1.1.1. Legal grounds for small and medium-sized enterprises in the European Union

The European Union. Within the EU there are the following sources of law: EU primary law which consists of establishing treaties (European Economic Community, European Coal and Steel Community, European Atomic Energy Community, EU Treaty (Maastricht Treaty)), reforming treaties (Single European Act, Maastricht, Amsterdam,

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Nice, Lisbon treaties, etc.) and the EU Charter on Fundamental Rights; (2) legal acts adoption of which is allowed by the EU primary law (regulations, directives, decisions, opinions ets.) and delegated and implementing legal acts [89, pp. 104-119] which can be called as EU secondary law. Also we can add to the first group accession treaties of the new member states. Last but not least there are common principles of law established by art. 6(3) of the Treaty on European Union (hereinafter — TEU)), international treaties, customary law, jurisprudence of the Court of Justice of the EU [117].

The most important acting act of the EU is Lisbon treaty which consists of the TEU and the Treaty on the Functioning of the European Union (hereinafter — TFEU) [31]. This treaty uses notion “small and medium-sized undertaking” 3 times.

1) Article 153 TFEU (is located in title X “Social Policy” of the TFEU – precised by A.K.) states that “with a view to achieving the objectives of Article 151 (the promotion of employment, improved living and working conditions, so as to make possible their harmonization while the improvement is being maintained, proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion, implementation of measures which take account of the diverse forms of national practices, in particular in the field of contractual relations, and the need to maintain the competitiveness of the Union economy – precised by A.K.) the Union shall support and complement the activities of the Member States in the following fields: (a) improvement in particular of the working environment to protect workers’ health and safety … (i) equality between men and women with regard to labour market opportunities and treatment at work …” and in the second part it says: “the European Parliament and the Council … (b) may adopt, in the fields referred to in paragraph 1(a) to (i), by means of directives, minimum requirements for gradual implementation, having regard to the conditions and technical rules obtaining in each of the Member States. Such directives shall avoid imposing administrative, financial and legal constraints in a way which would hold back the creation and development of small and medium-sized undertakings (highlighted by А.К.)”.

2) Article 173 TFEU (is located in title XVII “Industry” of the TFEU – precised by A.K.) establishes the following: “The Union and the Member States shall ensure that the

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conditions necessary for the competitiveness of the Union’s industry exist. For that purpose, in accordance with a system of open and competitive markets, their action shall be aimed at … encouraging an environment favourable to initiative and to the development of undertakings throughout the Union, particularly small and medium-sized undertakings (highlighted by А.К.)”.

3) Article 179 TFEU (is located in title XIX “Research and technological development and space” of the TFEU – A.K.) sets that “the Union shall have the objective of strengthening its scientific and technological bases by achieving a European research area in which researchers, scientific knowledge and technology circulate freely, and encouraging it to become more competitive, including in its industry, while promoting all the research activities deemed necessary by virtue of other Chapters of the Treaties.

For this purpose the Union shall, throughout the Union, encourage undertakings, including small and medium-sized undertakings (highlighted by A.K.), research centres and universities in their research and technological development activities of high quality; it shall support their efforts to cooperate with one another, aiming, notably, at permitting researchers to cooperate freely across borders and at enabling undertakings to exploit the internal market potential to the full, in particular through the opening-up of national public contracts, the definition of common standards and the removal of legal and fiscal obstacles to that cooperation”.

At the same time the treaty uses world “undertakings” 42 times. The most important for us is article 173 TFEU because it directly touches a special status of the SMEs but also we have to research what the competence of the EU and member states are concerning SMEs. Within the EU there are 3 types of the competence.

1) Exclusive competence set by articles 2(1) and 3 TFEU which means that all acts can be adopted only by the EU and they are legally binding for member states.

2) Shared competence which set by articles 2(2) and 4 TFEU and means that this competence is divided between the EU and member states. What can be adopted is defined on 2 criteria established in article 5(3, 4) TEU: principle of subsidiarity (when it is better achieved at Union level) and principle of proportionality (the content and form of Union action shall not exceed what is necessary to achieve the objectives of the Treaties).

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3) Supporting, coordinating, or supplementary actions which set by articles 2(5) and 6 TFEU which means that the EU can only support, coordinate or complement the action of EU member states, it has no legislative power in these fields and may not interfere in the exercise of these competences belonged to EU member states. In Paul Craig’s opinion “there will be boundary problems” because some issues can be under different competence [89, p. 86].

