definition of smes
LexInter | October 23, 2003 | 0 Comments



COMMISSION RECOMMENDATION of 3 April 1996 concerning the definition of small and medium-sized enterprises (Text with EEA relevance) (96/280 / EC)
the Treaty establishing the European Community, and in particular the second indent of Article 155,
considering that the implementation of the integrated program for small and medium-sized enterprises (SMEs) and the craft industry (1), hereinafter referred to as the “integrated program”, in accordance with the White Paper on growth, competitiveness and employment require the creation of a coherent, visible and effective framework in which enterprise policy in favor of SMEs can take place;
Whereas, long before the implementation of the integrated program, many Community policies targeted SMEs and each used different criteria to define them; whereas many of these policies carried out at Community level have been developed progressively without a common approach or comprehensive reflection on the elements which objectively constitute an SME; that it emerges from this a great diversity of criteria used and, consequently, a multiplicity of definitions currently in use at Community level to which are added the definitions in use at the European Investment Bank (EIB) and the European Fund for investment (EIF) as well as a fairly wide range of definitions in the Member States;
considering, in fact, that many Member States do not have a general definition and are satisfied with rules determined by usage or by sector; whereas others fully apply the definition given by the Community framework of aid to small and medium-sized enterprises (2);
Whereas the existence of different definitions at Community and national level may give rise to inconsistencies and may, moreover, constitute a distortion of competition between undertakings; whereas the integrated program aims at greater coordination between, on the one hand, the various Community initiatives in favor of SMEs and, on the other hand, between the said Community initiatives and those existing at national level; whereas these objectives can only be successfully achieved if the question of the definition of SMEs is clarified;
Whereas the Commission report to the Madrid European Council of 15 and 16 December 1995 underlined that a refocused effort in favor of SMEs was necessary to create more jobs in all sectors of the economy.
Whereas the Research Council of 29 September 1994 recognized that, by granting preferential treatment to SMEs, it would at the same time be necessary to define more clearly what a small or medium-sized enterprise is; whereas, therefore, it invited the Commission to re-examine the criteria to be used to define SMEs;
Whereas, in a first report presented to the Council in 1992 at the request of the Industry Council of 28 May 1990, the Commission already proposed to limit the proliferation of definitions in use at Community level; that, in practice, it proposed to retain preferably the following four criteria: workforce, turnover, total of the balance sheet, independence, as well as the thresholds of 50 and 250 employees, respectively for small and medium-sized enterprises;
whereas this definition has been taken up in the Community guidelines for aid to small and medium-sized enterprises as well as by all the other guidelines or communications on State aid which have been adopted or revised since 1992 [in particular the Commission communication on the accelerated authorization procedure for aid schemes for small and medium-sized enterprises and for modifications to existing schemes (3), the Community guidelines on state aid for environmental protection (4) and the Community guidelines for State aid for rescuing and restructuring firms in difficulty (5)];
Whereas other texts take up all or part of this definition, and in particular the Fourth Council Directive 78/660 / EEC of 25 July 1978, based on Article 54 (3) (g) of the Treaty and concerning the accounts of certain types of companies (6), as last amended by Directive 94/8 / EC (7), Council Decision 94/217 / EC of 19 April 1994 on the granting by the Community of interest subsidies on loans granted by the European Investment Bank to small and medium-sized enterprises under its temporary loan mechanism (8) as well as the Commission communication (9) on the Community SME initiative in the framework of the Structural Funds;
Whereas convergence is not complete; that certain programs set very different thresholds or neglect certain criteria, such as that of independence;
Whereas it is advisable for the convergence process to be continued and completed on the basis of the rules contained in the Community framework for aid to small and medium-sized enterprises and which the Commission should apply, for all the policies which ” it manages, under its own responsibility, the same criteria and the same thresholds as those which it asks the Member States to respect;
considering in addition that, in the logic of a single market without internal borders, companies must be the subject of treatment based on a set of common rules, in particular in terms of support from public authorities, national or community;
whereas such an approach is all the more necessary since there are many interactions between national and Community support measures for SMEs, for example in the area of ​​Structural Funds and research, and it is necessary to prevent the Community targets its actions on a certain type of SME and the Member States on another;
Whereas compliance by the Commission, the Member States, the EIB and the EIF with the same definition would strengthen the coherence and effectiveness of all policies aimed at SMEs and thus limit the risks of distortion of competition; whereas, in addition, many programs targeting SMEs are co-financed by the Member States and the Community and, in certain cases, by the EIB and the EIF;
whereas it should also be mentioned, before advancing thresholds which define SMEs, that such an effort to rationalize and determine a reference standard does not mean that companies which exceed these thresholds do not deserve the attention of the Commission or the public authorities in the Member States; whereas, however, it would be more appropriate to resolve this issue through specific measures within the framework of the programs concerned, in particular international cooperation programs, rather than by adopting or maintaining a different definition of SMEs;
considering that the criterion of the number of people employed is certainly one of the most significant and must be imposed as an imperative criterion, but that the introduction of a financial criterion is a necessary complement in order to understand the true importance of a company, its performance and its position in relation to the competition;
