Opinion on the legal basis of the The 28th Regime: a new legal framework for innovative companies

11.12.2025

Committee on Legal Affairs

Coordinators

Subject: Opinion on the legal basis of the The 28th Regime: a new legal framework for innovative companies (2025/2079(INL))

Dear Coordinators, Colleagues,

I - Introduction

On 6 January 2025, the Committee on Legal Affairs (JURI) requested an authorisation to draw up an own-initiative legislative report (INL) pursuant to Article 225 of the Treaty on the functioning of the European Union (TFEU) and Rule 47 of the Rules of Procedure of the European Parliament (RoP), with recommendations to the Commission on the 28th Regime: a new legal framework for innovative companies. The authorisation was granted by the Conference of Presidents on 3 April 2025.

In accordance with Rule 47(3) RoP, the committee responsible for the subject-matter is to request an opinion on the appropriateness of the legal basis from the committee responsible for legal affairs, which is to be delivered without undue delay.

In this case, the committee responsible for the subject-matter and the committee to provide the opinion on the legal basis are the same, the JURI committee. On 23 September 2025, the Coordinators of the JURI committee therefore took note that the committee would provide such an opinion.

The JURI committee considered the matter of the appropriateness of the legal basis proposed in the draft INL in question at its meeting of 3-4 December 2025.

II - Background

The request for authorisation of the INL was made pursuant to point XVIII(5) of Annex VI to the Rules of Procedure, which confers on the JURI committee the competence in the area of company law.

The purpose of the INL is to invite the Commission to put forward a legislative proposal for a Union-wide legal status, which would offer a new alternative for innovative companies. It would take the form of the so-called 28th regime and would allow companies to benefit from a simpler, harmonised set of rules in certain areas. With the INL, the JURI committee intends to map in detail Parliament’s position and expectations regarding both the legal basis of such initiative and its more detailed content, and thus shape the proposal up-front.

In the INL, the JURI committee would analyse the need for such a legislative instrument and the legislative options available, including safeguards to address the concerns that led to the failure of similar initiatives in the past.

The JURI committee also intended to address the following aspects in the INL: (i) the real hurdles that companies, in particular innovative start-ups, face in the Union that would justify the 28th regime to enhance competitiveness and productivity, (ii) to what extent, within the limits set by the Treaties, areas such as company and corporate law, insolvency law or commercial law can be harmonised under the 28th regime, (iii) safeguards that could mitigate the risk of misuse in order to circumvent applicable regulatory frameworks in the Member State where the company activities are carried out, and (iv) how to simplify registration without increasing the risk of evasion of the applicable regulatory framework, and without compromising the necessary guarantees for verification of the identity and good repute of the company founder. Lastly, the report would also assess whether the 28th regime should be accessible to all Union companies or limited only to particular categories (e.g., innovative start-ups).

The JURI committee specified that the possible legal basis would depend on further considerations, but tentatively envisaged Articles 50 and 114 TFEU as the legal basis.

III – CJEU case-law on the choice of legal basis

The Court of Justice has traditionally viewed the question of the appropriate legal basis as an issue of constitutional significance, guaranteeing compliance with the principle of conferred powers (Article 5 of the Treaty on European Union) and determining the nature and scope of the Union’s competence.

According to well-established case-law, the legal basis of a Union act does not depend on an institution's conviction as to the objective pursued but must be determined according to objective criteria amenable to judicial review, including in particular the aim and the content of the measure.

If examination of a measure reveals that it pursues a twofold purpose or that it has a twofold component and if one of those is identifiable as the main or predominant purpose or component, whereas the other is merely incidental, that measure must be based on a single legal basis, namely that required by the main or predominant purpose or component. Only exceptionally, if it is established that the act simultaneously pursues a number of objectives, inextricably linked, without one being secondary and indirect in relation to the other, may such an act be founded on the various corresponding legal bases. This would however only be possible if the procedures laid down for the respective legal bases are not incompatible with and do not undermine the right of the European Parliament.

