What Is a Small Business? Definition and Guide

What is a Small Business

A small business is a corporation, partnership, or sole proprietorship that has a lower number of employees (and typically lower revenue) than larger businesses. The exact legal definition of a small business can vary from place-to-place and is often dependent on the industry of the business.

The U.S. Small Business Administration uses size standards to define businesses as “small” for the purpose of determining their eligibility for government grant programs. Standards differ based on industry, so a company could have as many as 1,500 employees and still be labeled small.

As of 2022, there are 33.2 million small businesses in the United States, accounting for 99.9% of all companies nationwide, according to the U.S. Census Bureau. Companies with fewer than 20 employees account for 32.5 million small businesses, with 27.1 million having no employees at all, meaning the only worker is the owner.

Who are small business owners?

According to the SBA, men own 56.8% of small businesses, women own 38.3%, and the remaining 4.8% are equally owned by men and women partnerships. Women are more likely to own service-based businesses, where men own more product or technology-based ventures.

Besides the number of employees, the SBA has other factors that help determine if a company is a small business:

  • Is the company headquartered in the U.S.?
  • Does it operate primarily in the U.S.?
  • Is it a for-profit venture?
  • Is it independently owned and operated (versus being owned by a parent corporation)?
  • Is it a minority player in its industry (versus holding a major market share)?

Why does it matter?

Officially qualifying as a small business can help a company compete for government contracts, if it so desires. There are government contracting opportunities that are set aside specifically for small businesses – meaning only a small business can win it.

More importantly, in general terms, a small business has much different operational issues than a major corporation. Small businesses often have more difficulty borrowing money, may focus on serving a local or regional geographic area, and frequently have far less bureaucracy (and that’s a good thing) than their larger brethren.

On the plus side, small businesses are frequently known for their adaptability and flexibility (it’s much easier to turn a small boat than a huge destroyer quickly), their customer service focus (probably since each customer is important to their success), and their creativity and innovation (which is why larger companies often acquire small businesses).

Small Business FAQ

How do you define small business?

Small business is defined as a business that has a limited number of employees, typically fewer than 500, and operates independently of larger corporations. Small businesses are typically privately owned and operated and have a single owner or a small group of owners.

What are the 3 types of small business?

  • Sole Proprietorship: This is a business owned and operated by one person. The sole proprietor is personally responsible for all business debts and liabilities.
  • Limited Liability Company: This type of business structure combines features of both corporations and partnerships. It limits the personal liability of the owners and offers pass-through taxation.
  • Corporation: A corporation is a separate legal entity owned by shareholders. This type of business structure offers limited liability for its owners, but is subject to double taxation.

What is a small business example?

A small business example is a retail store, an online store, a restaurant, a bakery, a cleaning service, a landscaping service, or a consultancy business.

What are the five 5 types of small business?

  • Retail store: A retail store is a business that sells goods to consumers.
  • Service business: A service business provides services to businesses or consumers.
  • Manufacturing business: A manufacturing business produces goods by transforming raw materials into products.
  • eCommerce business: An eCommerce business sells goods or services online.
  • Freelance business: A freelance business provides services on a contract or project basis.