Transcription
This video is sponsored by Ground News. The European Commission has finally released it. The first draft proposal for EU Inc. And I'm not going to lie here, I am very excited as I've been waiting for this for over 6 months. Ever since we talked about it in one of our previous videos because if this is executed properly, which to be fair is still a big if, this could genuinely revolutionize Europe's startup scene.
Because right now, the gap between Europe and the United States is honestly pretty shocking. Have a look at this. These are Europe's biggest companies built from scratch over the past 50 years, each now worth more than $10 billion. And now compare that to the United States. The difference is kind of frightening if you ask me. You could take every major European success story from the last half a century, pile them all together, and fit most of them into Microsoft alone. Yeah, that really is not great.
But it's not for a lack of talent or capital. It's because Europe has this super messy patchwork of 27 different legal systems and a lack of a real one standard, a place that founders can call home. and starting a business here and then scaling it is just so so and I'm gonna say it again so difficult and that's why the EU introduced this new proposal called EU Inc. which is supposed to make all of this much simpler. At least that is the plan.
But to really understand what the EU is actually trying to fix here, we sadly need to look across the pond and look at one of the main reasons why the United States is so incredibly good at building massive companies. And the answer is something called Delaware, Inc. Now, a brief history lesson. Back in the early 1900s, Delaware made a calculated bet that ended up reshaping the entire global economy. At the time, neighboring state New Jersey was the king of corporations. But in 1913, they began tightening the screws with very heavy regulations. Delaware saw an opening and did the exact opposite. They doubled down on a more radical business first rule book. They pretty much built a system where a single person could form a company in hours with predictable corporate law. They also created the court of chancery, a specialized court where judges could decide business disputes with lightning speeds. I mean, they were obviously originally trying to attract companies like railways and steel mills. But what they accidentally created was a global standard for corporate law and a universal language for finance. And by the time about a hundred years later, when the tech boom arrived, investors didn't want to learn 50 different sets of state laws. They wanted the Delaware structure they already knew and trusted. It made it so easy to raise money and to issue stock options, which is exactly what fueled every startup from a garage to, well, a Google. And today, other giants like Apple, Tesla, and Microsoft are all legally incorporated there. It isn't because their offices are in Delaware. It's because Delaware remains the global benchmark, a single trusted company structure that works across the world's largest market. And Europe has no counterpart. There's no EU version of a Delaware Inc., at least not yet.
In many EU countries today, starting a company is still painfully bureaucratic. I mean, I can talk about this all day because even here at EU made simple, it took me four months to register the company in Germany. I even had a fight about the company name. And at one point, I had to sit down with a notary who literally did nothing more than read my entire company contract out loud for like an hour. And of course, I had to pay for the privilege and didn't even get a coffee. So, yeah, so much to that. Anyway, that's probably the smallest problem Europe has. As for investors, it's even worse. Europe is a maze of 27 different sets of rules enforced by 27 different national courts. And often funding a promising startup here simply is just not worth the legal hassle. And because of these national silos, European founders are often stuck raising capital only from their home country. While a founder in Delaware, Inc. can raise money from the entire globe given its trusted framework.
And to close this gap, the commission unveiled the official EU inc proposal on Wednesday this week. And the plan is to make incorporation simpler and quicker. First, the commission has proposed a digital interface where you can set up a company online in just 48 hours for a flat fee of €100. No notaries, no minimum capital, and automatic tax registration. And at the heart of this proposal is one simple principle that says once only. Companies will provide their information to public authority, their data one time only. And that information will then be shared automatically between relevant administrations from business registers to taxes to social security author authorities. You just name it. I'm just thinking how many subscribers would we have today if this is how I could have started my business.
Now, what really surprised me is how positively this story was received across the entire political spectrum. Usually, anything coming out of the commission triggers a much more divided reaction. But if you look at the coverage on ground news, you see something a little bit different. The story has been reported dozens of times with almost a perfect balance between left-leaning, centrist, and right-leaning outlets. And right at the top, you get a super quick breakdown of how each side frames the story. For example, some outlets highlight trade unions warnings that the plan could weaken workers rights, while the commission insists that labor laws won't be touched. And there's also this awesome bias comparison button if you want more detail. And that's exactly why I like ground news because it lets you compare how the same story is covered across the entire political spectrum. So you're not stuck in just one narrative. And if you scroll further down, you can instantly see left, center, and right-leaning perspectives side by side along with factuality ratings and ownership information. It genuinely is a great tool that I use myself. And if you want to try it yourself today, you can get 40% off the Vantage plan using the link in the description or the QR code on the screen right now.