IV – Aim and content of the INL

The aim as specified in the draft INL is to ‘further deepen the internal market’ (paragraph 4) by designing the “framework of such a corporate form, with a specific view on how such a status could benefit small and medium enterprises (SMEs), start-ups and scale-ups, and their founders wanting to operate and expand across the internal market, without being limited to them” (explanatory statement). In this broader context, the draft INL expresses the aim to help new and growing businesses (start-ups and scale-ups) to address problems such as access to finance and infrastructure, entering new markets, obtaining data and attracting talent.

The draft INL envisages inter alia the establishment of a ‘European Start-Up and Scale-Up’ (ESSU) corporate form to achieve those aims and reduce burdens by creating a simplified, digitalised and user-friendly regulatory environment tailored to the needs of SMEs, start-ups and scale-ups to create and strengthen innovation in Europe (explanatory statement). As envisaged in the draft INL, the ESSU, which is not conceived as an autonomous pan-European corporate form, but as a national corporate form in all Member States, would consist of certain elements that are harmonised by Union law and would take the legal form of a limited liability company. The draft INL contains provisions on the minimum paid-in capital and foresees the fully digital creation and registration of an ESSU. Furthermore, the draft INL proposes a uniform Union-level digital company register, measures to protect from ‘killer acquisitions’ and the introduction of harmonised equity-like debt instruments, including the development of model shareholder agreements and model articles of association.

The ESSU might have to be adopted through a set of legal acts instead of one comprehensive legal act, while the corporate law elements are proposed to be based on Articles 50 and 114(1) TFEU.

V - The relevant Treaty Articles

Chapter 2 of Title IV of Part three TFEU, on “Right of establishment” reads, inter alia:

Article 50

(ex Article 44 TEC)

1. In order to attain freedom of establishment as regards a particular activity, the European Parliament and the Council, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, shall act by means of directives.

2. The European Parliament, the Council and the Commission shall carry out the duties devolving upon them under the preceding provisions, in particular:

(a) by according, as a general rule, priority treatment to activities where freedom of establishment makes a particularly valuable contribution to the development of production and trade;

(b) by ensuring close cooperation between the competent authorities in the Member States in order to ascertain the particular situation within the Union of the various activities concerned;

(c) by abolishing those administrative procedures and practices, whether resulting from national legislation or from agreements previously concluded between Member States, the maintenance of which would form an obstacle to freedom of establishment;

(d) by ensuring that workers of one Member State employed in the territory of another Member State may remain in that territory for the purpose of taking up activities therein as self-employed persons, where they satisfy the conditions which they would be required to satisfy if they were entering that State at the time when they intended to take up such activities;

(e) by enabling a national of one Member State to acquire and use land and buildings situated in the territory of another Member State, in so far as this does not conflict with the principles laid down in Article 39(2);

(f) by effecting the progressive abolition of restrictions on freedom of establishment in every branch of activity under consideration, both as regards the conditions for setting up agencies, branches or subsidiaries in the territory of a Member State and as regards the subsidiaries in the territory of a Member State and as regards the conditions governing the entry of personnel belonging to the main establishment into managerial or supervisory posts in such agencies, branches or subsidiaries;

(g) by coordinating to the necessary extent the safeguards which, for the protection of the interests of members and others, are required by Member States of companies or firms within the meaning of the second paragraph of Article 54 with a view to making such safeguards equivalent throughout the Union;

(h) by satisfying themselves that the conditions of establishment are not distorted by aids granted by Member States.

Chapter 3 of Title VII of Part three TFEU, on “Approximation of laws” reads, inter alia:

Article 114

(ex Article 95 TEC)

1. Save where otherwise provided in the Treaties, the following provisions shall apply for the achievement of the objectives set out in Article 26. The European Parliament and the Council shall, acting in accordance with the ordinary legislative procedure and after consulting the Economic and Social Committee, adopt the measures for the approximation of the provisions laid down by law, regulation or administrative action in Member States which have as their object the establishment and functioning of the internal market.

