EU Parliament Backs 28th Regime for Faster Company Setup

The European Parliament has approved a resolution supporting the creation of an optional corporate legal structure that would operate uniformly across all EU member states, designed to accelerate business formation and simplify cross-border expansion.

Lawmakers voted 492 to 144 on 20 January in favour of the framework, which has been dubbed the 28th regime—a reference to its status as an alternative to the 27 existing national company law systems. The vote coincided with European Commission President Ursula von der Leyen presenting the concept at the World Economic Forum in Davos, where she outlined its potential to transform how businesses operate within the single market.

Under the proposed system, entrepreneurs would be able to establish a company in any EU country within 48 hours using a fully digital process. The framework would introduce a standardised capital structure applicable throughout the bloc, removing the need to navigate differing national requirements when expanding operations.

Von der Leyen referred to the initiative as "EU-Inc," echoing terminology promoted by start-up founders and venture capital investors who have campaigned for such a regime. The Commission is scheduled to unveil detailed legislative proposals in March.

The framework would not eliminate or override national company law. Instead, it would function as a voluntary option for businesses seeking to operate across multiple jurisdictions without conforming to disparate regulatory environments in each member state.

René Repasi, the Socialist and Democrat MEP who led the Parliament's work on the issue, described the cross-party consensus as unusual. Support came from centre-left, green, and conservative groupings alike, reflecting what he characterised as rare substantive agreement in the assembly.

Repasi attributed the broad backing to provisions safeguarding labour standards and ensuring employee involvement in corporate governance. Lawmakers insisted that the framework must be accessible to all types of companies, not limited to those classified as innovative, to avoid creating unnecessary bureaucratic distinctions.

At the same time, MEPs emphasised the need for protections to prevent misuse of the system by actors seeking to circumvent social and employment standards. Repasi warned that without such safeguards, the regime could be exploited to undermine worker rights.

Speaking during a parliamentary debate the day before the vote, Justice Commissioner Michael McGrath confirmed that the Commission shares lawmakers' commitment to preventing the 28th regime from being used to weaken existing protections.

The Parliament's resolution also calls for the framework to include harmonised rules on employee stock options, a mechanism frequently used by high-growth companies to attract talent. Pascal Canfin, a Renew Europe MEP who worked on the file, argued that such measures are essential for European firms to compete with counterparts in the United States and China, which benefit from larger domestic markets.

Canfin said the regime would facilitate faster continental expansion and attract greater investment into European businesses. He highlighted the stock option provision as a priority for the continent's start-up sector.

MEPs additionally urged measures to encourage collaboration between companies using the EU-wide framework and universities, research institutions, and technology transfer offices, with the aim of commercialising academic research more effectively.

A critical decision yet to be resolved is whether the policy will take the form of a regulation or a directive. A regulation would apply immediately across all member states, while a directive would require national governments to transpose its objectives into domestic law within two years. The Parliament has recommended the latter approach, though some in the start-up community have cautioned that a directive would perpetuate the fragmentation the regime is intended to address.

Industry Impact and Market Implications

The proposed 28th regime represents a structural shift in how companies could establish and scale operations across the European Union. For businesses, particularly those in technology, professional services, and sectors reliant on cross-border activity, the framework could reduce both the time and cost associated with multi-jurisdictional expansion. Currently, companies seeking to operate in multiple EU countries must navigate 27 separate legal systems, each with distinct registration procedures, capital requirements, and governance obligations.

The inclusion of a harmonised employee stock option regime could alter competitive dynamics in talent acquisition. European start-ups and scale-ups have long argued that fragmented rules on equity compensation place them at a disadvantage compared to US and Chinese competitors, where such instruments are more standardised and widely understood by employees. A unified approach may enable European firms to structure compensation packages more competitively, particularly when recruiting from international talent pools.

The emphasis on worker protections and employee participation in governance may influence how multinational corporations approach the regime. While the framework is designed to simplify operations, the requirement to maintain labour standards could limit its appeal to companies seeking regulatory arbitrage. This balance reflects ongoing tensions within EU policymaking between market efficiency and social protection.

For investors, the regime may increase the attractiveness of European ventures by reducing structural barriers to scaling. Venture capital firms have historically cited regulatory fragmentation as a factor limiting returns on European investments relative to other markets. A standardised legal framework could streamline due diligence and reduce legal costs associated with portfolio companies expanding across borders.

The choice between a regulation and a directive will materially affect the framework's impact. A regulation would create immediate uniformity, while a directive could introduce variations depending on how each member state transposes the rules. This distinction matters particularly for sectors where speed and consistency are competitive advantages.