Chapter 2:

Types of enterprises

Inés Herrero Chacón

Dep. Business Management
Universidad Pablo de Olavide
 BUSINESS ADMINISTRATION SYLABUS

MODULE I: FUNDAMENTALS
Topic 1. Enterprises & businesspeople
Topic 2. Types of enterprises
Topic 3. Environment
Topic 4. Introduction to the management subsystem

MODULE II: FUNCTIONAL SUBSYSTEMS

Topic 5. Introduction to the operations subsystem
Topic 6. Enterprises & marketing management
Topic 7. The financial functioning of enterprises
Topic 8. Human Resources

MODULE III: BUSINESS DEVELOPMENT

Topic 9. Business Evolution over time.
Topic 10. Business cooperation.
Firm’s Classification Criteria

1. SIZE

2. SECTOR

3. AREA

4. LEGAL FORM

5. OWNERSHIP
ENTERPRISE TYPES REGARDING TO THEIR SIZE
According to the Recommendation of the ECC of 6 May 2003
concerning the definition of micro, small and medium-sized enterprises

The category of micro, small and medium-sized enterprises

(SMEs) is made up of enterprises which employ fewer than 250
persons and which have an annual turnover not exceeding EUR
50 million, and/or an annual balance sheet total not exceeding
EUR 43 million.
A SMALL ENTERPRISE is defined as an enterprise which
employs fewer than 50 persons and whose annual turnover
and/or annual balance sheet total does not exceed EUR 10
million.
A MICROENTERPRISE is defined as an enterprise which
employs fewer than 10 persons and whose annual turnover
and/or annual balance sheet total does not exceed EUR 2
million.
LARGE ENTERPRISES are not defined in the recommendation,
being obtained by exclusion.
 ENTERPRISE TYPES REGARDING TO THEIR SIZE
According to the Recommendation of the ECC of 6 May 2003
concerning the definition of micro, small and medium-sized enterprises

& Turnover or Balance sheet total

Enterprise type AWU
(in million euros) (in million euros)

MEDIUM-SIZE Less than 250 Same or less than 50 Same or less than 43

SMALL Less than 50 Same or less than 10 Same or less than 10

MICROENTERPRISE Less than 10 Same or less than 2 Same or less than 2

AWU (annual working units) refers to the staff headcount criterion

LARGE 250 or more or More than 50 & More than 43

 EXAMPLES

CASE AWU TURNOVER BALANCE SHEET TOTAL TYPE

1 30 10 M. 9 M.

2 200 40 M. 10 M.

3 9 2 M. 2 M.

4 200 60 M. 50 M.

5 100 30 M. 45 M.

6 9 2,5 M. 1,5 M.

7 250 50 M. 43 M.

8 10 6 M. 1,5 M.

9 50 50 M. 43 M.

10 300 1,5 M. 1,5 M.

11 9 2 M. 1 M.

12 40 1,5 M. 2 M.
ENTERPRISE TYPES REGARDING TO THEIR SIZE
According to the Recommendation of the ECC of 6 May 2003
concerning the definition of micro, small and medium-sized enterprises

Partner Enterprises are all enterprises which are not

classified as linked enterprises and between which there is the
following relationship: an enterprise (upstream enterprise)
holds, either solely or jointly with one or more linked
enterprises 25 % or more of the capital or voting rights of
another enterprise (downstream enterprise).

Linked enterprises are those which have a majority of the

shareholders' or members' voting rights in another enterprise
or that exert a dominant influence over another.

A firm cannot be considered SME if 25% o more of its

capital or voting rights are controlled by a public body
(with some exceptions).
ENTERPRISE TYPES REGARDING TO THEIR SIZE
According to the Recommendation of the ECC of 6 May 2003
concerning the definition of micro, small and medium-sized enterprises

An autonomous firm is any enterprise which is not

classified as a partner enterprise nor as a linked
enterprise.

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.
 ENTERPRISE TYPES REGARDING TO THEIR SIZE
According to the Recommendation of the ECC of 6 May 2003
concerning the definition of micro, small and medium-sized enterprises

The headcount corresponds to the number of ANNUAL WORK UNITS

(AWU), i.e. the number of persons who worked fulltime within the
enterprise in question or on its behalf during the entire reference year
under consideration. The work of persons who have not worked the full
year, the work of those who have worked part-time, regardless of duration,
and the work of seasonal workers are counted as fractions of AWU.

The staff consists of:

(a) employees;
(b) persons working for the enterprise being subordinated to it
and deemed to be employees under national law;
(c) owner-managers;
(d) partners engaging in a regular activity in the enterprise and
benefiting from financial advantages from the enterprise.

Apprentices or students engaged in vocational training with an

apprenticeship or vocational training contract are not included as staff.
The duration of maternity or parental leaves is not counted.
 AWU: EXAMPLE

In an enterprise work:

A partner that manage the enterprise

Another 4 partners that benefit from finantial advantages
180 employees with an anual full-time contract
30 employees with an anual part-time contract
60 employees with a full-time contract for four months
40 employees with a part-time contract for three months
50 are on an apprenticeship contract or vocational training

WHICH IS THE TOTAL NUMBER OF AWU?

Firm’s Classification Criteria

1. SIZE

2. SECTOR

3. AREA

4. LEGAL FORM

5. OWNERSHIP
Firms’ classification according to its activity sector

The three-sector hypothesis is an economic theory

which divides economies into three sectors of
activity:

1. Extraction of raw materials (primary)

2. Manufacturing (secondary)
3. Services (tertiary)

It was developed by Colin Clark and Jean Fourastié.