2. Paragraph 1 shall not apply to fiscal provisions, to those relating to the free movement of persons nor to those relating to the rights and interests of employed persons.

3. The Commission, in its proposals envisaged in paragraph 1 concerning health, safety, environmental protection and consumer protection, will take as a base a high level of protection, taking account in particular of any new development based on scientific facts. Within their respective powers, the European Parliament and the Council will also seek to achieve this objective.

4. If, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to maintain national provisions on grounds of major needs referred to in Article 36, or relating to the protection of the environment or the working environment, it shall notify the Commission of these provisions as well as the grounds for maintaining them.

5. Moreover, without prejudice to paragraph 4, if, after the adoption of a harmonisation measure by the European Parliament and the Council, by the Council or by the Commission, a Member State deems it necessary to introduce national provisions based on new scientific evidence relating to the protection of the environment or the working environment on grounds of a problem specific to that Member State arising after the adoption of the harmonisation measure, it shall notify the Commission of the envisaged provisions as well as the grounds for introducing them.

6. The Commission shall, within six months of the notifications as referred to in paragraphs 4 and 5, approve or reject the national provisions involved after having verified whether or not they are a means of arbitrary discrimination or a disguised restriction on trade between Member States and whether or not they shall constitute an obstacle to the functioning of the internal market.

In the absence of a decision by the Commission within this period the national provisions referred to in paragraphs 4 and 5 shall be deemed to have been approved.

When justified by the complexity of the matter and in the absence of danger for human health, the Commission may notify the Member State concerned that the period referred to in this paragraph may be extended for a further period of up to six months.

7. When, pursuant to paragraph 6, a Member State is authorised to maintain or introduce national provisions derogating from a harmonisation measure, the Commission shall immediately examine whether to propose an adaptation to that measure.

8. When a Member State raises a specific problem on public health in a field which has been the subject of prior harmonisation measures, it shall bring it to the attention of the Commission which shall immediately examine whether to propose appropriate measures to the Council.

9. By way of derogation from the procedure laid down in Articles 258 and 259, the Commission and any Member State may bring the matter directly before the Court of Justice of the European Union if it considers that another Member State is making improper use of the powers provided for in this Article.

10. The harmonisation measures referred to above shall, in appropriate cases, include a safeguard clause authorising the Member States to take, for one or more of the non-economic reasons referred to in Article 36, provisional measures subject to a Union control procedure.

VI – Analysis

(a) Article 50 TFEU

The essence of the INL is company law and is therefore covered by Article 50 TFEU, which empowers the Union legislators to adopt measures in order to attain the freedom of establishment. According to paragraph 8 of the draft INL, “[...] the 28th regime should mainly concern company law rules and [...] only limited liability companies not listed on the stock market should be able to participate in it; [...] the 28th regime should be a set of rules that must be incorporated into existing or new national corporate forms”.

The draft INL provides for a new type of corporate form, the ‘European Start-Up and Scale-Up’ (ESSU) (paragraph 9), which is to be incorporated in each of the 27 Member States’ legal orders into existing or new national corporate forms. Indeed, such measures would contribute to facilitating the exercise, by innovative companies, of their freedom of establishment.

Other elements of the draft INL, such as the simplification and digitalisation of company formation and registration (paragraph 11), the rules on minimum paid-in capital (Section 2 of the annex) and the protection against killer acquisitions (paragraph 18 and Section 5 of the annex) also constitute company law rules, covered by Article 50 TFEU.

The draft INL proposes the establishment of “a uniform Union-level digital company register to serve as a direct entry point for registering ESSUs, complementing and extending the existing Business Register Interconnection System” (paragraph 12). The annex complements this by explaining that “[s]uch a register would complement and extend the existing Business Register Interconnection System. The uniform Union-level digital company register should not replace the existing national incorporation rules but, rather, serve as a common portal.” The register aims to facilitate the simplification and digitalisation of the creation of an ESSU. As long as it would serve as a direct entry point for the registration and it will not replace the relevant national rules, this provision would also fall under Article 50 TFEU.

