In a small space, the main aim should be to create a seating arrangement that doesn't make the room look cluttered, and have circulation space for people to easily move around. One way of doing this is by placing all the furniture pieces in the middle of the room, leaving walking area round it. The other is to place a sectional against a wall, and complement it with an ottoman.
Also, you could create one focal point in the room and position furnishings and furniture around or directly facing the focal point to maintain a clear view.