Europe produces a large number of new tech startups each year – 28 crossed the $1 billion valuation mark in 2025 alone – yet few become global technology leaders. Many that do succeed look elsewhere to scale, particularly in the US.

Founders point to multiple barriers to growing their business in the European Union (EU), including the complexity of navigating 27 different national legal systems. Despite access to the EU’s single market — home to 450 million consumers and 23 million companies — expanding across borders still brings significant legal, financial and operational complexity.

These are among the challenges the European Commission’s proposed “EU Inc.” framework, unveiled last month, aims to tackle, with plans for a standardized, pan-EU company structure or “28^th Regime.” Rather than navigating distinct national systems, companies that opt in to EU Inc. can incorporate once and operate under a single set of rules. Measures include digital incorporation within 48 hours, simplified cross-border registration, and more consistent treatment of employee stock options.

The move comes as a number of European nations are at least considering cutting ties with US tech firms amid ongoing geopolitical uncertainty — part of a digital sovereignty movement that has gained ground in recent months.

While the EU has attempted to create pan-European corporate structures before, including the Societas Europaea, uptake has been limited. But the initial reactions to EU Inc. have been upbeat, with startup founders and legal experts seeing it as a step toward easing some of the friction involved in building across borders, alongside broader reforms.

Gerardo Gagliardo, co-founder and chief financial officer at Exein, an Italian embedded security vendor, has spent seven years navigating the legal and financial challenges of scaling a European “deep tech” company across borders. “The technology is borderless for us, but the commercial legal layer is not,” he said. “That’s the main challenge for us, and I think the EU Inc. framework could help here.” 

“One of the biggest challenges for European startups today is fragmentation,” said Sebastien Marchon, CEO and founder of Belgian expense management software firm Rydoo. “Building a company across Europe still means navigating multiple legal systems, regulatory frameworks and administrative processes. Anything that reduces this friction and helps entrepreneurs scale faster across the continent is a step in the right direction.”

Jeroen Ten Broecke, an associate lawyer at Belgian firm Philippe & Partners, said the EU Inc. proposals could “significantly reduce fragmentation” in corporate law, lowering administrative costs and friction for cross-border activity, particularly for early-stage startups. The standardized, digital-by-default approach should also “make it easier to incorporate and operate across member states,” he said.

Complexity begins at incorporation

For startups just getting going, the administrative burden begins when setting up their company. For Exein, founded in Italy, the incorporation process required a notary and lawyers, creating additional costs and bureaucracy in its early days. “At the beginning, when you are a young startup, this overcomplicates things because you don’t have money,” said Gagliardo. “You have a lot of costs and it’s really time consuming.”  

Augustin Prot, co-founder of French SaaS translation platform Weglot, took a different approach. When the company launched in 2015, it initially operated without a formal legal structure to “avoid unnecessary admin costs,” he said. Weglot continued that way for six months before the founders felt they could justify investing in the administrative setup process required to create a legal entity in France. 

The proposed EU Inc. framework could have simplified those early decisions, said Prot. “Having a single, harmonized option, such as being registerable in 48 hours for under €100, would have meaningfully simplified our early days,” he said. It would also have reduced the difficulty of choosing a legal structure. In France, startups can choose between several incorporation types, including SAS, SARL and SA. “Choosing the wrong one can cost you time and energy to fix afterwards,” he said.

As companies grow, the number of administrative challenges can multiply.

Since launching in 2018, Exein has expanded to offices in Germany, the US, and Taiwan, and there are plans to open a legal entity in Japan.Each EU member state effectively requires a new legal setup, said Gagliardo, creating an added burden.  

“Every new market treats us as a new company,” he said. “If you sell in France or Germany, for example, it’s different from Italy.”

That fragmentation can slow routine business operations. For example, a recent revolving credit facility with JP Morgan involved hiring lawyers in Germany, UK and Italy, with three separate governance and authorization processes. The process took three months of work, said Gagliardo, something that could have been done in hours if laws had been harmonized. Despite these challenges, the company remains committed to building in Europe.

Another challenge for companies across Europe involves employee stock options. Tax treatment and grant rules vary significantly across member states, making it difficult to offer equity to employees. 

“The problem of complexity around the stock option plans…, it’s really a mess right now,” said Gagliardo. EU Inc. proposals “will be a game changer for Europe” in this regard, he said, with uniform rules making it easier to attract and retain workers.