(b) Article 114 TFEU

Article 114(1) TFEU is the appropriate legal basis for the approximation of the provisions laid down by law, regulation or administrative action in Member States which has as its objective the establishment and functioning of the internal market.

According to the case-law, Article 114 TFEU empowers the Union legislature to adopt measures to improve the conditions for the establishment and functioning of the internal market and they must genuinely have that object, contributing to the elimination of obstacles to the economic freedoms guaranteed by the Treaty, which include the freedom of establishment. Furthermore, recourse to Article 114 TFEU as a legal basis is also possible if the aim is to prevent the emergence of obstacles to trade resulting from heterogeneous development of national laws; the emergence of such obstacles must, however, be likely and the measure in question must be designed to prevent them.

As mentioned in the draft INL (recitals A and D), the progressive introduction by Member States of specific corporate forms for start-ups may negatively affect the proper functioning of the internal market by distorting fair competition. Such divergencies may also have an impact on access to capital, an issue which the draft INL addresses in paragraphs 21 and 22 as well as in Sections 2 and 7 of the annex.

It results clearly from the draft INL that the aim is to help SMEs, start-ups and scale-ups and their founders to operate and expand across the internal market by setting a clear legal framework of the new corporate form.

It is worth mentioning, in this regard, that the new corporate form would be a national corporate form which would have to be made available in all Member States with a number of its elements being harmonised by Union law. Therefore, the present situation differs from the situation at issue in case C-436/03 concerning the European Cooperative Society (SCE). The SCE constitutes a European legal form which has specific Union character and is governed by a regulation which leaves unchanged the different national laws already in existence. In its judgment of 2 May 2006 in the above-mentioned case, the Court ruled that the creation of such a supranational corporate form could not be regarded as aiming to approximate (‘harmonise’) the laws of the Member States and that the Regulation was therefore correctly based on Article 352 TFEU (ex Article 308 TEC).

(c) Other aspects

As part of the safeguards to be introduced to prevent the abuse of the 28th regime, the draft INL evokes employee participation in paragraphs 10 and 20 as well as in Sections 1 and 4 of the annex. It is proposed to resolve matters pertaining to employee participation by means of a ‘conflict of law rule’: the applicable law should be determined by the law of the real seat of the company, that is to say, the place of the company’s central management.

For existing forms of limited liability companies, rules on employee participation aiming to prevent circumvention have been adopted in a legislative act based on Article 50 TFEU. Analogous anti-circumvention rules may be based on Article 50 TFEU.

With regard to the employee stock ownership plans (paragraph 17 and Section 6 of the annex) and specialised dispute resolution (paragraph 23 and Section 8 of the annex) it is worth drawing attention to two potential issues:

Harmonised rules across the Union on the structuring of employee stock ownership plans, even if construed as optional rules, might not be covered by Article 50 TFEU and are, since they are ‘relating to the rights and interests of employed persons’, explicitly excluded from the scope of Article 114 TFEU, pursuant to paragraph 2 of the latter.

Dispute resolution mechanisms understood as ‘out-of-court’ or ‘alternative’ mechanisms, as long as they are ancillary to reach the aims of the measure, could be covered by Article 114 TFEU (see, to that effect, Article 21 of the Digital Services Act, and Directive on alternative dispute resolution for consumer disputes). Requiring Member States to change the organisation of their courts, by contrast, might go beyond the scope of Articles 50 and 114 TFEU.

VII – Conclusion

At its meeting of 3 December 2025 the Committee on Legal Affairs accordingly decided, by 22 votes to 2, with 1 abstention, to recommend that the draft own-initiative legislative report pursues aims in the area of company law as well as approximation of laws that are indissociably linked and that, therefore, Articles 50 and 114 TFEU seem to be the appropriate legal basis.

Yours sincerely,

Ilhan Kyuchyuk