Facilitations and support for start-ups and scale-ups in the EU

The Committee on Legal Affairs of the European Parliament, on 30 June 2025, published a draft report with recommendations on a new 28th regime (“28th Regime”) for innovative companies (2025/2079(INL))^[1].

The draft report calls on the EU Commission to submit a legislative proposal for an EU directive to introduce the 28th Regime by the first quarter of 2026.

The legislative initiative originates from a “mission letter” of the President of the Commission of 17 September 2024 and a Communication from the Commission of 28 May 2025 (COM(2025)270 final), which describes a new EU start-up and scale-up strategy. This EU strategy aims at making Europe a more attractive place to launch and grow global technology-driven companies. The strategy sets out a number of legislative, policy and financial support measures in support of European start-ups and scale-ups, at both EU and Member States level.

The legislative technique proposed in the draft report envisages that certain harmonized rules should be introduced at EU level which then co-exist with national rules within the territories of the Member States.

According to the draft report of the Committee on Legal Affairs, the EU directive should mainly concern company law rules but should also address certain labour law aspects.

The Commission is holding a public consultation on the initiative until 30 September 2025. At the same time, the EU Parliament intends to adopt its own resolution on the 28th Regime in autumn 2025.^[2]

The draft report of the Committee on Legal Affairs of the European Parliament recommends that the directive should have the following material content:

1. Facilitation of a corporate form with the EU label “European Start-Up and Scale-Up” company (“ESSU”)

At the core of the proposal lies the new EU identifier / label “ESSU”. This label should be available to unlisted companies that meet certain requirements. Companies with this EU label should be recognised by the national legal orders of all Member States as limited liability companies.

2. National corporate form with elements harmonised by EU law

The Committee on Legal Affairs proposes that the ESSU should not be an autonomous pan-European corporate form (like the SE), but a national corporate form that meets certain requirements and at the same time has certain elements that are harmonised by EU law, i.e. the ESSU should build on corporate forms established under national law  (“supranationalisation of essential elements of an otherwise national corporate form”).

This regulatory model has not been finally decided; alternative models could include a model based on a new pan-European corporate form (analogous to the SE) or a model that “only” provides for harmonised rules for establishing (certain types of) companies.^[3]

The law applicable to the creation of an ESSU should principally be the law of the Member State in which the company is incorporated. However, by way of derogation from that principle and for the purpose of protecting certain public interests, the it should also be possible to determine the applicable law by means of an overriding connecting factor rather than the place of incorporation.

The Member States should be free as to whether they choose to allow existing national corporate forms to convert into an ESSU or (only) to create a new national corporate form.

3. Abbreviation “ESSU” as an addition to the national corporate form abbreviation

The abbreviation or EU label “ESSU” should be added to existing national corporate form abbreviations (an example for Germany might be “XYZ GmbH ESSU”).

4. Simplified creation; Union-level digital register

The creation of such a company should be simplified and the registration procedure for establishing an ESSU be finalised within 48 hours. A uniform Union-level digital company register should be introduced. General meetings and board meetings should be allowed to be held as digital meetings.

The registered office and the real seat (i.e., the place of the company’s central management) may be in different Member States.

If an ESSU intends to list its shares on the stock market, it should be required to convert into a public limited company under national or Union law in accordance with national and Union conversion rules; a conversion into another legal form that is eligible for listing on the stock exchange would then likely also suffice in this case.

5. Establishment of an alternative dispute resolution mechanism for disputes relating to ESSUs

An alternative dispute resolution mechanism should be established for disputes relating to ESSUs to ensure fast and specialised dispute resolution. Member States should also consider introducing a special panel within their national courts dedicated to disputes between companies relating to ESSUs, conducting the dispute resolution in English.

6. Equity-like instruments to attract venture capital

Harmonised provisions on equity-like debt instruments should be introduced that allow for investors to invest in companies without acquiring rights of control over a company (e.g. profit participation rights, silent partnerships or profit-linked loans).

