New category of companies with less stringent rules?

The current legislation recognises two key categories of enterprises: small and medium-sized enterprises (SMEs), i.e., enterprises employing fewer than 250 employees, with an annual turnover not exceeding EUR 50 million or with total assets not exceeding EUR 43 million, and mid-cap companies, i.e., companies that do not meet the SME criteria but employ fewer than 3,000 people.

In practice, the threshold of 249 employees has become particularly critical, as exceeding this limit leads to a cliff-edge effect on regulatory obligations, which may hinder the businesses’ economic development. The new category of small enterprises with medium capitalisation is thus intended to ensure a smoother transition and prevent situations where exceeding the SME threshold results in a sudden and significant increase in administrative obligations.'
 

Definition of small mid-cap enterprises

The SMC category is to include enterprises employing fewer than 750 employees and having an annual turnover of up to EUR 150 million or total assets of up to EUR 129 million. The new scheme is designed to allow them to benefit from certain advantages previously reserved for SMEs, thereby reducing the overall administrative burden.

However, the European Parliament is calling for higher thresholds for the proposed SMC category so that companies with fewer than 1,000 employees and either an annual turnover of up to EUR 200 million or total assets of up to EUR 172 million would qualify. At the same time, the Parliament stresses the importance of preserving the “think small first” principle, under which support for SMEs must not be weakened by the introduction of a new category. This principle requires that the needs of SMEs be systematically considered from the early stages of policy-making and that regulatory measures be simple, proportionate and aligned with their capacities.
 

Simplified scheme and other benefits

One advantage of the new SMC classification would be the possibility of partially applying the simplified scheme for SMEs, which would reduce the administrative burden. If the proposal is adopted, SMCs could then benefit from the following advantages, among others:

• easier access to capital markets, including the option to use a simplified prospectus for public offerings or the admission of securities to trading,
   
• exemption from selected due diligence obligations relating to the import and sale of batteries,
   
• a reduction in registration obligations when importing or exporting products containing greenhouse gases,
   
• exemption from the obligation to keep records of personal data processing activities under the GDPR.
   

Further negotiations can be expected in the near future on the final shape of the SMC category, including potential adjustments to the threshold values and clarification of the scope of exemptions under existing legislation. These discussions open up the prospect of a reduction in administrative burdens and compliance costs for companies that do not qualify as SMEs but are smaller than large enterprises. It is therefore advisable to closely monitor the final wording of the legislative proposal and its practical implications, not only in the areas of capital markets, but also with respect to GDPR, ESG obligations and due diligence requirements.