The processes of transition from different forms of economic systems are peculiar to any society in different stages of its development. The processes take place in Ukrainian society as well, which is at the stage of dynamic social and economic development. They are the most evident at regional level, where small towns take special place, defining the level of social production, productive forces development and innovation and investment opportunities for the development of a region and a country in general. However, at current stage of complex socio-economic processes there is the need to identify the problems of small towns’ development. The paper aims is to carry out comparative analysis and to provide practical recommendations regarding the development of small towns in Zakarpatska oblast. The comparative analysis of small towns development in the EU Member States and Ukraine is carried out, The specifics and peculiarities of their functioning as local socio-economic subsystems of a region are revealed. The nature of concepts and terminology apparatus is extended and the range of features that qualitatively differ small towns from the other administrative and territorial units are outlined. The recommendations on improvement of legislative basis of functioning of urban-type settlements are suggested. Small towns are proven to be identified as the open localized socio-economic systems that constitute the load-bearing construction of the settlement network in a region with the peculiar mono-branch production structure and small number of core industrial enterprises and objects of social infrastructure that maintain the living activity of population at the relevant territories. Functionally they act as the link between large cities and urbanized territories. They play an important role solution of employment problems at adjacent rural territories, establishment of cooperative relations and integration processes and reduction of depopulation processes. They also impact the labour migration processes to a certain extent. All the abovementioned is the ground for claiming that the further development of small urban settlements and their competitive ability in the dynamic market environment is related to their multifunctional development. 

small towns, development, functioning, local territorial formation