Prot agrees. Harmonized stock options are “a powerful tool for attracting and retaining talent in a growing startup,” he said, adding that differing rules across Europe create “an uneven playing field compared to the US, where the framework is far simpler and more attractive.” EU Inc. could include “a clear European standard on this point.”

These challenges can slow growth and force startups to look to other markets —  particularly the US. “Expanding across Europe quickly exposes the gap between the idea of a single market and the operational reality,” said Marchon.

“You essentially have to rebuild your compliance, tax, and labor structures every time you cross a border,” said Damir Špoljarič, CEO of Czech cloud infrastructure provider VSHosting and managing partner at investment firm Gi21 Capital. “This dynamic completely shapes a founder’s go-to-market strategy…. If I am going to spend six months and significant capital jumping through regulatory hoops just to reach 10 [million] or 20 million new customers in an adjacent EU country, I might as well spend that same effort entering the US to reach over 330 million.

“It’s the primary reason so many ambitious European founders are effectively forced to target the US for their primary growth phase,” Špoljarič said. “The return on operational effort is simply much higher.” 

Roughly 18% of European tech startups are headquartered outside Europe at seed stage, and by Series C funding that figure rises to around 30%, according to Atomico’s State of European Tech 2025 report.

“That’s typically where we lose them,” said Tord Topsholm, CEO at 0to9, a Stockholm-based fintech venture builder. “The US is a big single market; Europe is a lot of different countries, with different cultures, languages, and legislation. It’s messier to scale here.”

EU Inc. — a way to fix Europe’s scaling challenge?

The question now is whether the EU Inc. proposal — which the Commission aims to have [in place] by the end of 2026 – can help reduce the barriers to scaling across Europe. Simon Miller, co-founder and head of broker international at German fintech Scalable Capital, sees the effort as a promising first step.

“To try to do everything at once would be challenging, so to focus on the incorporation piece, I think, is the right direction,” he said. “Obviously, the execution and the adoption will determine how impactful it is, but any initiative that creates momentum towards alignment between the EU countries and reduces fragmentation sets a precedent. This will only be positive for businesses like ours looking to operate across all of Europe.”

Ten Broecke said he’s “cautiously enthusiastic,” noting that, if successful, the real impact will probably be over the long term and “defined by a gradual and collective mindset shift.” But to achieve its aims, EU Inc. will need to overcome political resistance from member states keen to preserve competitive advantages in areas such as tax regimes and labor standards.

He anticipates “lobbying pressure from various interest groups” including labor organizations, as well as uneven uptake of the EU Inc idea, depending on how attractive the option proves compared to existing national company laws.

Even if its early plans are successful, EU Inc. is not intended to resolve all the challenges facing startups and scale-ups in Europe. Founders point to broader structural issues, including fragmented tax and employment rules.

Gagliardo would like to see harmonized rules for startups, for example, so that engineers working for the same European company in different countries are treated comparably.  

Managing differing VAT rules across member states also creates extra work, said Prot. “Even with a finance background, this can give you headaches,” he said, noting that Weglot had to hire an external accountant and dedicate at least a full day every month to compliance — “a real and recurring operational cost.”  

“It’s a surprising amount of complexity for something that’s supposed to be a single market,” he said. 

Access to capital is another issue. The Commission is seeking to address this through other initiatives under its EU Startup and Scale-up Strategy, including the Scale-up Europe Fund; the latter aims to make €5 billion available for investment in high-growth companies. Separately, the Savings and Investments Union aims to unlock more of Europe’s household savings for investment, potentially increasing the capital available to startups and scale-ups across the region. 

“A unified legal framework only fixes the paperwork. If we want to stop European tech giants from offshoring, this legal reform must be paired with aggressive late-stage capital and localized infrastructure,” said Špoljarič. 

Public markets present a further obstacle. Gagliardo’s goal is to take Exein to an IPO, but without a European equivalent of the Nasdaq, that would likely happen in the US under current conditions. “We are still too far from a framework that will allow us to do an IPO in Europe,” he said.   

Even so, his commitment to building in Europe remains firm. “We want to grow and expand our revenue in Europe, and I hope that this regulation will help us in that,” he said. “We choose to build in Europe — and we would choose it again — but we have done this despite the system, not because of it.”