Regime 0: Europe-wide incorporation for startups to kickstart innovative growth

Abstract

The European Union's economic security strategy was initially developed at a time of close transatlantic cooperation and focused largely on risks linked to Chinese dominance of certain parts of global manufacturing. However, given the diminished commitment of the United States to its traditional alliances and to multilateral rules, EU economic-security planning now also needs to take into account the risk of US coercive action. The EU must combine a medium-term strategy to reduce dependencies on both China and the US in critical areas with the capacity to react in the short term to threats of coercion. This requires supply chain chokepoints to be identified. There should also be a political discussion with EU countries on the circumstances in which the EU Anti-Coercion Instrument should be deployed, and the appropriate measures to respond to coercion. The EU's various tools for responding to urgent threats to its economic security need to be adapted to the new geopolitical context. The EU should prioritise support for research and development in relation to critical technologies and should ensure a more targeted and effective approach to state aid. It should avoid 'buy Europe' policies that contradict its international commitments and limit the scope for partnering with third countries. On traditional economic-statecraft tools, screening of foreign investment needs to be transformed to responding more effectively to economic-security threats, while export controls need to be better coordinated. Given the need to de-risk relationships with both the US and China, strengthening economic partnerships has become ever more important. Moreover, more robust governance structures to manage the use of economic-security tools and partnerships with like-mindeThis Policy Brief sets out Regime 0: an optional European Union corporate regime that would lower the barriers to new, independent ventures with innovative ideas that offer fast growth potential and that naturally need scale. Regime 0 would be a tailored legal and regulatory framework for scaling up startups and thus unlocking much-needed EU innovation capacity. Under Regime 0, such startups would be able to incorporate swiftly and get legal cross-border recognition, easing access to cross-border finance and key talent. Regime 0 deliberately avoids harmonisation of general corporate, labour and tax regulations, which would remain under EU member-state jurisdiction. To qualify for Regime 0, founders would have to demonstrate credible innovation and growth plans. Evidence requirements would be flexible to capture diverse startup models. The regime is not designed for already-established corporations. Founders would incorporate share-based limited liability companies, process standard documents and navigate rules efficiently via a one-stop digital registry: Hub0. Simple corporate governance and liability rules would apply within Regime 0. Risk capital acquisition would be streamlined through transparent ownership requirements and standard contract templates. Templates for contracts for employees who hold material equity in firms would also be provided. Taxes on equity compensation for founders and key employees would be assessed at sale, with a mandatory holding period. Regular employees would remain subject to the labour laws of their countries of residence. Hub0 would provide up-to-date labour regulations and tax rules applicable in each EU country, aiding startups' decisions on where to locate their activities and people. Bankruptcy rules would enable efficient exits and allow founders to continue economic activity without penalty in case ventures fail. Exit via IPO or acquisition would follow harmonised procedures, with the European Commission reviewing mergers to protect against anticompetitive transactions. Alternative resolution would apply to disputes, with fast-track, specialised courts as backup. EU countries must treat Regime 0 firms equivalently to domestic firms and should not discriminate in areas such as licensing, public procurement and subsidies. EU countries are free to design incentives to attract Regime 0 firms. Implementation of Regime 0 via an EU regulation is strongly preferred over a directive, to ensure uniform implementation.d countries internationally need to be developed.