Now, back to the commissions proposal. The proposal also makes it much much easier for startups to raise capital as it allows companies to use something called flexible share structures and simple standardized investment tools. the kind that let founders raise money quickly without needing a small army of lawyers to draft custom contracts every time. And finally, the proposal fixes the so-called tax trap for talent. I mean, just listen to how it works now. Some European countries tax employees the moment they receive stock options, meaning you owe the government money before you've even sold a single share. The new proposal correctly changes this rule. You're only taxed when you sell your shares for real money. Individual countries will still get to set their own tax rates, of course, but by moving that tax to the exit, the EU is finally removing the risk of paying for gains that haven't even happened yet. It's quite a significant improvement that allows European startups to finally compete with Silicon Valley for the very best talent in the world.
So, you might be sitting in front of your screen right now thinking, "This is pretty great." And to be fair, these changes are genuinely welcome, but they only really scratch the surface. Because if you look at the full legal life cycle of a company, most of it still isn't harmonized even with this proposal. As you can see with the color red, so many areas still remain firmly in the hands of the member states. And compared to a system like Delaware, EU, Inc. is just nowhere near that level. And this really brings us to the core of the problem. Behind the flashy announcement from the commission, the core architecture of Europe isn't actually changing at all. Originally, this was promised as a 28th regime, an optional truly new European company structure that sits alongside the 27 national systems, not inside of them. Just like the Delaware model, it was supposed to mean one set of EU corporate laws, one EU enforcement body, and one unified court system. But that's not what we are getting here.
In its own proposal, the commission describes EU Inc. as a harmonized company legal form to be introduced in the national order of each member state. National order. That phrase tells you everything. This isn't a single European standard. is a plan to make the 27 existing systems work a little bit more similarly rather than replacing them with a single new system. So to put it super super clearly, we are not getting 128th regime on the EU level. We are getting 27 national versions of it on the national level. Each one governed by its own local courts, its own enforcement and its own legal traditions. And let's not forget here that this sits on top of all the national company forms we already have today, making the maze so much more complicated than it is today already. And that, to be honest, is a massive problem, especially for companies that are looking to scale.
Just imagine a US investment fund that wants to invest €100 million euros into a European company building something like, I don't know, a big battery plant or a biotech firm or a deep tech startup. The funds lawyers really need clear answers here. What happens if the founders fall out? Can minority investors take legal action? What if the board misbehaves? What happens if the company runs into trouble or needs to raise money at a lower valuation? And what about bankruptcy? In Delaware, those answers are super well established. But under EU, Inc., this depends on which member states courts hear the case, which national liability regime applies, and how that country's legal traditions interpret the so-called harmonized rules. And guys, that's the core of the problem because the funds lawyers don't know the system and they have no reason to learn it. And until Europe offers the same level of legal certainty, one system, one rulebook, one predictable framework, companies and investors will instinctively choose what they already trust. And that, my friends, is Delaware. And on a macro scale, the result is super simple. Our companies, our talent, and our capital keep leaving our shores for the United States.
So this is what I think. I mean, with EOM made simple, I also have a business. And to be honest, the administrative changes, they're great. Especially in countries like Germany, where I live, where setting up a GmbH costs €25,000 in starting capital and months of bureaucracy. These changes are great. We're simply not very competitive here. But what we need is just so much more. We need structural change. And trying to harmonize 27 different national systems will just never truly get us there. We really need this true 28th regime that is just as good as Delaware, maybe even better, or no one here will actually use it. The proposal in current state, um, I don't think it will be used by the founders. You recreate exactly the fragmentation that was set, you know, the 28 regime was set to fix. So, you just dress it in harmonization language. And this is this is the proposal that the commission is putting um putting forward and the proposal uh fails. And that is the super frustrating part for me. Nothing is stopping us in Europe from doing this properly. There's no legal barrier that makes a true EU ink impossible. This is a political choice. So I really don't understand why the commission is just not more ambitious here. They should come up with the most ambitious proposal possible and then let the council and parliament fight it out. Why oh why start with such a lackluster attempt?
Anyway, the fight is not over and if the EU commission can't deliver, then we should honestly look at alternatives. There are mechanisms like enhanced cooperation that allows a group of willing countries to move ahead. Maybe a coalition of the major economies, you know, Germany, France, Italy, Spain, Poland, and the Netherlands. and of course anyone else that wants to join or maybe even Ben looks could take the lead and build these things properly with its own court because this is too important to get wrong. Do we want to be competitive? Then we need to do this so that we can compete with the US and with China.
Thank you so much for watching and if you want to dig deeper into media bias and understand how stories are being framed, check out our sponsor, Ground News. You can get the unlimited access Vantage plan with 40% off by using the link in the description or scanning the QR code on the screen. Thank you to everyone watching and to all of our awesome presidents.