This paper presents the system of small and medium entrepreneurship in the Republic of Croatia and its functioning. The criteria for defining the company and the legislative or regulatory framework that the small business sector enterprises have to meet in order to carry out entrepreneurial activities are emphasized. Particular emphasis is placed on the importance of the sector of small entrepreneurship in the entire economy and the ways of encouraging its development - by active measures and by encouraging development by the European Union. Women's entrepreneurship is especially prominent, as recent entrepreneurs are targeting a number of incentive measures to start a business. It is concluded that the SME sector in Croatia has achieved dynamic growth and a large share of employment and exports, but there is still a need to tackle barriers in the domestic market, and in parallel with this, launching and intensifying activities for the single European market.