In my opinion the same problem with article 173 TFEU which is located in title XVII “Industry”. Article 6 TFEU says that “the Union shall have competence to carry out actions to support, coordinate or supplement the actions of the Member States. The areas of such action shall, at European level, be … (b) industry …” but at the same time in accordance with article 3(1) “the Union shall have exclusive competence in the following areas … (b) the establishing of the competition rules necessary for the functioning of the internal market … (e) common commercial policy”. Also article 4(2) set that “shared competence between the Union and the Member States applies in the following principal areas … (c) economic … cohesion”. In this case if there is a legal act concerning SMEs adopted by the EU and there is question whether it is adopted within the competence of the EU we should use some methods of the interpretation of legal norms, especially systematic and teleological ones with norms established in section 1 “Rules applying to undertakings” of chapter 1 “Rules on competition” of title VII “Common rules on competition, taxation and approximation of laws”, chapter 1 “Economic policy” of title VIII “Economic and monetary policy” and title XVII “Industry”. If the main essence of the act is the competition rules or common commercial policy it is exclusive competence, if it is matter of the economic cohesion it is question of the shared competence which must be also checked within criteria on the principle of subsidiarity and the principle of proportionality, but if it deals with industry it is a competence of a EU member state.

Concerning «hard» and «soft» law of the EU concerning SMEs there are the following ones:

1) Small Business Act for Europe [1].

2) Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises [26].

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3) European Charter for Small Enterprises [46].

4) Some Regulations and Directives which influence on SMEs’ activity: Directive 2011/7/EU on combating late payment in commercial transactions [42]; Regulation (EU) No 305/2011 laying down harmonised conditions for the marketing of construction products and repealing Council Directive 89/106/EEC [62], Directive 2012/6/EU amending Council Directive 78/660/EEC on the annual accounts of certain types of companies as regards micro-entities [43], Council Directive 2008/9/EC laying down detailed rules for the refund of value added tax, provided for in Directive 2006/112/EC, to taxable persons not established in the Member State of refund but established in another Member State [33] and a lot of others.

5) Plans and programmes. For example, Entrepreneurship 2020 Action Plan [45], Work Programme (2014 – 2017) for the Eastern Partnership: “Platform 2 «Economic Integration and Convergence with EU Policies” [44] and etc.

6) Reports. For example, Report from the Commission on the implementation of the Commission Recommendation (2003/361/EC) of 6 may 2003 concerning the definition of micro, small and medium-sized enterprises [64], Commission staff working document on the implementation of Commission Recommendation of 6 May 2003 concerning the definition of micro, small and medium-sized enterprises [28], Final Report on Evaluation of the SME Definition [49], Report “SMEs, resource efficiency and green markets” [63], Final Report “Business Dynamics: Start‐ups, Business Transfers and Bankruptcy. The economic impact of legal and administrative procedures for licensing, business transfers and bankruptcy on entrepreneurship in Europe” [48], Report on the results of public consultation on The Entrepreneurship 2020 Action Plan [65] etc.

7) Guidebooks, models and so on. For example, Guide to EU definition of SME [70], Model declaration on the information relating to the qualification of an enterprise as an SME [60], Guidebook “Building Entrepreneurial Mind-sets and Skills in the EU” [51], Guidebook “Regional implementation of the SBA – Small Business Act for Europe” [53], Guidebook “How to use structural funds for SME & Entrepreneurship Policy” [52], Guidebook “Supporting the Internationalisation of SMEs” [54] and so on.

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So we can see a huge massive of the «hard» and «soft» law of the EU concerning SMEs, but among them we can single out 2 main ones:

1) Small Business Act for Europe.

2) Commission Recommendation concerning the definition of micro, small and medium-sized enterprises.

Small Business Act for Europe is important «to bring added value at EU level, create a level playing field for SMEs and improve the legal and administrative environment throughout the EU» [1] through establishing 10 principles:

«I Create an environment in which entrepreneurs and family businesses can thrive and entrepreneurship is rewarded

II Ensure that honest entrepreneurs who have faced bankruptcy quickly get a second chance

III Design rules according to the “Think Small First” principle

IV Make public administrations responsive to SMEs’ needs

V Adapt public policy tools to SME needs: facilitate SMEs’ participation in public procurement and better use State Aid possibilities for SMEs

VI Facilitate SMEs’ access to finance and develop a legal and business environment supportive to timely payments in commercial transactions

VII Help SMEs to benefit more from the opportunities offered by the Single Market

VIII Promote the upgrading of skills in SMEs and all forms of innovation

IX Enable SMEs to turn environmental challenges into opportunities

X Encourage and support SMEs to benefit from the growth of markets» [1]

Each of these principles has its «introduction» where actual information is provided and ways through which the principles can be translated into practice by the Commission and the Member States (only one principle mentions also «the European standards bodies»).

Commission Recommendation concerning the definition of micro, small and medium-sized enterprises (hereinafter — Commission Recommendation) is important here because in article 2 it defines what SMEs are:

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«1. 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.

2. Within the SME category, 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.

3. Within the SME category, 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» [26].

At the same time Commission Recommendation has non-obligatory status which means that a concrete member state can have its own definition. Every member state can choose its own.

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