The European Commission is considering a so-called “28th regime”: an optional European framework that includes proposals for a unified corporate law across the EU. The initiative aims to benefit innovative businesses like start-ups and scale-ups by making it easier for them to access venture capital.
In three SAFE Working Papers, legal scholars Luca Enriques (Bocconi University), Casimiro Nigro (University of Leeds), and Tobias Tröger (SAFE, Goethe University) provide theoretical arguments and systematic evidence that current national regulations, and legal interpretations hinder investment - and which features of a European regime could enhance contractual freedom, legal certainty, and transparency.
National differences complicate investment contracts
In the studies “Venture Capital Contracting as Bargaining in the Shadow of Corporate Law Constraints”, “Mandatory Corporate Law as an Obstacle to Venture Capital Contracting in Europe: Implications for Markets and Policymaking”, and “Can U.S. Venture Capital Contracts Be Transplanted into Europe? Systematic Evidence from Germany and Italy”, the researchers analyze how rigid legal frameworks in Germany and Italy prevent flexible contract design, particularly in early funding rounds. Trying to directly copy US-style venture capital contracts is not viable: many clauses are either unenforceable, struck down by courts and notaries, or only workable through inferior substitutes that raise costs and reduce functionality. This raises transaction and capital costs and increases legal uncertainty for young companies.
“When discussing efficient venture capital markets in Europe, corporate law - a key factor - is often overlooked: Rigid codifications and dogmatics hinder flexible governance structures,” says Tobias Tröger, Head of the Law & Finance Cluster at SAFE and professor at Goethe University. For example, he continues, German corporate law does not allow genuine liquidation preferences, and national courts often interpret core legal principles in ways that restrict privately negotiated arrangements tailored to the specific needs of venture capital financing.
Delaware: Flexible contract law as a model
The researchers compare contract practices in Italy, Germany, and the US state of Delaware. Delaware’s corporate law enables flexible, autonomous contract structures and provides a reliable legal foundation for investment agreements that are generally recognized by the courts. Many European founders are trying to emulate this framework.
“Start-ups look to the US example, but national constraints in Europe result in poor compromises,” says Casimiro Nigro, a lecturer in business law at the University of Leeds. “Contract design under German or Italian corporate law can discourage investment and hinder growth,” adds Luca Enriques, professor of business law at Bocconi University.
Legal framework for greater contractual freedom in Europe
The researchers propose protecting typical US-style contract models from judicial interference - especially when driven by legal dogma that limits private autonomy. In the long run, they advocate for a standardized, EU-wide corporate charter modeled on the US example. Contracts based on such a framework would be shielded from undue legal scrutiny.
Such reforms could lower regulatory barriers, reduce transaction costs, and open up competitive financing conditions for European start-ups. “Start-ups need reliable legal frameworks,” Tröger emphasizes.
Scientific Contact
Prof. Dr. Tobias Tröger, LL.M.
Director Cluster "Law and Finance"