Whereas, however, it would not be desirable to retain as the sole financial criterion that of turnover, because the turnover of businesses in the trade and distribution is by nature higher than that of the manufacturing sector; that thus the criterion of turnover must be combined with that of the balance sheet total which reflects all the wealth of a company, the
whereas independence also remains a fundamental criterion insofar as an SME which belongs to a large group has the means and support that their competitors of equivalent size do not have; whereas the legal arrangements of SMEs which form a group whose economic strength in fact exceeds that of an SME should also be eliminated;
whereas, with regard to the criterion of independence, the Member States, the EIB and the EIF should ensure that the definition is not circumvented by companies which, while formally respecting this criterion, are in fact controlled by a large enterprise or jointly by several large enterprises;
whereas the participations held by public participation companies or by venture capital companies do not generally have the effect of causing a company to lose the characteristics which make it an SME and that they can therefore be considered as negligible; whereas the same applies to holdings held by institutional investors who generally maintain independent relations with regard to the company in which they have invested;
whereas it is necessary to resolve the case of companies which, while being SMEs, are joint-stock companies which, due to the dispersion of their capital and the anonymity of their shareholders, are not in a position to know with specify the composition of the latter and therefore whether they meet the condition of independence;
Whereas it is necessary to set fairly strict thresholds to define SMEs so that the measures intended for them really benefit those companies for which size is a handicap;
whereas the threshold of 500 employees is not really selective, because it covers almost all companies (99.9% of the 14 million companies) as well as a share approaching three quarters of the European economy in terms of employment and turnover; that a company with 500 employees has human, financial and technical resources which go far beyond the framework of the average company, namely identity between ownership and management, often family character and lack of a dominant position on the market;
whereas companies with between 250 and 500 employees not only often have very strong positions in their markets but also have very solid management structures in the areas of production, sales, marketing, research and personnel management, which clearly distinguishes them from medium-sized companies with up to 250 employees; that it is precisely in this last group that such structures are much more fragile; that it follows that the threshold of 250 employees therefore has more meaning to reflect the reality of an SME;
considering also that the threshold of 250 employees is already the most widespread in the definitions used at Community level and that it has been included in the legislation of many Member States following the Community framework for aid to small and medium-sized companies; whereas the EIB has also decided to use this definition for a large part of the loans it grants under the ‘SME facility’ provided for by Decision 94/217 / EC;
Whereas, according to studies carried out by Eurostat, a company with 250 employees achieves a turnover which does not exceed on average 40 million ECU (1994 figures); whereas adopting the threshold of ECU 40 million for turnover therefore appears appropriate; whereas recent calculations show that the average ratio observed between turnover and the balance sheet total is 1,5 in the case of SMEs and small enterprises (10); whereas, therefore, the threshold used for the balance sheet total should be set at ECU 27 million;
Whereas, however, a distinction should be made, within SMEs, between medium-sized enterprises and small enterprises and micro-enterprises; whereas these should not be assimilated to craft enterprises which will continue to be defined at national level because of their specificities;
Whereas the thresholds to be used for small undertakings should be determined using the same method; whereas it follows that these thresholds are ECU 7 million for turnover and ECU 5 million for the balance sheet total;
whereas the thresholds adopted are not necessarily typical for SMEs or small medium-sized enterprises but constitute maximums the level of which should make it possible to include, in both categories, all the enterprises which have the characteristics an SME or a small business;
whereas the turnover and balance sheet total thresholds set to define SMEs should be revised as necessary in order to take account of economic changes, such as those relating to the level of prices and the increase in productivity enterprises;
considering that the
Whereas provision should also be made for the next modification of the thresholds of the Fourth Directive 78/660 / EEC, which gives Member States the possibility of exempting SMEs from certain obligations relating to the publication of accounts , the Commission will propose that the current definition be replaced by a reference to this recommendation;
Whereas, moreover, in the reports which they draw up of actions carried out in the direction of SMEs, the Commission, the Member States, the EIB and the EIF should specifically mention which of them benefit from them, distinguishing between various categories of SMEs according to their size; whereas better knowledge of these beneficiaries makes it possible to adjust and better target the measures offered to SMEs, and therefore to make Community measures more effective;
whereas a certain flexibility must nevertheless remain possible, the Member States, the EIB and the EIF retain the right to set thresholds lower than the Community thresholds if they wish to direct one of their actions towards a specific category of SMEs, limits set by these thresholds representing maximums;
Whereas it is also possible for the Member States, the EIB and the EIF, for reasons of administrative simplification, to retain only one criterion – in particular that of staff – for the implementation of certain of their policies, with the exception of the areas covered by the various State aid frameworks which also require the use and respect of financial criteria;
Whereas this recommendation concerns only the definition of SMEs used in Community policies applied within the Community and the European Economic Area,

