Member States ‘could’ designate specialised chambers (Recital 81). National judges, not a single EU-level tribunal, will interpret the regulation. Without mandatory specialisation, identical provisions will inevitably be read differently across jurisdictions, in accordance with their respective legal traditions. Furthermore, the registry connects 27 national systems through BRIS rather than replacing them with a single database, acting more as a unified interface than a truly unified administrative layer. As Enriques, Nigro, and Tröger observe, every harmonised rule leaves room for national divergence that quietly reintroduces the fragmentation the regime was designed to overcome.

Some of this distance from Draghi's vision is unavoidable. Tax harmonisation requires unanimity. Core elements of labour law face Treaty constraints under Article 153(5) TFEU. But on corporate law gap-filling, courts, and registry architecture—areas where the Treaty does not limit action—the proposal is narrower than many expected. Garicano and Malmendier have warned of ‘27 different 28th regimes’. The parallel with the Societas Europaea is uncomfortable: harmonised rules, fragmented implementation, fewer than 4,000 registrations in two decades.

If the full vision proved politically unachievable, the question becomes whether a narrower proposal can still deliver a unified experience—or whether the solvable fragmentation has been left unaddressed alongside the unsolvable.

Two tracks: strengthen the regulation, prepare the alternative

A policy contribution I have submitted to the JURI Committee proposes four amendments to COM(2026) 321, operating on two separate tracks.

The first track strengthens the regulation directly. It replaces the current non-binding language on dispute resolution with mandatory specialised judicial chambers, supported by convergence tools: a shared case-law database, joint training programmes, and annual interpretation guidelines.

The second track prepares a fallback. A 12-month feasibility study would design a complementary institutional architecture, ready for activation if needed. Annual fragmentation reviews would measure whether the regulation is delivering consistent outcomes, using pre-committed indicators. If divergence exceeds defined thresholds, the complementary architecture activates automatically via enhanced cooperation for nine or more willing Member States. No new political decision is required. If the regulation delivers a unified experience on its own, the fallback is never activated. That would be the best outcome.

What if the problem is not the rules but the architecture?

The regulation asks 27 Member States to administer one instrument consistently. If that approach does not produce convergent outcomes—as the Societas Europaea precedent suggests—the problem may need to be approached from the other direction: rather than harmonising rules and relying on 27 multi-layered national systems to apply them consistently, concentrating the institutional infrastructure so that one body administers one set of rules from the start.

This is the logic behind the EU Inc Zone, as described in the full policy contribution, available here. Taking inspiration from mature special economic zone experiences such as the DIFC in the UAE: one self-contained company law replacing Article 4's national gap-filling, one court building one body of case law, one registry applying one set of procedures. Whether this specific architecture is the right answer is a question for the feasibility study proposed in the paper. But the underlying question deserves serious consideration: if decentralised administration of harmonised rules has repeatedly produced fragmentation in the EU context, is there a case for exploring concentrated administration as a complementary path?

A concentrated architecture offers a further structural advantage: iterability. A regulation, once adopted through ordinary legislative procedure, is effectively frozen for years. A zone can update its procedures, expand its scope, and respond to market feedback continuously. For an operating environment that must compete with Delaware, Singapore, and the UK, the ability to iterate is not a secondary consideration.

The design described in the paper is deliberately phased. The Zone is proposed as a complementary and time-bound initiative. Arbitration under party autonomy first, raising no constitutional concerns. Enhanced cooperation second, when evidence justifies it. Each phase earns the next through demonstrated need and legal validation. Tax and labour remain national in both scenarios. The Zone would compete on institutional quality, not fiscal arbitrage.

Why this matters now

The political window is narrow. If the regulation passes and fragmentation materialises, a second legislative attempt may not come for a decade. Embedding the monitoring and fallback mechanisms now, while COM(2026) 321 is before the JURI Committee, is considerably easier than legislating from scratch after the damage is documented.

The strongest objection is that proposing a fallback signals doubt. The opposite is true. Embedding measurable success criteria is how serious regulatory initiatives are designed. If the regulation delivers, the fallback is never activated—and the feasibility study becomes an archive, not a blueprint.

The full policy contribution, including four proposed amendments was prepared to stimulate conversation about complementary approaches. It is one of several directions that could be explored. But I believe it is critical that the regulation includes a KPI-oriented framework and at least one identified fallback solution, rather than hoping 27 Member States, along with their courts, registries, and tax administrations, will coordinate on their own.

This may be the last opportunity for a generation to get European company law right—and to make Europe competitive. It is worth making sure the 28th regime is built to succeed.

Read the author's full policy paper.

Alessandro Palombo is the founder of Bitizenship. He holds a Ph.D. in Public Law and a Master's degree in Global Regulation of Markets, and is a qualified lawyer.