ECJ EUROPEAN Cleaning Journal

Europe’s entrepreneurs are quitting the continent in frustration at the regulatory barriers hampering their ambitions to ‘launch and grow’ across the single market. In response, the European Commission has drawn up more corporate-friendly rules in a bid to halt the exodus, reports Hartley Milner.

FOR TOO LONG, businesses have had to navigate a fragmented corporate legal landscape comprising 27 national legislative systems and more than 60 national company legal forms, the commission acknowledges. This complex bureaucracy, it says, can “delay the setting-up of a company for weeks or even months, slowing growth, raising costs and discouraging scale”.

Startups and scaleups are relocating primarily to the United States and Asia, lured by the promise of easier access to venture capital and talent pools, larger and more unified markets and, crucially, less stringent regulation. Now the EU is on notice that it needs to close its productivity and competitiveness gap with its rivals or face the “slow agony of decline”.

In his 2024 report on Europe’s future competitiveness, former European Central Bank president Mario Draghi stresses the urgent need to make it easier for creative enterprises to grow. “The ongoing outflow of companies to other economies weakens the European Union’s ability to close the innovation gap with the United States and threatens its long-term competitiveness and technological sovereignty,” he says.

Creativity hotspot

Draghi flags that approximately 10 per cent of Europe’s scaleups relocate abroad each year. From 2008 to 2021, nearly a third of its ‘unicorns’ – startups valued at more than $1 billion (€852 million) – moved their headquarters to outside the EU, predominantly across the Atlantic. The talent drain is primarily impacting the bloc’s digital technology sectors such as AI and biotechnology.

The EU has shown itself to be an entrepreneurial creativity hotspot in recent years. From 2018-2023, the region generated more startups per year than both the US and China. However, by the beginning of 2025, the region had just 110 unicorns compared with 687 for the US and 162 for China.

In response, the European Commission in March unveiled its ‘EU Inc’ proposal - also known as the 28th Regime - as part of a wider agenda to help companies innovate and grow anywhere across the internal market. Rather than having to navigate 27 different national regulatory systems separately as now, entrepreneurs seeking to expand their business would have the option to comply with a single set of corporate rules instead.

Any business would be able to register to become an EU Inc in as little as 48 hours at a cost of less than €100. The EU executive foresees around 300,000 firms signing up in the first 10 years. “We need to incentivise companies to stay in Europe and encourage those who once looked elsewhere to return,” said commissioner for justice and the rule-of-law Michael McGrath. “We are seeing that all too often bureaucracy drives our best entrepreneurs elsewhere. EU Inc puts an end to this.”

While EU Inc is available to all European businesses, it is primarily targeted at helping fledgling tech innovators scale rapidly and compete with Silicon Valley giants like Google, Amazon and Microsoft. An EU-wide digital platform would link up the business registers of member states so that companies would only have to apply for an EU Inc just once, greatly simplifying the registration process. The commission is also working on a centralised EU Inc corporate register. Signees will likely see significant savings in time and money spent on lawyers, notaries or translation processes.

McGrath continued: “A once-only, fully digital submission process reduces administrative burdens, giving entrepreneurs more time to focus on growing their businesses. Under the new EU corporate legal framework, companies will benefit from simplified governance procedures throughout the lifecycle of the company. This simplicity ensures that talent and ideas stay in Europe, while attracting valuable investments.”

Simplify procedures

The EU Inc proposal in full:

•  Faster and cheaper registration: Entrepreneurs, founders and companies will be able to launch an EU Inc company within 48 hours for less than €100 and without having to meet minimum share capital requirements.   

• Simpler procedures: EU Inc companies will only need to submit their company information once, via an interface connecting national business registers together. In a further move, the commission is proposing to establish a new central register where companies can obtain their tax ID and VAT numbers without having to resubmit paperwork.

• Fully digital operations: Corporate processes will be digital by default throughout a company’s lifecycle.

• Helping founders restart faster and cheaper: EU Inc companies will have access to fully digital liquidation procedures. Innovative startups will have access to simplified insolvency procedures for the winding down of operations. This will enable founders to continue testing and trialling innovative ideas towards possibly starting up again.

• Better conditions to attract investment: The EU commission’s proposals will remove in-person formalities, provide digital procedures for financing operations and simplify the transfer of shares. There will be no more mandatory involvement of intermediaries for share transfers and liquidation procedures. The proposal will also allow member states to give EU Inc companies access to the stock exchange.

Faster and cheaper

• Better ways to attract talent: Companies will be able to set up EU-wide employee stock option plans. The stock option will only be taxed on the income generated once the business is sold. This is seen as being crucial for attracting innovative startups.

• Full access to the single market: Businesses will be free to register as an EU Inc in any member state they choose - regardless of where they are physically based - to take advantage of favourable regulations, lower costs or faster digital 48-hour registration. The proposal includes a blacklist of prohibited practices to ensure that Inc businesses are treated the same as other national companies.

• Strong safeguards against abuse: EU Inc companies will be expected to comply with national employment and social laws like any other business operating in the host country. The same applies to safeguards implemented by the member state of registration, including regulations relating to co-determination (where employees have the legal right to take part in high-level company decision-making).

• Flexibility of shares: Companies will have the flexibility to create different classes of shares with varying economic or voting rights. This could, the EU Commission says, help founders protect their business from hostile takeovers.

Member states are being asked to set up special judicial chambers or courts for settling disputes relating to EU Inc company law. The commission is additionally looking at allowing full-time cross-border telework for innovative startups and scaleups. This is where an employee works remotely from their home country for an employer based in a different country, typically using IT to stay connected.

European business groups are generally on board with the commission’s EU Inc proposal. SMEunited welcomes it as a step towards addressing the single market’s fragmentation. President Davide Galli says having to deal with a myriad of different company laws, complex administrative procedures and legal uncertainties has been especially challenging for smaller businesses.

“These barriers limit growth, increase costs and discourage investment,” Galli told ECJ. “The commission’s initiative provides a solid foundation for addressing some of the structural difficulties in our single market. SMEs must have access to a simple and predictable legal framework to support their ambitions to operate beyond national borders. EU Inc should ensure fewer duplicate registrations, create clearer rules and greater legal certainty when selling goods or providing services in another EU country.”

Galli said ensuring that EU Inc remains optional, simple and accessible is critical for it to remain fully in line with the bloc’s ‘think small first’ principle. He added that he “particularly appreciates” the proposal does not restrict access to any specific category of company, such as traditional and service-oriented SMEs.

Workers group concerns

However, the commission’s regulatory framework proposal was less well received by the European Economic and Social Committee Workers’ Group. The advisory body, which comprises representatives of worker and employer organisations, says it recognises Europe’s competitiveness challenges, including declining investment and outflow of talent and startups. But it highlights a string of concerns relating to EU Inc’s legality, limited scope, lack of minimum safeguards and likely impact on workers’ rights.

The proposal threatens to undermine the bloc’s social market foundations, weaken its checks and balances and risks compromising worker protection without delivering its intended benefits, the group says. And it asserts that strengthening the single market should not mean lowering standards but should reinforce rights and protections at the core of the European social market economy.

Workers’ group president Lucie Studni?ná said: “EU Inc has the potential to allow companies to evade national co-determination rules. Workers’ participation rights would follow the registered seat, not the location where management decisions are taken or where workers are employed. This creates a clear risk of evasion of existing legal protection and obligation.”

Stressing the importance of EU Inc for the bloc’s future prosperity, the commission has called on the European Parliament and Council of the EU to reach an agreement on its proposal by the end of 2026.