Article 1
Member States, the European Investment Bank and the European Investment Fund are recommended to:
– comply with the provisions contained in Article 1 of the Annex for all of their programs intended for “SMEs”, “medium-sized enterprises”, “small enterprises” or “micro-enterprises”,
– to comply with the ceilings adopted for turnover and the balance sheet total, in the event of modification by the Commission in accordance with in Article 2 of the Annex,
– to take the necessary measures to use the size classes set out in Article 3 (2) of the Annex, in particular when it comes to drawing up the balance sheet their use of Community financial instruments.
Article 2
The thresholds determined in article 1 of the annex represent maximums. Member States, the European Investment Bank and the European Investment Fund have the option of setting lower thresholds in certain cases. They may also retain only the single criterion of the number of employees for the implementation of certain of their policies, with the exception, however, of the areas covered by the various State aid frameworks.
Article 3
In order to enable the Commission to assess the progress made, the Member States, the European Investment Bank and the European Investment Fund are invited to inform the Commission, before 31 December 1997, of the measures which they have taken to comply with this recommendation.
Article 4
This recommendation concerns the definition of SMEs used in Community policies applied within the Community and the European Economic Area and is addressed to the Member States, the European Investment Bank and the European Investment Fund.

Done at Brussels, 3 April 1996.
For the Commission
Member of the Commission

(1) COM (94) 207 final.
(2) OJ No C 213, 19. 8. 1992, p. 2.
(3) OJ No C 213, 19. 8. 1992, p. 10.
(4) OJ No C 72, 10. 3. 1994, p. 3, footnote 16.
(5) OJ No C 368, 23. 12. 1994, p. 12.
(6) OJ No L 222, 14. 8. 1978, p. 11.
(7) OJ No L 82, 25. 3. 1994, p. 33.
(8) OJ No L 107, 28. 4. 1994, p. 57; see Commission report on this subject [COM (94) 434 final of 19 October 1994].
(9) OJ No C 180, 1. 7. 1994, p. 10.
(10) Source: Bach database (Bank of Harmonized Accounts.

