Classifying Firms
Firms are classified along four independent axes, and every combination exists. You must classify along each axis separately.
By size (EU employee headcount):
| Class | Employees |
|---|---|
| Micro | < 10 |
| Small | 10–49 |
| Medium | 50–249 |
| Large | 250+ |
Micro, small, and medium firms are SMEs: over 99% of all EU businesses.
By sector: primary (extracting: farming), secondary (transforming: manufacturing), and tertiary (services: banking).
Legal Form & Trade-offs
By ownership: private (investors), public (state), or mixed.
By legal form:
- Sole proprietorship: one owner. Has unlimited liability: personal assets answer for business debts.
- Partnership: several owners sharing management and unlimited liability.
- S.L.: capital in participations; owners risk only invested capital.
- S.A.: capital in freely transferable shares.
Key trade-off: Unlimited-liability forms are simple to create but risk personal wealth. Limited liability protects personal assets, requiring higher formalities.
Common pitfall: In economics, public ownership means owned by the state, not a stock-listed company.