Small and medium-sized enterprises (SMEs) are the backbone of Europe's economy. They represent the major of all businesses in the EU, and in the past years, they have considerably increased the percentage of employees in the whole territory. For the European Commission small and medium-sized enterprises are the way to guarantee economic growth, innovation, job creation, and social integration, and for that reason, the EU allocates periodically public funding intended to incentivize the development and the growing of those.

What kind of requirements must have a company to be defined small and medium-sized enterprise?

The definition of small and medium-sized enterprise has been introduced for the first time in Europe with the European Recommendation n. 280 of 1996, later modified by the Recommendation n. 1442 of 2003 (adopted in Italy by the Decreto del Ministero delle Attività Produttive of April, 18^th, 2005), whose article 1 defines "enterprise every entity, independently of its legal form, engaged in economic activity". In this context, an economic activity is every activity consisting in offering goods or services, in a determined market, against a fee, independently from the legal status of the company that carries out.

Company size and resources are the main criteria

In determining whether or not an enterprise is an SME, the enterprise’s size (employees, turnover and balance sheet total) is defined as follows “the category of micro, small enterprises and medium enterprises (SMEs) is composed by companies that occupy less than 250 people, whose annual sales volume does not exceed 50 million Euro or whose total annual balance sheet does not exceed 43 million Euro".

Furthermore, there are other criteria to be verified, because an enterprise can be very small in these terms, but if it has access to significant additional resources (e.g. because it is owned by, linked to or partnered with a larger enterprise) it might not be eligible for SME status.

The SME definition distinguishes between three different categories of enterprises, as Art. 6 “In the case of an autonomous enterprise, the data, including the number of staff, are determined exclusively on the basis of the accounts of that enterprise; the data, including the headcount, of an enterprise having partner enterprises or linked enterprises are determined on the basis of the accounts and other data of the enterprise or, where they exist, the consolidated accounts of the enterprise, or the consolidated accounts in which the enterprise is included through consolidation”. Each category corresponds to a type of relationship that an enterprise could have with another. This distinction is necessary in order to establish a clear picture of an enterprise’s economic situation and to exclude the not correct SMEs.

The categories are:

1. Autonomous: if the enterprise is either completely independent or has one or more minority partnerships (each less than 25 %) with other enterprises
2. Partner: if holdings with other enterprises rise to at least 25 % but no more than 50 %, the relationship is deemed to be between partner enterprises
3. Linked enterprise: if holdings with other enterprises exceed the 50 % threshold, these are considered linked enterprises

Furthermore, article 4 paragraph 2 of the Recommendation no. 361 of 2003, provides that "at the date of closure of the accounts, an enterprise finds that, on an annual basis, it has exceeded or fallen below the headcount or financial ceilings stated in Article 2, this will not result in the loss or acquisition of the status of medium-sized, small or microenterprise unless those ceilings are exceeded over two consecutive accounting periods”.

It follows that to gain or lose the small or medium-sized enterprise status it is not enough to respect or overcome the threshold values (actual and tax) for a year, but the above circumstances have to occur again for a continuous period of at least two consecutive exercises.

If the company wants to evaluate the possibility to access to EU funding opportunities allocated for small and medium-sized enterprises, will have previously to compare its data with threshold values established on the Recommendation.

In any case, to find out if your company has all necessary requirements to get access to European funding, do not hesitate to contact our experts for a more detailed analysis of your specific case.