The European Union’s corporate research and investment system produces fewer leading innovators than the United States or China. To increase the creation of new ventures and growth, we propose ‘Regime 0’: an optional, EU-wide incorporation regime tailored for new, independent ventures that have innovative ideas with fast growth potential that need to scale up across the bloc. Under Regime 0 such startups would be able to incorporate swiftly and get automatic legal cross border corporate recognition. Importantly, Regime 0 would not be an option for already existing firms, thereby avoiding regulatory arbitrage. Furthermore, Regime 0 deliberately avoids calling for the harmonisation of corporate, labour and tax regulations in the EU.
What would Regime 0 mean in practise?
- Creating an administrative hub (Hub0) to handle a quick, simple and fully digital incorporation process.
- Hosting member state labour and tax regulations so entrepreneurs can easily make sound location decisions.
- Streamlining risk-capital acquisition through a standard legal regime, transparent ownership requirements and standard contract templates.
- Ensuring that taxes on equity compensation for founders and key employees are assessed only at sale.
- Establishing bankruptcy rules that enable efficient exits and allow re-entry, with the European Commission reviewing mergers to protect against anticompetitive ‘killer’ transactions.
- Applying alternative dispute resolution mechanisms, with fast-track, specialised courts as backup.
Creating Regime 0 via an EU regulation rather than a directive will be important to ensure uniformity in implementation.
Although the targeted group of innovative startups is small in number and their projects will often fail, their successes will have a disproportionately positive impact on growth and jobs. Regime 0 would cause firms that do not exist today to come into being and incentivise those Europeans who do start a company to incorporate at home, rather than in the US. Investors can expect higher returns on their capital, and the EU can reap the rewards of increased growth.
