July 14 2006 |
2006-R-0392 | |
STATUTORY DEFINITIONS OF SMALL BUSINESS AND MICROENTERPRISES | ||
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By: John Rappa, Principal Analyst | ||
You asked how Connecticut law and federal Small Business Administration (SBA) regulations define small business and microenterprises.
SUMMARY
Both Connecticut law and SBA regulations define “small business,” but the definitions vary depending on the purpose. SBA definitions also vary by business sector, such as manufacturing and mining. In some cases where Connecticut law and SBA regulations define small business for similar purposes, the criteria are the same (e. g. , number of employees) but the values differ (e. g. , 50 or fewer employees for Connecticut micro loans versus 500 employees for most SBA loans).
Connecticut law and the SBA regulations define microenterprise for specific economic development programs, but use different criteria and values. Connecticut law also defines “micro business” for an economic development program, but the criteria differ from those for microenterprise.
(The U. S. Department of Housing and Urban Development also defines microenterprise for the Community Development Block Grant program, which provides grants to cities and towns to fund housing, infrastructure, social services, and many other activities. It defines microenterprises as any commercial business with five or fewer employees, one of or more of whom is the owner (42 USC 5302 (a) (22)).
SMALL BUSINESS
State
At least 78 statutes refer to small business, but only 18 define the term. As Table 1 shows, these definitions apply to a wide array of purposes: policies and program for easing the regulatory burden on small businesses, setting aside contracts for them, authorizing tax credits and other economic development aid, establishing tax exemptions and deductions, and providing energy and environmental assistance.
As Table 1 also shows, the statutes collectively define small business based on four criteria: who owns and controls the business, how many people it employs, how much revenue it generates, and how long Connecticut has been its principal place of business. Some statutes include other criteria that reflect their purpose, such as the annual emission limit for determining if a business qualifies for assistance to reduce air pollution at its site.
Table 1: Connecticut Statutory Definitions of Small Business
Purpose and CGS Citation |
Definitional Criteria | |||
Ownership |
Size |
Time at CT Location |
Other | |
Providing regulatory relief for small businesses (§ 4-168a) |
Independently owned and operated business entity, including affiliates |
• Fewer than 50 full-time employees or • Gross annual sales less than $ 5 million |
Not applicable |
Agency adopting regulations can raise the threshold for specific type of businesses up to lesser of applicable federal threshold or 500 employees |
Eligibility for small contractor set-aside contracts (§ 4-a-60g) |
• Business under same ownership and management for at least one year before applying for small contractor certification • Person who daily runs the business owns at least 51% of it |
• Gross revenues under $ 10 million in most recently completed fiscal year before applying for certification |
Maintained principal place of business in state for at least one year before applying for certification |
Nonprofit organizations meeting location and size requirements qualify |
Eligibility for minority business enterprise (MBE) set-aside contracts |
Person who daily runs the business owns at least 51% of the business and is a member of a specified minority group or has a disability |
Same as above |
Same as above |
Nonprofit qualifies as MBE if person (s) who daily runs it is a member of specified minority group or has a disability |
Authorizing small businesses to participate in federally funded, locally administered economic development and small business programs (§ 8-163) |
Independently owned and operated |
Not applicable |
Not applicable |
Not dominant in its field of operations |
Determining eligibility for 6% corporate business tax credit for R&D expenditures (§ 12-217n) |
Not applicable |
Annual gross income under $ 100 million, including income derived from transactions with related persons |
Not applicable |
Not applicable |
Determining eligibility for corporate tax credit against fees paid to SBA for loan guarantees (§ 12-217cc) |
Not applicable |
Annual gross receipts up to $ 5 million in income year in which credit is first allowed |
Not applicable |
Meets federal small business criteria |
Determining eligibility for cashing in unused R&D tax credits |
Not applicable |
Annual gross receipts up to $ 70 million, including income derived from transactions with related persons |
Not applicable |
Not applicable |
Exempting shareholders in small business from corporation business tax when business chooses not to be taxed as a corporation under federal income tax (§ 12-506g) |
• More than 100 shareholders • Shareholders include at least one entity and a nonresident alien • More than one class of stock |
Not applicable |
Not applicable |
Definition excludes: • Insurance companies subject to federal taxes • Financial companies using reserve method accounting for bad debts • Businesses claiming a federal tax credit and • Current or former Domestic International Sales Corporations |
Qualifying shareholders for dividend and interest deduction for interest income earned on investments in small business (§ 12-506g) |
Same as above |
Not applicable |
Not applicable |
Same as above |
Determining eligibility for Department of Transportation set-aside contracts (§ 13a-95a) |
“Socially and economically disadvantaged individual” (s) owns 51% of business and controls its daily affairs (15 USC ) |
Not applicable |
Not applicable |
Not applicable |
Determining eligibility for energy-related products and services (§ 16a-14a) |
30 or fewer employees |
Connecticut |
