A couple of weeks ago we published an article on s-peek about the basket bond project for the italian SMEs. Many of you asked us whether their company was an SME or not, so we decided to deepen the topic.

SMEs are generally defined as companies with a turnover between € 10 and 50 million and a number of employees between 10 and 250. 

Actually, it’s a little more complicated than this. 

A micro-enterprise could still benefit from the SMEs status if it disposes of additional external resources.

How do you verify this? Let’s see what to check to define whether a company is a micro, small or medium-sized enterprise.

What is an enterprise

Before going any further, let’s make things clear.

According to the European Commission, an enterprise is any entity engaged in economic activities, regardless of its legal form. The purpose of profit is discriminating; self-employed, family firms and social cooperatives fall within this definition, while non-profit associations and foundations do not.

Size

To determine whether an enterprise is an SME or not, first of all you need to check:

• the annual turnover or total assets
• the staff headcount

The staff headcount counts employees and seconded employees who work full-time, the owner-managers and the partners engaged in regular activities. Workers with an apprenticeship or vocational training contract, as well as employees in maternity o parental leave shall not be considered in the count.

The headcount is expressed in AWUs (annual working units). Part-time staff, seasonal workers and those who did not work the full year are treated as fractions of a unit.

According to these criteria, enterprises can be divided into:

• Micro-enterprises: enterprises with less than 10 employees and whose annual turnover or total asset does not exceed € 2 million.
• Small enterprises: enterprises with less than 50 employees and whose annual turnover or total asset does not exceed € 10 million.
• Medium-sized enterprises: enterprises with less than 250 employees and with either an annual turnover below € 50 million or a total asset not exceeding € 43 million.
• Large enterprises: enterprises with more than 250 employees and an annual turnover over € 50 million or a total asset over € 43 million.

What happens if a SME exceeds the thresholds for headcount or turnover during the year? Does it lose the SME status? No, it doesn’t. 

It will lose the SME status only if it exceeds the ceilings for two consecutive accounting years. However, if the SME exceeds the thresholds as a result of a merger or an acquisition, any potential upgrade to large enterprise will be immediate.

Resources

As just mentioned, merges and acquisitions can cause a loss of the SME status. There are also other commercial relationships that affect the corporate structure which may increase the company’s resources and effective size.

For this reason, in order to verify whether a company can be qualified as SME, you also need to check whether the company is:

• an autonomous enterprise;
• a partner enterprise;
• a linked enterprise.

Autonomous enterprise

An enterprise is autonomous if it’s totally independent or has holdings of less than 25 % of the capital or voting rights in one or more other enterprises. The same applies if other parties hold shares in the company to the same percentage.

In some cases, an enterprise may still be considered autonomous even if the 25 % threshold is reached by specific investors, such as venture capital companies)

To verify if an autonomous enterprise is a SME, you just need to check the staff headcount and turnover value in the financial statement.

Partner enterprise

If an enterprise holds shares among 25% and 50% of the capital or voting rights in other companies, they will be both partners. In this case, when determining its eligibility for SME status, the enterprise must add a proportion of its partner’s staff headcount and financial data to its own.

In addition, the proportionate data of any other enterprise that is linked to any of the partners need to be taken into account.

For example:

Company A has a turnover of € 10 million euros and 15 full-time employees. When considering only the turnover and the staff headcount, it would be a small company. However, Company A also holds 35% of the capital of Company B. Moreover, 45% of the shares of Company A have been recently acquired by the multinational Company C.

Does Company A still belong to SMEs category? To verify it, we need to add up: turnover and number of employees of Company A + 35% of turnover and employees of Company B + 45% of turnover and employees of Company C. 

Linked enterprises

Two or more companies are linked if they form a group and one exercises control or dominant influence over the voting rights of another.

In this case, the enterprise must add 100 % of the linked companies data to its own, in order to determine if it meets the staff headcount and one of the financial thresholds.

Two or more enterprises are linked whether:

• an enterprise holds the majority (at least 51%) of the shareholders’ voting rights of another company;
• an enterprise is entitled to appoint or remove a majority of the administrative, management or supervisory body of another;
• a contract or a provision in the memorandum enables an enterprise to exercise a dominant influence over the other;
• an enterprise can, by agreement, exercise sole control over a majority of shareholders’ or members’ voting rights in another.

Funding opportunities

Many are the funding opportunities promoted by the European Union to support and foster the SMEs’ growth, from alternative finance solutions to research programs.

Unfortunately, there isn’t a single way to register a company as a SME. Any initiative has different application procedures.

Start-ups and micro-enterprises can also benefit from several funding projects. You can find an overview of all the initiative of the European Union to promote entrepreneurship here.