Scaling up European firms: the case for an EU company law regime to unlock cross-border investment, innovation and growth

EUROPEAN UNION (EU), 26 SEPTEMBER 2026 —

Published as part of the ECB Economic Bulletin, Issue 6/2026. There is a clear structural weakness at the heart of Europe’s competitiveness challenge: European firms struggle to reach sufficient scale and face barriers to cross-border operations. EU firm entry rates are broadly comparable to those in the United States, but firms systematically fail to grow into the large, research and development (R&D) intensive enterprises that drive productivity and wage growth (Draghi, 2024, Letta, 2024).

To address this, in March 2026 the European Commission proposed introducing an optional corporate form (EU Inc.), establishing a harmonised legal framework to complement national company law. This proposal is important from the ECB’s perspective. By lowering barriers to cross-border corporate activity and investment, EU Inc. has the potential to support the Single Market, by strengthening competition, innovation and productivity growth, with positive implications for resource allocation, price stability and the transmission of monetary policy.

In addition, EU Inc. can help deepen European capital markets, a key objective of the savings and investments union agenda. It could be conducive to a more efficient allocation of savings and more effective risk-sharing within the euro area. This article examines how these barriers limit the ability of EU firms to scale up and explores how a single company law could help address them.

It identifies the conditions under which the proposal could have a meaningful impact as well as the gaps that, if left unaddressed, may limit its effectiveness. Europe creates firms but struggles to scale them up, with consequences for productivity.

While annual firm birth rates in Europe are similar to those in the United States, at around 10% per year (Adilbish et al., 2025), a significant divergence emerges later on, when successful firms seek to expand, raise capital and operate across borders.

[ 1 ] Firms that employ fewer than ten workers in the EU account for just over 20% of total employment, around double the share of that in the United States (Chart 1, panel a).

This is important for labour productivity (Chart 1, panel b): large enterprises generate roughly twice as much value added per employee as micro-enterprises, benefiting from economies of scale, greater managerial specialisation, stronger intangible capital accumulation, higher R&D expenditure and better integration into international markets (Andrews et al., 2016, Eurosystem, 2021, CompNet, 2025, OECD, 2026).

A counterfactual exercise suggests that around one-third of the aggregate EU-US productivity gap can be attributed to differences in firm-size composition, based on the productivity gains that would arise were the EU to have the same employment distribution across firm sizes as that of the United States. [ 2 ] Limited access to market-based finance is a major reason why innovative European firms struggle to scale up.

Innovative firms need successive funding rounds and access to deep pools of risk capital, but EU capital markets remain relatively shallow, nationally fragmented and dominated by domestic institutional investors (Böninghausen et al., 2025, Baumann et al., 2026). Chart 2, panel a) shows that approximately 85% of employment in the EU is accounted for by domestically-controlled firms.

By contrast, venture capital (VC) financing is more international: non-EU lead investors are associated with more than half of the aggregate VC deal value, with US investors playing a particularly important role in later-stage financing rounds (Chart 2, panel b), (Baumann et al. 2026).

This is consistent with recent evidence that innovative European firms increasingly relocate their headquarters, intellectual property or selected business functions abroad, most often to the United States (Weik et al., 2024, European Investment Bank (EIB), 2026a). As firms mature, many European start-ups adopt US corporate structures, most commonly as Delaware corporations, to access internationally recognised governance arrangements, VC financing and deeper initial public offering markets. The Delaware corporate law framework is discussed in Box 1.

Beyond the overall availability of risk capital, where it is allocated also matters: future scale-ups tend to be younger, more productive and more innovation-intensive, while there are substantial differences in the profiles of VC-backed scale-ups in the EU and the United States.

With regard to the observed characteristics of firms before scaling up, Chart 3, panel a) shows that future scale-ups are systematically younger, more productive, more likely to have previously received venture capital and more frequently active in knowledge-intensive sectors. This is consistent with the literature showing that successfully scaling up is typically preceded by substantial investments in capabilities and organisational transformation (OECD, 2021).

Chart 3, panel b) extends this analysis to a sample of EU and US scale-ups that received VC funding. Relative to their EU counterparts, VC-backed scale-ups in the United States are younger and less profitable, but larger in terms of employment and more leveraged – a pattern consistent with US venture capital reaching firms earlier and those firms then growing faster.

This may reflect differences in investor selection or differences in the population of firms seeking VC funding, which the estimates cannot separate. In the United States, incorporation can be separated from the location of economic activity to a far greater extent than in the EU, allowing state corporate law to operate as a portable legal framework for firms active across the country.

This contrasts with the European tradition of “real seat” approaches, under which legal recognition and applicable company law were historically linked more closely to the company’s central administration or principal place of business, as pointed out by Gelter (2017). [ 3 ] A Delaware stock corporation may be headquartered, hire workers, hold assets, raise capital and generate revenues outside Delaware, whereas Delaware law governs its internal corporate affairs.