In the fast changing and increasingly competitive world market environment, leadership plays a vital role in bringing out the best of employees and steering an organization to success. Among the many leadership theories developed over the years, transformational leadership (TL) has proven among others to have a positive impact on subordinate satisfaction, motivation, and performance of workers. However, the phenomena of transformational leadership and its effect on jobs satisfaction (JB), work engagement (WE) and employees’ performance (EP) as a whole have not received much research attention in small and medium sized enterprises (SMEs) especially in the European Union (EU). This thesis investigated the impact of TL in selected SMEs in Germany and Sweden. The results of the 73 participants of the survey revealed that TL has a great impact on EP, JS and WE in SMEs. It was also established that there is a positive correlation between WE and EP. However, the research failed to establish a link between JS and WE and also JS and EP. The research also revealed that the most dominant type of TL style in the SMEs investigated was inspirational motivation.