It’s no secret that Europe lags on tech innovation. The EU has even given this a name – the “innovation gap” – and is now taking major steps to make things easier for the continent’s startups, particularly digital businesses. While the EU’s contested Digital Omnibus Regulation seeks to fix existing barriers to business, another new measure aims to more actively cut red tape and make the continent more hospitable to modern companies and entrepreneurs: the 28th regime. This new template proposes a single, harmonised set of rules that would allow companies to be truly EU-based instead of being bound to one member state’s laws. It aims to make Europe a startup-friendly economy, but it has also received fierce criticism, mainly because it risks hollowing out labour standards and enabling widespread social dumping. What is the 28th regime? The 28th regime is a proposed, optional EU-wide company status that provides an alternative to the national company law models of the EU’s 27 member states. It was officially presented by President Ursula von der Leyen in July 2024, in her current mandate’s Political Guidelines, but the idea had been floated before; the Letta Report, published in April 2024, explicitly recommended its implementation. The Draghi Report, which came in September 2024, made the same recommendation. It essentially stated that the EU will not achieve economic growth or catch up in the global innovation race unless entrepreneurs can expand across borders much more easily – “frictionlessly”, as tech pundits would say. The Commission’s more recent Start-up and Scale-up Strategy presented the 28th regime as a “single and simple” digital-by-default rulebook with fast online incorporation, reduced cost of failure and template documents that work across borders. The 28th regime’s goal is to overcome the patchwork of national company laws that makes it difficult and expensive for smaller firms to expand beyond their home state. Barriers within the single market currently amount to a de facto tariff of about 44% on goods and 110% on services, which makes European startups unappealing to investors. This in turn drives Europe’s local talent and promising startups to restructure and relocate in search of funding. Young EU companies moving to the US has become so common it even has its definition: the “Delaware flip”. What does it cover? The European Parliamentary Research Service’s recent briefing describes the 28th regime as a framework governing businesses “from birth to death”, covering establishment, organisation, operations and disputes for firms that opt in. It would be a more adaptable and simplified legal structure for firms. The Letta Report envisioned a broader long-term project: a European code of business law stretching into insolvency, finance and even employment (particularly in terms of unlocking the full potential of freedom of movement for workers). However, the Commission has so far narrowed the 28th regime to cover company law and closely related areas. Who can use it? The EU’s Competitiveness Compass frames the 28th regime as a tool for “young and small innovative companies”. However, in legal terms “innovative” is a slippery label. Thresholds based on headcount, turnover or funding rounds risk excluding firms that most need support, and may reward those that can afford creative relabelling to fit the criteria. A study for the European Parliament’s Legal Affairs Committee warns against strict eligibility criteria and recommends keeping the regime broadly open. The EU’s Commissioner for startups and innovation Ekaterina Zaharieva has echoed this, arguing that trying to police which firms qualify would stall the project and favour high-growth firms. Who’s pushing for it? The coalition behind the 28th regime is ample, and vocal. Venture capital funds and startup associations, grouped in campaigns such as, most famously, EU–INC, together with sector groups like DigitalEurope and BusinessEurope, hail the regime as Europe’s chance to create its own equivalent of the Delaware C corporation. They advocate for simpler cross-border expansion and a clearer route to capital via a model based on no minimum capital requirements, a single founder resident anywhere in the EU, a once-only registration to open, and approval within 24 hours. Trade unions, watchdogs and NGOs are not supportive. Some warn that the 28th regime risks “ripping up workers’ rights”. Others frame the initiative as a “social dumping disaster” in the making that would allow irresponsible employers to circumvent national rules on wages, working time, collective bargaining and collective rights. The European Trade Union Institute deems the project “unnecessary and harmful”, arguing that previous EU corporate forms, such as the Societas Europaea (SE), have in practice been used to weaken co-determination and collective bargaining. The main concern is that the 28th regime could open the door to a Trojan horse capable of displacing the EU’s social acquis, the sum of its accumulated community law. Read more: EU proposal to delay parts of its AI Act signal a policy shift that prioritises big tech over fairness Legal form (and why it matters) One major sticking point is the technical choice of legal format: should the 28th regime be created through an EU regulation, or a directive? The business community advocates for a regulation, as this means it would apply directly in every member state. A directive, on the other hand, would rely on national implementation, potentially renewing fragmentation, mismatches and loopholes. An open letter coordinated by Allied for Startups contends that “a directive is not a 28th regime”, since 27 national transpositions may simply recreate the patchwork that businesses already face. However, reports on the Commission’s internal work programme and a more cautious European Parliament workshop suggest that institutions see a directive as safer, leaving more room for national discretion in sensitive areas such as labour, tax and insolvency. ‘Regime shopping’ and safeguards Trade unions’ core fear is “regime shopping”: firms choosing the legal framework that makes it easiest to cut labour costs. Such practices are already common in the EU, but are theoretically controlled by legislation such as the Posting of Workers Directive. Safeguards will therefore determine whether the project ends up being a useful simplification or an erosion of workers’ rights. One option would be to exclude labour, tax and insolvency entirely, so that the regime harmonises only company law and procedures while employment rights remain untouched. Another is to add clear conflict of laws rules that guarantee host country standards for worker participation and collective bargaining. In either case, anti-avoidance clauses, a digital EU register and close cooperation between labour inspectorates and tax authorities will be essential to prevent abuse. Read more: Outdated legal frameworks are a barrier to the EU’s just transition – here’s how we can fix them Balancing innovation with rights Speaking in front of tech entrepreneurs in Turin several weeks ago, President von der Leyen triumphantly pledged to make Europe an “AI-first” continent. Her words were met with silence, and she had to actually prompt the audience to applaud. This moment of awkwardness serves as a reminder that policy slogans are not enough to make stakeholders and citizens feel reassured. Something similar could well occur with the 28th regime. Without easier cross-border operation, European innovators will keep migrating to markets where scaling up is easier. But without safeguards, the special regime could become an emblem of social dumping and provoke strong resistance. It is possible to simplify transnational business while also ensuring no worker is worse off because their employer chose the 28th regime. It will require a flexible regime focused on company formation and financing tools, combined with respect for EU and national labour law and effective enforcement measures. Whether the Old Continent emerges as a “competitive” ecosystem with reliable safeguards or paves the way for exploitation will depend on that fine print. A weekly e-mail in English featuring expertise from scholars and researchers. 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One single and simple set of EU-wide business laws: everything you need to know about Europes 28th regime
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