EU Inc. - Making the 28th regime attractive for European VC-backed Startups
Europe’s 28th regime will not attract high-growth startups unless it offers legal certainty for the contracts investors and founders actually use. A commentary by Luca Enriques, Casimiro A. Nigro, and Tobias Tröger
The European Commission’s proposal for a new optional company form—the “EU Inc.”—contains some elements intended to convey a high-tech image. Registration should be possible purely online, cost less than 100 euros and be completed in less than 48 hours. But these procedural improvements will not be enough to make EU Inc. the first choice for high-tech startups.
Founders and venture capitalists need a coordinated set of arrangements that allocate economic and control rights in a flexible and often asymmetric way. The current proposal does not seem to offer this.
The key mechanism proposed to reduce legal fragmentation is the introduction of standardised templates for the articles of association.
These templates could, in principle, become the regime’s main operational lever. But, as we argue in our recent paper, the proposal turns that promise into a missed opportunity.
The choices it makes on the scope, design, and legal effects of templates are unlikely to support the firms that motivated the initiative—those relying on external investors to scale quickly.
Consider that firms that rely on external investors operate under conditions of deep uncertainty and information asymmetry. Investors face the risk that founders may take actions that are not aligned with their interests. Founders, in turn, risk losing control of their company if things go wrong. Contracts are used to manage these tensions.
In more developed markets, like the US, these contracts follow a well-established pattern. They allocate economic returns and control rights in a flexible and often uneven way.
Investors may gain strong control rights if the company underperforms, and a large share of the value if it is sold under unfavourable conditions. These arrangements are not accidental. They are designed to make investment possible in situations where risk is high and information is limited.
Crucially, these arrangements are not contained in a single document. They are spread across the company’s articles of association and separate agreements among shareholders. The two sets of documents are tightly coordinated and work together as a single structure.
This is precisely where European corporate law creates difficulties. In several jurisdictions, including Italy and Germany, many of these arrangements are either not allowed or are subject to significant uncertainty.
Legal professionals may refuse to include them in company documents, and courts may later reinterpret or invalidate them. The result is a weaker contractual framework and, ultimately, more expensive or less available funding.
The 28th regime aims to overcome these problems by offering a new, EU-wide corporate form. But when it comes to templates, it only goes halfway.
The first limitation is templates’ narrow scope. The proposal provides for model articles of association, but not for model agreements among shareholders. This is a serious gap.
If the relevant contractual structure depends on the interaction between the two, standardising only one of them cannot reproduce the intended effect. The missing piece is left to national law, with all its constraints and uncertainties.
The second limitation lies in the underlying approach to fairness. The proposal places strong emphasis on balancing the interests of different shareholders and protecting minorities. While these are important goals, they sit uneasily with the logic of venture capital-backed firms.
In those settings, contracts often rely on asymmetric allocations of rights and returns. Trying to impose a notion of balance risks undermining the very mechanisms that make investment viable.
The third limitation concerns legal certainty. The proposal offers some procedural advantages to firms that adopt the standard articles, such as faster incorporation. But it is unclear whether the content of those articles will be protected from later challenges. If courts or other authorities remain free to reinterpret or invalidate key provisions, the benefits of standardisation are limited.
One final limit concerns how the templates will be drafted. The proposal assigns this task to the European Commission through a broad consultation process. That process gives weak incentives to track and update market practice, and is unlikely to mobilise the specialised expertise required.
The contractual arrangements used in investor-backed firms are a tightly coordinated, continuously refined architecture.
In the US, comparable templates emerged from sustained practitioner investment and repeated real-world use. A generalist, Commission-led process raises both an incentive problem and a competence problem in replicating that outcome.
Taken together, these shortcomings suggest that the proposal does not yet provide a reliable framework for the firms it is meant to support. What would a more effective approach look like?
First, the regime should include not only model articles of association but also model agreements among shareholders. The goal is not formal symmetry, but functional completeness. The two sets of documents must be designed together.
Second, the drafting process should involve those with direct experience in structuring venture capital deals: investors, founders, and specialised lawyers. Without that input, the templates risk being too generic. (One of us suggested a more radical solution: delegating the task of issuing templates to private bodies authorised by the European Commission, in line with the New Legislative Framework.)
Third, policymakers should avoid building the templates around an abstract notion of fairness. The focus should instead be on enabling informed parties to adopt arrangements that reflect their economic objectives, even if those arrangements are uneven in their outcomes.
Finally, the regime should provide stronger legal protection for firms that adopt the templates. This means not only simplifying incorporation but also limiting the scope for later challenges and reinterpretations. Without such protection, the benefits of standardisation will remain uncertain.
The broader point is that innovative startups need not only lower administrative burdens. They also need a legal framework that supports, rather than constrains, the contractual tools on which those firms depend.
To conclude, the 28th regime is a step in that direction. But in its current form, as the provision on templates illustrates, it risks being a missed opportunity.
IEP@BU does not express opinions of its own. The opinions expressed in this publication are those of the authors. Any errors or omissions are the responsibility of the authors.