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Determining eligibility for expedited Department of Environmental Protection permit approval and recognition for history of protecting the environment (§ 22a-6y) |
No applicable |
500 or fewer employees, including those employed by a subsidiary or affiliate corporation |
Not applicable |
Statute specifies that business can be a corporation, limited liability company, partnership, sole proprietorship or individual |
Determining eligibility for stationary source assistance program (§ 22a-188) |
Must meet federal criteria |
100 or fewer employees |
Not applicable |
Business must comply with annual emission limits and meet federal definition of small business (see Table 2) |
Using the proceeds in an Individual Development Account for purchasing or investing in a small business (§ 31-51ww) |
Independently owned and operated business entity, including affiliates |
• Fewer than 50 full-time employees or • Gross annual sales less than $ 5 million |
Not applicable |
Not applicable |
Determining eligibility for technical assistance provided by a state funded business outreach center (§ 32-9qq) |
• Business under same ownership and management for at least one year before applying for small contractor certification • Person who daily runs the business owns at least 51% of it |
• Gross revenues under $ 10 million in most recently completed fiscal year before applying for certification |
Maintained principal place of business in state for at least one year before applying for certification |
Not applicable |
Determining eligibility for small business innovation grants (§ 32-344) |
Not applicable |
500 or fewer employees, including those employed in a subsidiary or affiliated corporation |
Not applicable |
Business can be a corporation, limited liability company, partnership, sole proprietorship or individual |
Determining eligibility for microloans for women-owned businesses (§ 32-350) |
A woman owns at least 51% of the business and actively manages and directs its daily affairs |
50 or fewer employees |
Not applicable |
Not applicable |
Determining eligibility for microloans for minority-owned businesses (§ 32-353) |
• Business under same ownership and management for at least one year before applying for micro loan • Person who daily runs the business is a member of a specified minority group and owns at least 51% of the business |
• Gross revenues under $ 10 million in most recently completed fiscal year before applying for application • 50 or fewer employees |
Maintained principal place of business in state for at least one year before applying for certification |
Nonprofit organizations meeting location and size requirements qualify for certification |
Reporting on contracts let to small businesses and those owned by women and minority group members (§ 32-669(b)) |
• Business under same ownership and management for at least one year before receiving contract • Person who daily runs the business owns at least 51% of it |
• Gross revenues under $ 10 million in most recently completed fiscal year before applying for certification |
Maintained principal place of business in state for at least one year before applying for certification |
Nonprofit organizations meeting location and size requirements qualify for certification |
SBA
The SBA defines small business for economic development and procurement purposes based on a business' annual revenues and number of employees. But these standards vary by business sectors as established in the North American Industrial Classification System, which divides different types of businesses into sectors and subsectors. Table 2 shows the ranges for each sector. Attachment 1 is the SBA regulation that identifies the standard for each type of business grouped in this manner.
Table 2: SBA Small Business Size Standards by NAICS Sectors (13 CFR Part 121. 201)
NAICS Sector |
Ranges Size Standards | |
Annual Revenue |
No. of Employees | |
Agriculture, Forestry, and Fishing and Hunting |
$ 75,000-$ 16. 5 million |
500 for logging only |
Mining |
$ 6. 5 million for specified mining support activities |
500 for most businesses |
Utilities * |
$ 6. 5-$ 11. 5 million for water and irrigation, sewage treatment, and steam and air conditioning |
500 for natural gas distributions |
Construction |
$ 6. 5 million-$ 31 million |
Not Applicable |
Manufacturing |
Not applicable |
500-1,500 |
Wholesale Trade |
Not applicable |
100 |
Retail Trade |
$ 6. 5 million- $ 26. 5 million |
Not Applicable |
Transportation |
$ 6. 5 million-$ 31. 5 million |
500-1,500 |
Information |
$ 27 million-$ 6. 5 million |
500-1,500 |
Finance and Insurance |
$ 165 million in assets for specified financial institutions to $ 6. 5 million |
1,500 for direct property and casualty insurance carriers |
Real Estate and Rental and Leasing |
$ 6. 5 million to $ 23. 5 |
Not Applicable |
Professional, Scientific, and Technical Services |
$ 4. 5 million to $ 25 million |
150- 1,500 |
Management of Companies and Enterprises |
$ 6. 5 million |
Not Applicable |
Administrative and Support, Waste Management, and Remediation Services |
$ 6. 5 million-$ 32. 5 |
500 for Environmental Remediation Services only |
Educational Services |
$ 6. 5 million-$ 32. 5 million |
Not Applicable |
Health Care and Social Assistance |
$ 6. 5 million-$ 31. 5 million |
Not Applicable |
Arts, Entertainment, and Recreation |
$ 6. 5 million |
Not Applicable |
Accommodation and Fast Food |
$ 6. 5 million-$ 19 million |
Not Applicable |
Other Services |
$ 6. 5 million-$ 23 million |
Not Applicable |
* Total annual electric output fewer than 5 million megawatts for specified utilities
As Table 3 shows, SBA modifies these, and adds new, standards for different programs. For example, it raises the revenue and employee limits by 25% for businesses seeking loans if they use all of the funds in a designated labor surplus area. It also provides alternative standards for businesses seeking loans under Development Company and Small Business Investment Company Loan programs. The Small Business Innovation Research Program requires businesses to meet ownership as well as employee criteria.
