Ireland's EU Commissioner Michael McGrath has launched a proposed new system whereby any company can set up across every member state within 48 hours using a single, digital legal framework.
The new system, dubbed EU Inc, aims to enable particularly new and innovative companies to scale up across the EU using one set of company rules, thus creating a more attractive climate for investment and venture capital.
At present, a European start-up aiming to expand has to comply with potentially 27 different versions of company law, with a total of 60 different company forms liable to be completed.
Officials say this degree of uncertainty and complexity has historically been a disincentive to investors and the expansion of European firms.
As a result, European start-ups tend to relocate to the US in order to scale up and attract funding, say officials.
According to a European Parliament research note, hindrances to successful scale ups at EU level include a low appetite for risk within the financial system, a lack of skilled workers for innovative companies, the high cost of failure for start ups and the "high variation in laws affecting companies across the EU".
Speaking to reporters ahead of the launch, Mr McGrath said: "[EU Inc] essentially involves a single, optional and harmonised set of corporate rules. Entrepreneurs, founders and companies will be able to found an EU Inc company within 48 hours for less than €100 and with no minimum share capital requirements".
"EU Inc companies would be free to choose the member state in which they incorporate, and standard articles of association will help them to establish quickly and efficiently," he said.
Under the system - which had been referred to as the '28th Regime' - there will be a new definition of innovative, start-up and scale-up companies.
Such companies will qualify for a simplified insolvency procedure, whereby there would be no requirement for insolvency practitioners or lawyers and where the insolvency process would have to be completed within a six-month deadline.
"It can happen that the business model of a company doesn't work out," says a senior EU official. "To reduce the cost of failure, it should be as simple as possible to run the insolvency process so that the founder and entrepreneur can start again," the official said.
"It is envisaged in the proposal that for a certain group of companies, it would be a simplified insolvency procedure, which would mean that under certain conditions, there would not be a mandatory representation by a lawyer or an insolvency practitioner in such a procedure, and to envisage a clear time limit for such a procedure," the official added.
Officials are also adamant that the proposed system will not intrude on national labour law or union law.
At present, some 600,000 companies are established across the EU each year.
The European Commission believes that in its first ten years, some 300,000 companies will be created from scratch using the EU Inc framework, with at least 10% of new companies establishing under the framework by its tenth year of operation, employing 1.6 million people.
While all companies will be entitled to transfer to, or be established under, the EU Inc framework, it is understood the new system is specifically designed to encourage innovative start-up and scale-up enterprises.
EU member states have failed in the past to create a pan-European legal framework that would drive innovation and attract venture capital.
Mr McGrath said the existing so-called SE form, created in 2004 and by which a public limited-liability company could operate across EU borders, had not worked.
"There was too much discretion allowed at national level," he said.
"There were too many barriers to entry, including a minimum share capital of €120,000. You couldn't form the SE company from scratch, so you had very clear limitations in-built by design," he said.
"I think we have learned from [that]. What you will see here is a proposal that is fully digital, that is simple, that is flexible, and that is quick in its execution," he added.
Mr McGrath told reporters that in light of the recent reports on the EU's declining economic competitiveness - relative to the US and China - by former Italian prime ministers Mario Draghi and Enrico Letta, the time had come for national capitals to embrace the idea.
"What is fundamentally different is that the political will is now there to achieve this," he said.
"I believe that its moment has come, and I think it is a now or never moment for the European Union. If we are serious about addressing the scale of challenge that we face, then we must deliver on this proposal," he added.
Mr McGrath said the proposal, which the Commission hopes could be adopted by member states by the end of the year, is not a panacea for the bloc’s lack of competitiveness.
"It won't resolve everything," he told reporters. "But if combined with all of the other reforms around the integration of the single market, the removal of internal barriers… the [creation of the] Savings and Investments Union, the integration of the energy market," he said.
"I'm laying down that challenge right across the system that all of these reforms have to be implemented," he added.
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The new system will ensure that stock options, which are often used by innovative start ups to attract talent, will be harmonised across the EU.
Officials insist that the taxation of such stock options would not be harmonised, but the point at which national taxation applies would be.
The EU Inc regulation will be negotiated between the European Commission, member states and the European Parliament under a weighted majority, meaning no member state will be able to veto the legislation.
Officials point out that a centralised EU court to adjudicate disputes would not be possible without changing the EU treaties.
However, the regulation will encourage national court systems to create a "suitable" court which will deal with EU Inc disputes.
"Investors, stakeholders, founders who use the EU Inc regulation for the company form, want to be assured that no matter which member state in the EU in which they're operating, that the law is applied evenly," a senior EU official said.
Officials also insist that companies will not be able to use the EU Inc framework to cherry pick lower corporate tax regimes.
"There are already extensive provisions at national level and across the [European] Union to prevent misuse of company structures for tax evasion. Countries have bilateral tax agreements which ensure that taxation is paid appropriately and fairly by companies," a senior EU official said.