7. Encouraging long-termism

With a view to preventing the relocation of companies to third, i.e. non-EU countries, provisions should be introduced that make it possible to irrevocably opt for additional regulatory systems/share classes, such as trusteeship, asset locks and the separation of voting rights and economic rights through different share classes, in particular “dual-class shares”, multiple voting rights or shares with veto rights[4].

8. Application of national law of Member States concerning labour law matters in accordance with of conflict-of-laws rules

Union law and national law concerning individual and collective labour law matters, including provisions on employee codetermination, should not be prejudiced but safeguarded; the latter term “codetermination” likely refers to board-level codetermination regimes. Works constitution law issues (in particular, laws on information and consultation of employee representatives such as works councils) are likely to be governed by the law applicable at the location of the relevant business operations. In addition, safeguards should be provided for that prevent the abusive use of the ESSU. The prohibition to abuse EU law arrangements to circumvent national law is not new and has already been laid down in the SE Directive 2001/86/EC concerning European companies (SE) and in the Directive (EU) 2017/1132 relating to certain aspects of company law as regards cross-border conversions, mergers and divisions.

As regards labour law, the legal framework of the 28th Regime should essentially contain conflict-of-laws rules, namely:

• The law applicable to individual employment contracts should be exclusively determined by Article 8 of Regulation (EC) No 593/2008 (Rome I Regulation), i.e. as a rule be based on the place of work.
• Matters relating to codetermination – to protect national codetermination rules – should be governed by a conflict-of-laws rule providing that the applicable law is determined by the location of the real seat of the company, i.e. the place of the company’s central management. This regulatory concept would significantly deviate from the previous conflict-of-laws understanding, that board-level codetermination /employee representation is governed by the same law as the applicable company law. This proposal thus raises legal and practical questions where the national company law at the company’s registered office does not provide for codetermination and the real seat is in another Member State which does provide for board-level employee representation.

An autonomous codetermination model based on a negotiation and standard rules model, as in SE law or in the law on cross-border conversions, mergers and divisions, is apparently not what the Committee on Legal Affairs of the EU Parliament has in mind (because an ESSU is in principal a national legal form with a European label, see above).

9. Union-wide harmonised employee stock ownership plans; model agreements

With a view to attracting talent, ESSUs should provide for optional harmonised rules across the EU on the structuring of employee stock ownership plans, facilitated via a separate intermediary. They are intended, among other things, to ensure the fair participation of employees in the value they help create through their labour. When designing such harmonised rules, the following principles should be taken into account:

• Participation schemes should not replace or diminish normal basic remuneration but should be a benefit complementary to all social and contractual rights.
• The design of participation schemes must be transparent.
• Participation in such schemes must be non-discriminatory and open to all employees.
• Participation must remain voluntary for employees.
• Participation schemes must be accompanied by mechanisms to safeguard employees against unreasonable financial risks.

The Commission is asked to design simple, supportive model profit-sharing agreements and guidance for ESSUs, in consultation with the social partners and based on best-practise examples. The model agreements and guidance should include information about associated financial risks for employees, specify employee buy-out options and consider the impact on employees with a specific view to gender equality.

Such harmonised model participation schemes could involve certain conflicts regarding the application of national individual labour law, such as the assessment of bad leaver clauses, which still differs under national law in certain cases. From a German law perspective, such model participation agreements could lead to more flexibility for companies (e.g. in the case of bad leaver clauses).

We are keeping an eye on the EU legislative initiative on ESSUs and will continue to report on its development.

[1]    PR_INL; draft reports: DRAFT REPORT with recommendations to the Commission on the 28th Regime: a new legal framework for innovative companies | polit-x.de

[2] Schmidt, BB 2025, 1795 (1800).

[3] Schmidt, BB 2025, 1795 (1800).

[4] Schmidt, loc. cit.