Topic:
LEGISLATION; ECONOMIC DEVELOPMENT; SMALL BUSINESSES; EMPLOYEES (GENERAL);
Location:
SMALL BUSINESS;

OLR Research Report


July 14 2006

 

2006-R-0392

STATUTORY DEFINITIONS OF SMALL BUSINESS AND MICROENTERPRISES

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

 

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

 

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).

JR:dw