Did you know that the category your business belongs to can influence access to funding and tax benefits? Correctly identifying whether you are a microenterprise or an SME is essential to take advantage of the targeted funding and incentives available to help grow your business.

In this article, we’ll delve into how to determine if your company falls into the micro, small, or medium enterprise categories and explore the benefits each category offers.

Size Matters: How to Check if Your Business is an SME

To determine whether your company qualifies as an SME, you need to check the following::

• the annual turnover or total assets
• The number of employees, better defined as staff headcount.

How is the number of employees calculated?

Employees are counted in annual work units (AWU), where each full-time employee counts as one unit.

All workers with seasonal and part-time contracts are counted as fractions of a unit.

You must also include partners involved in business operations and managing owners, but exclude employees on maternity or parental leave, interns, and those on redundancy payments.

How Businesses Are Classified

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 over 250 employees and an annual turnover of over € 50 million or a total asset of over € 43 million.

What happens if a business exceeds the thresholds?

If a company at the end of the financial year exceeds the employee or turnover thresholds, could it lose its microenterprise or SME status?

No, It will lose its status only if it exceeds the thresholds for two consecutive accounting years. However, if the SME exceeds the thresholds as a result of a merger or an acquisition, the shift will be immediate.

Mergers, Acquisitions, and Impactful Corporate Relationships

As just mentioned, mergers and acquisitions can change the company's status. However,  there are also other relationships between companies that affect the corporate structure which may increase the company’s resources and effective size.

For this reason, it’s important to determine whether the business is:

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

Autonomous enterprise

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

In some cases, businesses are considered autonomous even if up to 50% of their shares are owned by specific investors, such as venture capital companies.

Partner enterprise

Two companies are considered associated if one holds between 25% and 50% of the capital or voting rights of the other.

In these cases, to calculate the company’s overall size, a portion of the staff and revenue of the partner company must be added, proportionate to the shares held.

For example:

Company A has a turnover of € 8 million and 15 full-time employees. Alone, it would be a small company. However, 45% of its shares have been recently acquired by the multinational Company C.

Can A still be considered an SME?

To verify it, we need to add 45% of the turnover and employees of company C to those of A. Moreover, if C holds shares in other companies, their data must also be considered to verify whether A still qualifies as an SME.

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 turnover and all staff from the linked enterprises must also be considered when verifying company status.

Two or more companies are linked if there is any of the following relationships:

• One company holds the majority (51%) of voting rights in another;
• One company has enough votes to exercise dominant influence;
• One company exercises a dominant influence over another by contract, statute, or through agreements with other shareholders.

With s-peek’s Extended12M reports, you can easily access the number of employees in the company's financial statements and identify the company’s shareholders along with their ownership percentages. This helps in determining whether the company operates independently, is affiliated, or is connected to other businesses.

Microenterprises vs. SMEs: Differences That Really Matter

The difference between microenterprises, small, and medium-sized businesses is not just about numbers. Each category has access to different resources, from tax incentives to targeted funding programs. Not being aware of these differences could lead to missing out on competitive advantages.

Here are the main differences:

• Microenterprises: typically have access to simpler financing options and less bureaucratic processes, which are designed for startups and small businesses.
• SMEs: Can benefit from larger financing programs and incentives, but the access procedures are more complex and often tied to stricter requirements.

In conclusion, knowing the category your company falls into is not only useful for meeting legal obligations, but it can also help you take advantage of available resources and avoid missing out on important opportunities.