We will see an extension

 PRIMARY SECTOR

The primary sector of the economy

extracts or harvests products from the
earth. The primary sector includes the
production of raw material and basic
foods, generally involves changing
natural resources into primary
products.
 PRIMARY SECTOR

 agriculture
 agribusiness
 fishing
 forestry
 farming
 grazing
 hunting
 mining
 quarrying industries.
 SECONDARY SECTOR

The secondary sector of industry includes

those economic sectors that create a
finished, usable product: manufacturing and
construction.

This sector of industry generally takes the

output of the primary sector and
manufactures finished goods or where they
are suitable for use by other businesses,
for export, or sale to domestic consumers.
 SECONDARY SECTOR

 metal working and smelting

 automobile production
 Food processing
 textile production
 chemical and engineering industries
 aerospace manufacturing
 energy industries (production of
petroleum, gas and electric power)
 engineering
 breweries and bottlers
 construction
 shipbuilding
 SECONDARY SECTOR

This sector is often divided into:

 light industry:

 heavy industry
TERTIARY SECTOR (SERVICE SECTOR)

This sector provides services to the

general population (final consumers) and
to businesses.

The focus is on serving the customer

rather than transforming physical goods

In most developed and developing

countries, a growing proportion of
workers are devoted to the tertiary
sector.

In the U.S., more than 80% of the labor

force are tertiary workers.
 TERTIARY SECTOR (SERVICE SECTOR)

Activities associated:

 retail and wholesale sales

 transportation
 distribution
 entertainment (movies, television, radio, theater…)
 restaurants
 clerical services
 tourism
 insurance
 banking
 healthcare
 law
CLASSIFICATION BY ACTIVITY SECTOR

 ISIC
International Standard Industrial Classification

 NACE
Classification of Economic Activities in the EU

 CNAE
Clasificación Nacional de Actividades Económicas
CLASSIFICATION BY ACTIVITY SECTOR

Others:

 SIC
Standard Industrial Classification

 NAICS
North American Industry Classification System
Firm’s Classification Criteria

1. SIZE

2. SECTOR

3. AREA

4. LEGAL FORM

5. OWNERSHIP
CLASSIFICATION according to the AREA
they operate

 LOCAL

 REGIONAL

 NATIONAL

 INTERNATIONAL

Exporting firms
Multinational
Different Types of International Organizations
Multinational Corporation (MNC)

– Multidomestic Corporation

– Global Company

– Transnational Corporation (Borderless Organization)

Firm’s Classification Criteria

1. SIZE

2. SECTOR

3. AREA

4. LEGAL FORM

5. OWNERSHIP
ENTERPRISE CLASSIFICATION ACCORDING TO THEIR LEGAL FORM

Legal
LEGAL FORM
Personality

PHYSICAL
PERSON
Sole trader

Collective Society
Private Limited Company, (Ltd.) (SRL)

MERCANTILE New Private Limited Company () (SLNE)

COMPANIES
Public Limited Company, (PLC) (SA)
LEGAL
Limited partnership with share capital (com.acc)
ENTITY
Private Limited partnership (comandit. simple)
Worker-owned limited company (SAL)
Worker-owned
MERCANTILE Worker-owned privated limited company (SLL)
COMPANIES
Cooperative
 Some definition of legal forms

PLC vs Ltd. (Public limited company vs Private limited company)

The main difference between PLC and Ltd is that the

Public Company's shares may be offered for sale to the
general public.

New Private limited company (SLNE)

Special kind of private limited company. Andalusian.

 Some definition of legal forms

Private limited partnership (Soc. Comanditaria simple)

It consists of:
• one or more persons called general partners (GP)

• one or more persons called limited partners (LP),

Limited partnership with share capital (Soc. Comanditaria

por acciones)
 Some definition of legal forms

Worker-owned companies:
Those companies in which at least 51% of the
capital is owned by the workers of the firm.

A Cooperative is an autonomous association of persons

united voluntarily to meet their common economic, social,
and cultural needs and aspirations through a jointly-
owned and democratically-controlled enterprise. A
cooperative may also be defined as a business owned and
controlled equally by the people who use its services or
who work at it.
 ENTERPRISE CLASSIFICATION ACCORDING TO THEIR LEGAL FORM
Legal form No. partners Capital invested Liability

There is no legal
Sole trader One
minimum
Non-limited
There is no legal
Collective Society Minimum 2
minimum

Private Limited Minimum 3.005,06 €

Minimum 1
Company, (Ltd.) (SRL) Divided by shares

New Private Limited Minimum 1 Minimum 3.012 € Limited to the capital

Company () (SLNE) Maximum 5 Maximum 120.202 € invested

Public Limited Minimum 60.101,21 €

Minimum 1
Company (PLC, SA) Divided by shares

Limited partnership
Minimum 2 Minimum 60.101,21 € General partners:
with share capital
non-limited
Limited partners:
Private limited There is no legal
Minimum 2 Limited to investment
partnership minimum
 ENTERPRISE CLASSIFICATION ACCORDING TO THEIR LEGAL FORM

Legal form No. partners Capital invested Liability

Worker-owned limited Minimum 60.101,21 €

company (SAL) (igual que la SA)

Minimum: 3
Worker-owned
Minimum 3.005,06 €
privated limited
(igual que la SRL)
company (SLL)

Minimum: 3 (1st Limited to the

order cooperative) capital invested

Cooperative Variable
Minimum: 2
(second order and
highe)

Andalucian
Minimum: 3 Minimum 3.005,06 €
cooperatives
Firm’s Classification Criteria

1. SIZE

2. SECTOR

3. AREA

4. LEGAL FORM

5. OWNERSHIP
Firm’s classification according to its ownership

 STATE-OWNED ENTERPRISES (SOEs)

 PRIVATE ENTERPRISES

 MIXED ENTERPRISES