Table 3: SBA Size Standards for Specified Programs
Program and CFR Citation |
Size Requirements | ||
Revenue |
No. of Employees |
Other | |
SBA Business and Disaster Loans (13 CFR 121. 301(a)) |
Applicant must meet revenue standard for its business sector |
Applicant must meet employee standard for its business sector |
Limits increased by 25% if applicant uses all of the assistance in a labor surplus area |
Development Company Loan Program (13 CFR 121. 301(b)) |
Same as above or alternative standard |
Same as above or alternative standard |
Alternative Standard: • No more than $ 7. 5 million in tangible net worth and • Average net income after federal income taxes no more than $ 2. 5 million Limits increased by 25% if applicant uses all of the assistance in a labor surplus area |
Small Business Investment Company Loan Program (13 CFR 121. 301(c)) |
Same as above or alternative standard |
Same as above alternative standard |
Alternative standard: • No more than $ 18 million in tangible net worth and • Average net income after federal income taxes no more than $ 6 million Limits increased by 25% if applicant uses all of the assistance in a labor surplus area |
Surety Bond Guarantee Assistance Program (13 CFR 121. 301(d)) |
Average annual revenue for applicants seeking bonds for construction and service contracts cannot exceed $ 6. 5 million |
Applicant must meet employee standard for its business sector |
Not Applicable |
Table 3: Continued | |||
Program and CFR Citation |
Size Requirements | ||
Revenue |
No. of Employees |
Other | |
Small Business Innovation Research Program (13 CFR 121. 702 (a)) |
Not Applicable |
500 employees |
Ownership Standard: • At least 51% owned and controlled by U. S. citizens or legal resident aliens or • At least 51% owned and controlled by another business meeting the above criteria |
Procurement (13 CFR 121. 402 (a)) |
Applicant must meet revenue standard for its business sector |
Applicant must meet employee standard for its business sector |
Nonmanufacturers and kit assemblers providing a manufactured product under a set-aside contract can have no more than 500 employees |
• Sale or lease of government property: |
Nonmanufacturers: $ 6. 5 million |
Manufacturers: 500 employees |
|
• Sale or lease of timber |
500 employees |
Primarily engaged in logging or forest product industry | |
• Sale or lease of special salvage timber |
25 employees during any pay period for past 12 months |
Same as above | |
• Leasing land for coal mining |
250 employees |
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• Leasing land for uranium mining |
100 employees |
||
• Buying petroleum |
Size standard for industry |
Size standard for industry |
Primarily engaged in petroleum refining |
• Stockpile purchases |
$ 51. 5 million |
Primarily engaged in purchase of materials which are not domestic products | |
MICROENTERPRISES
Connecticut
Connecticut law did not define “microenterprise” until the legislature enacted PA 06-166, which defined the term for a pilot program providing technical assistance to these businesses. Under the act, a microenterprise employs 10 or fewer people and grosses less than $ 500,000 annually.
Another new law defines a similar term, “micro business,” for purposes of providing matching funds to businesses receiving federal R&D and technology transfer funds. Under PA 06-83, a micro business or its affiliates is independently owned and operated and (1) employs fewer than 50 full-time employees or (2) has gross annual sales under $ 5 million.
SBA
SBA defines microenterprises for organizations that use its funds to train and assist disadvantaged entrepreneurs and microentrepreneurs. For this purpose, a microenterprise is a sole proprietorship, partnership, or corporation with fewer than five employees (including the owner) that cannot obtain bank loans, equity, or other conventional financing (13 CFR 119. 2).
Another SBA program appears to target microenterprises without defining them. The program makes and guarantees loans originated by other organizations specializing in small business lending. A business qualifies for “microloans” if it meets the SBA's small business size limits, which for most types of business are $ 6. 5 million in annual income or 500 employees. But the relatively low $ 35,000 loan limit suggests that the program is geared toward very small businesses (13 CFR 120. 170).
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