Article 1
1. Small and medium-sized enterprises, hereinafter referred to as “SMEs”, are defined as companies:
– employing less than 250 people
– and whose
annual turnover does not exceed ECU 40 million,
or the annual balance sheet total does not exceed ECU 27 million,
– and which comply with the independence criterion, as defined in paragraph 3.
2. When it is necessary to distinguish between a small and a medium-sized enterprise, “small enterprise” is defined as an enterprise:
– employing less than 50 people
– and of which:
either the annual turnover n ‘ does not exceed 7 million ECU,
i.e. the annual balance sheet total does not exceed 5 million ECU,
– and which meets the criterion of independence as defined in paragraph 3.
3. Are considered independent companies which are not owned 25% or more of the capital or voting rights by one company or jointly by several companies that do not meet the definition of SME or small company, as the case may be. This threshold can be exceeded in two cases:
– if the company is owned by public holding companies, venture capital companies or institutional investors and on condition that these do not exercise, individually or jointly, any control over the company,
– if it results from the dispersion of the capital that it is impossible to know who owns it and the company declares that it can legitimately assume that it is not 25% or more owned by a company or jointly by several companies that do not do not meet the definition of SME or small business, as the case may be.
4. For the calculation of the thresholds mentioned in paragraphs 1 and 2, the data of the beneficiary company and of all the companies in which it directly or indirectly holds 25% or more of the capital or of the voting rights must be added.
5. Where it is necessary to distinguish micro-enterprises from other types of SMEs, these are defined as enterprises with less than 10 employees.
6. When a company, at the balance sheet date, has just exceeded, in one sense or another, the workforce thresholds or the financial thresholds stated, this circumstance does not make it acquire or lose the quality of “SME”, “medium enterprise”, “small enterprise” or “micro-enterprise” only if it recurs for two consecutive years.
7. The number of people employed corresponds to the number of work-year units (AWU), that is to say the number of employees employed full-time during a year, part-time work or seasonal work being fractions of UTA. The year to be taken into consideration is that of the last closed financial year.
8. The thresholds used for turnover or the balance sheet total are those relating to the last closed financial year of twelve months. In the case of a newly created company whose accounts have not yet been closed, the thresholds to be considered are the subject of a good faith estimate during the year.

Article 2
The Commission shall modify the ceilings adopted for turnover and the balance sheet total as necessary and normally every four years, from the adoption of this recommendation, to take account of economic developments in the Community.

Article 3
1. The Commission undertakes to take the necessary measures to ensure that the definition of SMEs set out in Article 1 applies to all the programs it manages and in which the term “SMEs” , “Medium-sized enterprise”, “small enterprise” or “micro-enterprise” are mentioned.
2. The Commission undertakes to take the necessary measures to adapt the statistics it compiles according to the following size classes:
– 0 employee,
– 1 to 9 employees,

– 50 to 249 employees,
– 250 to 499 employees,
– 500 employees and more.
3. As a transitional measure, the current Community programs which define SMEs according to criteria different from those set out in Article 1 will continue to produce their effects and benefit companies which, when the said programs were adopted, were considered to be SMEs. Any change in the definition of SMEs in these programs can only be done on condition that the definition contained in this recommendation is adopted by replacing the divergent definition by a reference to this recommendation. This transitional regime should in principle come to an end by 31 December 1997 at the latest. However, the legal commitments made by the Commission on the basis of these programs will not be affected.
4. When the fourth Directive 78/660 / EEC is amended, the Commission will propose that the criteria for defining SMEs currently in force be replaced by a reference to the definition contained in this recommendation.
5. Any provision adopted by the Commission which mentions the terms “SME”, “medium-sized enterprise”, “small enterprise” or “micro-enterprise” or any other similar term will refer to the definition contained in this recommendation.


End of document

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