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1. In order to define units that are recognizable and identifiable in the economy, legal or institutional criteria must be applied. In some cases, legally separate units must be grouped together as they are not sufficiently autonomous in their organization. In order to define some types of unit, accounting or financial criteria also have to be applied.

2. To constitute the enterprise unit, use is made of legal units that exercise, wholly or partially, a productive activity.

3. Legal units include:

— legal persons whose existence is recognized by law independently of the individuals or institutions which may own them or are members of them,

— natural persons who are engaged in an economic activity in their own right.

4. The legal unit always forms, either by itself or sometimes in combination with other legal units, the legal basis for the statistical unit known as the ‘enterprise’. B. Geographical critera 1. A unit can be geographically identified. A distinction is made between local, regional, national, Community and worldwide areas.

2. The local level here means the territory corresponding to the ‘smallest administrative area’: the ‘commune/gemeente’ in Belgium; the ‘kommune’ in Denmark; the ‘Gemeinde’ in Germany; the ‘demos’ or ‘koinotis’ in Greece; the ‘municipio’ in Spain; the ‘commune’ in France; the ‘DED/ward’ in Ireland; the ‘comune’ in Italy; the ‘commune’ in Luxembourg; the ‘gemeente’ in the Netherlands; the ‘Gemeinde’ in Austria; the ‘concelho’ in Portugal; the ‘ kunta — kommun ’ in Finland; the ‘primärkommun’ in Sweden and the ‘ward’ in the United Kingdom. ◄ ◄

3. The regional levels are defined by the nomenclature of territorial units for statistics (NUTS), which distinguishes three levels (I, II, III).

4. The observation and analytical units are defined in such a way as to permit data first to be determined for each Member State and these data to be combined to give figures for the Community as a whole or for larger areas.

5. The rules regarding geographical criteria must be in order to permit consolidation and avoid double counting and omissions. C. Activity critera 1. The economic activity of production — hereinafter referred to as ‘activity’ — can be said to take place when resources such as equipment, labour, manufacturing techniques, information networks or products are combined, leading to the creation of specific goods or services. An activity is characterized by an input of products (goods or services), a production process and an output of products.

2. Activities are determined by reference to a specific level of NACE Rev. 1.

3. If a unit carries out more than one activity, all the activities which are not ancillary activities are ranked according to the gross value added at factor cost which they generate. A distinction is made between principal activity and secondary activities.

4. If no value-added figures are available, other criteria must be used, such as, for example, employment, payroll, turnover and assets, with a view to obtaining the closest possible approximation of the classification which would have been obtained on the basis of value added.

5. Units are classified in terms of their activities. If one activity accounts for over 50 % of the value added this determines the classification of the unit. In all other cases, classification rules must be observed. Classification is carried out in stages from the highest level of aggregation which is the section (one letter), down to the class (four digits) via the division (two digits) and the group (three digits). The classification at each level must be compatible with the previous level. The Statistical Programme Committee referred to in Article 7 of Regulation (EEC) No 3037/90 has competence in this field.

6. Principal and secondary activities are backed up by ancillary activities, such as, for example, administration, accounts, data processing, process monitoring, purchasing, sales and marketing, warehousing, repairs, transport and renovation. These ancillary activities within a unit are carried out in order to permit or facilitate production by the unit of goods and services for third parties. The products of ancillary activities are not themselves supplied to third parties.

7. The notion of ancillary activities is developed in section IV B. SECTION III Definitions of units and explanatory notes specific to each unit A. Enterprise The enterprise is the smallest combination of legal units that is an organizational unit producing goods or services, which benefits from a certain degree of autonomy in decision-making, especially for the allocation of its current resources. An enterprise carries out one or more activities at one or more locations. An enterprise may be a sole legal unit. Explanatory note

The enterprise thus defined is an economic entity which can therefore, under certain circumstances, correspond to a grouping of several legal units. Some legal units, in fact, perform activities exclusively for other legal units and their existence can only be explained by administrative factors (e.

g. tax reasons), without them being of any economic significance. A large proportion of the legal units with no persons employed also belongs to this category. In many cases, the activities of these legal units should be seen as ancillary activities of the parent legal unit they serve, to which they belong and to which they must be attached to form an enterprise used for economic analysis. B. Institutional unit The institutional unit is an elementary economic decision-making centre characterized by uniformity of behaviour and decision-making autonomy in the exercise of its principal function. A unit is regarded as constituting an institutional unit if it has decision-making autonomy in respect of its principal function and keeps a complete set of accounts.

1. In the corporate enterprises sector, the enterprise corresponds to the institutional unit used in the ESA. Similar institutional units also exist in the general government and private non-profit institutions sectors. The institutional unit in the households sector covers all the activities of households, while the term ‘enterprise’ is reserved exclusively for their production activities.

2. Applying these rules leads to the following solutions for entities which do not clearly possess both characteristics of an institutional unit.

(a) Households always enjoy autonomy of decision and must therefore be institutional units, even though they do not keep a complete set of accounts.

(b) Entities which do not keep a complete set of accounts are combined with the institutional units in whose accounts their partial accounts are integrated.

(c) Entities which, while keeping a complete set of accounts, have no autonomy of decision in the exercise of their principal function are combined with the units which control them.

(d) Entities which satisfy the definition of an institutional unit are treated as such even if they do not publish their accounts.

(e) Entities forming part of a group of enterprises and keeping a complete set of accounts are deemed to be institutional units even if they have surrendered, in fact if not in law, part of their autonomy of decision to the central body (the holding company) responsible for the group's general management. The holding company itself is deemed to be an institutional unit distinct from the units which it controls.

3. The following are deemed to be institutional units:

— units which have a complete set of accounts and autonomy of decision:

(a) private and public companies, public corporations;

(b) cooperatives or partnerships recognized as independent legal entities;

(c) public enterprises which by virtue of special legislation are recognized as independent legal entities;

(d) non-profit institutions recognized as independent legal entities;

(e) agencies of general government.

— units which have a complete set of accounts and which, by convention, are deemed to have autonomy of decision:

(f) quasi-corporate enterprises: sole proprietorships, partnerships and public enterprises, other than those referred to in points (a), (b) and (c) in so far as their economic and financial behaviour can be separated from that of their owners and resembles that of corporate enterprises;

— units which do not necessarily keep a complete set of accounts, but which by convention are deemed to have autonomy of decision:

(g) households. C. Enterprise group

1. For certain observations and analyses it is sometimes useful and necessary to study the links between certain enterprises and to group together those which have strong ties with each other. A number of exercices are underway but not finished concerning the concept of the group of enterprises. It is defined here starting from the concept of accounting group as given in the Seventh Council Directive 83/349/EEC (OJ No L 193, 18.7.1983, p. 1). This Directive came into force for the first time for consolidated accounts of the financial year which began in 1990. Directive 90/605/EEC (OJ No L 317, 16.11.1990, p. 60) extended the scope of application of the Seventh Directive.