For decades, European law has divided businesses into two large blocks: on the one hand, small and medium-sized enterprises, SMEs, and on the other, large companies. Legally the limit is set at 249 employees. Above that threshold, a company was automatically classified as a large enterprise and found itself exposed to a much more onerous set of regulatory obligations, regardless of whether it had 250 or 25,000 employees.
This mechanism, known as the ‘cliff-edge’, literally, the edge of the precipice, creates a structural distortion: some companies prefer not to grow, or intentionally limit hiring, so as not to lose the protections reserved for SMEs.
The phenomenon had been reported in the reports commissioned by the EU from Enrico Letta and Mario Draghi, respectively on the reform of the single market and on the future of European competitiveness. Both had indicated the creation of an intermediate category as one of the levers necessary to revitalize the industrial fabric of the continent.
With the fourth “Omnibus” simplification package, presented by the European Commission on 21 May and now being examined by Parliament and the EU Council, that indication has become a concrete legislative proposal.
A new category
The heart of the reform is the creation of a legal category that has not existed until now: small mid-cap enterprises, or Smc. These are companies that fall into the range between medium and large companies, which until then had lacked specific recognition in EU law.
Brussels has proposed defining them as companies with fewer than 750 employees and an annual turnover of up to 150 million euros or a balance sheet total of no more than 129 million euros. However, both the European Parliament and the Council of the EU have proposed higher thresholds: less than a thousand employees, turnover of up to 200 million euros or balance sheet assets of up to 172 million. This is a divergence that will be the subject of inter-institutional negotiation, but which already indicates the direction: to include as many growing companies as possible in the new category.
According to Commission estimates, these are around 38 thousand companies across the European Union, active in strategic sectors such as electronics, aerospace and defence, energy and healthcare, and which alone represent 6 percent of overall employment in the EU.
“We cannot easily influence China’s economic aspirations or the US administration’s tariff policies. However, we must increase European competitiveness by reducing bureaucratic burdens. With this legislation, we are doing it for our European small and medium-sized businesses,” said Austrian MP Lukas Mandl, after the approval of the position of the package in three House committees yesterday, Wednesday 25 February.
Data protection
One of the most relevant benefits concerns the management of personal data. The General Data Protection Regulation, the so-called GDPR, already provides an exemption for SMEs from the obligation to keep a detailed register of data processing activities.
The proposal extends this exemption to companies with fewer than 750 employees, i.e. the new SMCs, and introduces a further element of simplification: the registration obligation remains only for processing classified as “high risk” for the rights of interested parties.
Processing that concerns sensitive data, such as biometric data, data of ethnic or racial origin, political or religious opinion, relating to health or criminal convictions is excluded from the exemption. The Commission estimates that this intervention could save businesses around 66 million euros per year.
Facilitated access to capital markets
Another important measure concerns the possibility for small, mid-cap companies to raise capital on the financial markets under simplified conditions. Currently, SMCs cannot access the growth markets for SMEs, multilateral trading platforms created specifically to encourage the listing of smaller companies on the stock exchange with less expensive and more streamlined procedures compared to traditional regulated markets.
“By facilitating access to capital markets, we promote competitiveness and allow businesses to grow effectively. Our constant commitment to EU businesses is to reduce bureaucracy and allow businesses to prosper and compete on the global stage”, claimed Mariateresa Vivaldini of Fratelli d’Italia, rapporteur of the text for the Economic Affairs commission.
The reform would intervene on two fronts. On the one hand, through the amendment of the Markets in Financial Instruments Directive (Mifid), on the other, through the amendment of the Prospectus Regulation, these companies will be able to benefit from a simplified prospectus for public offers of securities.
Drawing up a complete prospectus can cost tens or hundreds of thousands of euros including legal advice, audits and administrative procedures; switching to the simplified format would allow each company to save around 20 thousand euros for each operation. The overall savings estimated for all the SMCs affected by the modification of Mifid and the Prospectus Regulation amount to 12.7 million euros.
Fewer environmental obligations
The simplifications also affect some particularly technical environmental regulations. In the Battery Regulation, SMEs are already exempted from some due diligence obligations on raw material supply chains. Parliament proposes to extend this regime also to small mid-caps, also reducing the frequency with which control policies must be updated and made public: every five years, barring significant changes, instead of every three.
A concrete example: a European battery manufacturer that exceeds the SME threshold will not immediately have to activate expensive tracking systems for lithium or cobalt supplies, but will be able to benefit from a longer period and relaxed obligations.
On fluorinated gases, used for example in air conditioning systems, the obligation to register on the European portal is reduced. Today any importer or exporter must register, even for minimal volumes. With the new rules, registration will only be triggered beyond certain quantitative thresholds, linked to equivalent CO2 emissions. In practice, the small dealer who imports a few used cars with air conditioning will no longer be treated as a large industrial operator.
Critical infrastructures and trade defense tools
The reform also affects two less visible but still relevant areas. Regarding the Critical Stakeholder Resilience Directive, which regulates the protection of essential infrastructure such as energy networks, water systems and digital infrastructure, Member States will be required to provide specific support to SMCs that fall into the category of critical stakeholders such as energy, transport and water.
In terms of trade defense instruments, such as anti-dumping and anti-subsidy measures, the reform provides easier access for SMCs, on the model of what has already been provided for SMEs. A dedicated helpdesk will be set up providing practical information, including on how to lodge complaints to initiate trade defense proceedings. This is a relevant tool in a context in which low-cost imports from third countries can damage European companies that do not have the legal and administrative resources to protect themselves independently.
“This proposal means that in the future even medium-sized companies operating critical infrastructure in the energy, transport, water and other sectors will be able to benefit from simplified requirements for SMEs and further guidance to fulfill their obligations,” explained Bulgarian socialist Kristian Vigenin.
The legislative path
The proposals are part of the European Commission’s fourth Omnibus package, presented on 21 May 2025 and composed of a regulation and a directive which amend a total of eight existing legislative acts. On 25 February 2026, three European Parliament committees — Economic and Monetary Affairs, Civil Liberties and Environment — voted in favor of their respective amendments by large margins. Parliament’s plenary is expected to confirm the negotiating mandates in March, paving the way for formal negotiations with the EU Council in the Trilogue.
