What Is a Small Business?


What defines a small business can have severe ramifications for everything from taxation and access to government resources down to your business tax liability. The U.S. Small Business Administration sets size standards across industries, and the precise definition can differ depending on which one your company belongs.

Being considered a small business can make borrowing and accessing government contracts more straightforward and help your company stand out against larger competitors.


Small businesses are privately-held companies with fewer employees and lower revenue than larger competitors within an industry. Usually, these smaller enterprises don’t need to adhere to the exact regulatory reporting requirements as their larger counterparts.

The definition of a small business varies by country, as does its number of employees and revenue threshold to qualify as such for government purposes. Sometimes industry is considered relevant when setting this criterion; for instance, retail bakeries could employ up to 500 workers while gross receipts reach $16.5 million while still being considered small by the United States Small Business Administration.

Small businesses provide services or products directly to local customers, such as convenience stores, hairdressers, tradespeople (carpenters), photographers, and small-scale manufacturing companies. Many also provide community support by creating partnerships or sponsoring community events and activities.


Small businesses can be organized as sole proprietorships, partnerships, or corporations. Each structure can have significant legal and tax repercussions. The Small Business Administration offers helpful information regarding various forms of organizational structures available. Their Choose a Business Structure webpage provides this helpful insight.

The structure can profoundly affect how a small business operates and accesses resources such as loans or investment capital. At the same time, its choice influences any firm’s management decisions.

General partnerships allow two or more owners to share in legal and financial responsibilities while performing management duties collectively, while limited partnerships (LP) limit the personal liabilities of owners while offering pass-through taxation.

The structure is integral to how competitively small businesses can bid for government contracts. Industry-specific rules determine classification as a small business and could require a minimum employee count or annual revenues to qualify.


People typically think of small businesses as mom-and-pop stores and corner markets. Yet they play an essential role in economies, creating two-thirds of new jobs while providing tax revenue that improves local services through taxes. A US small business is considered any company employing 500 or fewer workers and meeting industry size standards that vary based on their industry.

Various resources are available to small businesses to assist their success, ranging from training and one-on-one assistance to business centers and online resources, specialized professional trade associations, and the Small Business Administration.

Small businesses are ideal for marketing on social media and other online channels that enable them to quickly and affordably reach large numbers of customers. Furthermore, small businesses may benefit from studying competitors’ marketing strategies to gain insight into what they are doing well; additionally, this research can reveal any potential choke points within the business, such as a lack of staffing or communication issues between departments.


Small business owners must comply with federal and local taxes on their operations, such as income, payroll, and property taxes.

How the government defines your business depends on various factors, including its size, location, and industry. This classification could have an impactful effect on eligibility for loans, contracts, or tools. For instance, the Small Business Health Care Tax Credit is only open to businesses that fulfill specific criteria.

Size standards depend on the industry but typically refer to privately-owned enterprises with 500 or fewer employees or average annual receipts of less than $38.5 million (there are 19 footnotes to this table). The SBA also defines small business by firm revenue and number of employees across multiple locations (rather than from one location alone); capital gains taxes and personal income tax may also apply to this type of organization.