27 Countries – 28 Corporate Regimes

Article by Walter Baier, EL President

A key element of the European Commission’s deregulation agenda is its recently published proposal for a new legal framework for companies: the so-called “28th Regime.” The proposal seeks to establish a harmonised European limited liability company – the EU Inc. – alongside the 27 existing national company law systems.

Presented as a tool to simplify and “de-bureaucratise” the creation of innovative businesses, this new legal form would not only apply to start-ups but also be available to already existing companies. In practice, this amounts to an open invitation for multinational corporations to establish subsidiaries outside the regulatory systems currently in place in the EU’s 27 member states. The 28th Regime would create ideal conditions for restructuring corporate groups while circumventing national standards and workers’ rights.

By allowing the fully digital establishment of an EU Inc. in a member state without co-determination requirements, companies could effectively bypass established national systems of worker representation which are in place in 18 countries. The result would likely be a race to the bottom, with member states competing over ever weaker standards for employee participation in corporate governance.

The proposal also raises serious concerns regarding transparency and public accountability. While the original founders of an EU Inc. would have to be disclosed, later transfers of ownership would remain hidden from public view. This creates opaque ownership structures and weakens democratic oversight.

The 28th Regime also sits uneasily with the EU’s efforts to combat money laundering and terrorist financing. The proposal contains no clear provisions on who should carry out anti-money laundering due diligence, how such checks should be conducted, or at what stage they must take place during the establishment of an EU Inc.

Most strikingly, the EU Inc. would require no minimum share capital whatsoever. A company could be founded, operated and dissolved without a single euro ever being invested. In the event of insolvency, creditors and employees could be left facing an empty shell with no assets to recover. The absence of meaningful entry requirements would also make the EU Inc. an ideal instrument for the creation of shell companies.

Rather than compensating for these structural weaknesses through stronger liability rules for management, the 28th Regime goes even further by proposing to radically “simplify” insolvency procedures for innovative start-ups. Insolvencies could potentially be handled without an independent insolvency administrator responsible for safeguarding the interests of creditors and employees.