The European Union (“EU”) is developing a major legislative initiative, known as the “28th Regime”, designed to simplify how innovative companies operate across the Single Market. It aims to boost innovation, attract investment, and enable companies to operate and scale more easily across borders. The initiative is now at the heart of the EU’s Start-Up and Scale-Up Strategy and will form part of the European Innovation Act, signalling strong political commitment for an innovation-driven EU economy.
At its core, the initiative is designed to make Europe an attractive hub for start-ups and scale-ups. It would introduce a harmonised legal regime that companies could choose to follow in addition to their national corporate laws. The goal is not to replace national systems, but to overlay them, reducing administrative burdens, lowering compliance costs, and facilitating efficient expansion across the EU.
The European Commission has concluded its consultation process on 30 September 2025, with a legislative proposal expected to be tabled in early 2026, with implementation potentially beginning in 2026-2027. Although earlier discussions frequently considered creating a single, harmonised EU-level company form, the Commission now appears more likely to propose the measure as a directive rather than a regulation. This would give Member States greater flexibility but it also raises concerns of uneven implementation.
What Is the 28th Regime?
The 28th Regime is an optional EU framework that companies may adopt in addition to their national corporate form. Rather than displacing domestic laws, it provides a complementary set of harmonised standards in areas such as governance, financing and dispute resolution.
This optional nature has attracted both praise and criticism: while businesses value the ability to opt in only if the regime suits their needs, experts warn that without careful design, a parallel EU framework could inadvertently create additional lawyers of complexity rather than simplifying cross-border operations.
A central feature of this initiative is the creation of the “European Start-Up and Scale-Up” (“ESSU”) label. This designation would apply to unlisted limited liability companies meeting the prescribed EU criteria relating to size, governance, and transparency. Importantly, the ESSU is not a new EU company form, but it is a label layered onto national structures. For example, a German company, could operate as “XYZ GmbH ESSU”, with its ESSU status would automatically carry recognition and legal effect across all Member States.
Key Features and Innovations
- Fast and Digital Operations – Full digitalisation of company processes, from incorporation to shareholder meetings. Registration of an ESSU could be completed within 48 hours through a Union-wide digital register.
- Investment Friendly Structures – Harmonised rules will permit the issuance of multiple share classes and equity-like financing tools, including profit-linked loans, thereby encouraging long-term investment while offering capital flexibility.
- Talent Attraction – Optional EU-wide rules for employee stock ownership plans (“ESOPs”). Today, ESOPs are heavily fragmented and inconsistent across Member States, making it difficult for companies to offer competitive packages. A harmonised framework would boost transparency, fairness, and cross-border mobility for skilled workers.
- Efficient Dispute Resolution – A dedicated system of alternative dispute resolution mechanism and specialised court panels would provide faster and more predictable outcomes in corporate disputes. This is particularly helpful for companies operating in multiple jurisdictions.
Despite its potential, the 28th Regime faces structural limits. Key areas such as labour law, taxation, and insolvency remain primarily national competences. ESSU-labelled companies would still need to navigate different national rules, potentially creating two overlapping regulatory layers rather than one single streamlined framework.
Furthermore, if the directive is implemented unevenly across Member States, the regime could lead to regulatory fragmentation with some jurisdiction becoming significantly more attractive than others for ESSU companies.
The 28th Regime represents an ambitious and forward-looking step in the EU’s efforts to reinforce its role as a global leader in innovation-driven enterprise. If adopted, it could provide start-ups and scale-ups the legal certainty they need to expand across borders with confidence. Its ultimate effectiveness, however, will depend on striking the right balance between encouraging innovation and preserving essential safeguards in relation to investor protection, labour rights, and national sovereignty.
