Redefining SMEs, May 2003

99% of EU businesses are classed as micro, small or medium-sized enterprises (SMEs). They employ some 65 million people and are seen as particularly important for generating entrepreneurial spirit and innovation. Despite their economic and social significance, such businesses face particular difficulties and have therefore been the target of a number of initiatives aimed at promoting entrepreneurship, investment and growth, facilitating access to venture capital and cutting administrative burdens.

To ensure that only genuine SMEs benefit from such initiatives, a definition of micro, small and medium-sized enterprises was developed. Current definitions are provided by Commission Recommendation 96/280/EC, but by 1 January 2005 they are likely to be replaced by a set of revised definitions proposed by the European Commission on 6 May 2003.

The proposals presented in the Commission's Recommendation are the result of two public consultations, carried out in 2001-2002. Their key aims are to:

• reduce administrative burdens and speed up procedures
• promote entrepreneurship and micro-enterprise
• promote growth
• facilitate access to venture capital
• promote investment in innovation and research
• promote clusters and increase legal certainty
• prevent circumvention
• promote professional training and work-life balance

An Annex to the Recommendation defines an enterprise generally as 'any entity engaged in an economic activity, irrespective of its legal form. This includes, in particular, self-employed persons and family businesses engaged in craft or other activities, and partnerships or associations regularly engaged in an economic activity.'

The Recommendation defines the three categories of enterprise in the following way:

• Medium-sized: headcount < 250, turnover = €50 million or balance sheet total = €43 million

• Small: headcount < 50, turnover = €10 million or balance sheet total = €10 million

• Micro: headcount < 10, turnover = €2 million or balance sheet total = €2 million

The proposals should ensure that SMEs which are part of a larger grouping - and which therefore have more resources available than real SMEs - do not benefit from initiatives intended to benefit genuine micro, small and medium-sized enterprises. SMEs already involved in initiatives for which they qualified under the current regulations will continue to benefit.

Enterprise Commissioner Erkki Liikanen said: "Small and Medium Sized Enterprises form the backbone of the European economy. They are key to entrepreneurial spirit and innovation in the EU and thus crucial to ensure EU competitiveness. A proper definition of which enterprises are SMEs makes it easier to identify their needs and to develop efficient policies to compensate for the specific problems linked to their small size. This is vital for the competitiveness of an enlarged European Union, its growth and employment."

Links:

European Commission:
	08.05.03:	Commission adopts a new definition of micro, small and medium sized enterprises in Europe [IP/03/652]
	SME Definition
	Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises

Eric Davies
Researcher
Compiled: Friday, 9 May 2003

The European Commission proposed a set of revised definitions for small and medium-sized enterprises on 6 May 2003.