What is the NAICS Code for LLC? How to Get the Right NAICS Code. 2024 Guide

North American Industry Classification System (NAICS) is a coding system you can use to categorize your company by industry. Choosing the correct NAICS codes for your business can help you secure government grants, contracts, and credit for your business. This helps support your business to stay compliant and decide insurance rates and tax benefits.

NAICS codes are unique six-figure numbers that define businesses according to their sector of activity. Each digit corresponds to one level of classification or rank. The initial two digits refer to the major group of a business, and these two digits categorize 20 industry sectors. The last four digits are more specific, creating subsectors, specific industry groups, types of industries, and types of industries for each country.

Foundeck in this guide provides everything you must know about NAICS.

What is the NAICS Code?

NAICS is a standardized numerical classification system used by governments, businesses, and organizations of the North American region to categorize and track activities relevant to the economy. The North American Industrial Classification System is a concept developed jointly by the statistical agencies of the United States, Canada, and Mexico. It provides a structure for the collection, analysis, and dissemination of economic data. It started replacing the previous Standard Industrial Classification (SIC) in 1997 and, up to date, is the main classification system used in these countries.

 NAICS is a numerical code that is made up of digits, each of which gradually narrows down the industry classification. There are three basic digits, and each succeeding digit is more detailed than the one before; the classification is inverted pyramid-style by sector.

Let's see the NAICS structure:

1. Sector: The first two digits represent the general classification of major economic divisions, including Agriculture, Mining, Retail Trade, Manufacturing, etc.
2. Subsector: The third digit continues the process and divides a certain sector into subsectors with closely related economic descriptors (for example, 311—Food Manufacturing in the larger manufacturing sector).
3. Industry Group: The fourth digit is used to categorize industries in the subsector (for example, code 3111 Animal Food Manufacturing under the Food Manufacturing subsector).
4. Industry: The fifth digit extends the classification further at the level of industries, detailing them within an industry group (for example, 31111 – Fluid Milk Manufacturing under Animal Food Manufacturing).
5. National Industry: An additional digit just may be added, however, to provide even more detail at the national level (for example, 311111 for Fluid Milk Manufacturing under the Dairy Product Manufacturing industry).

 NAICS code plays a paramount role in helping governments, researchers, businesses, and organizations understand economic changes, evaluate industries' performance, and compare results from different Industries and regions. It is widely applied in statistical and financial analysis, market and industry research, business planning, and governmental reporting.

When starting a new business or filling up government forms, the company might be required to provide an NAICS code for better identification of the sector or industry of the business. To determine the appropriate NAICS code that corresponds to your business, you can go through the NAICS handbook. You can also use NAICS classification charts or seek assistance from governmental departments or business assistance bureaus.

How can I get the NAICS Code?

There are eight states that you must submit your NAICS code during the formation of your LLC. However, you may file for NAICS when forming your LLC from any state. The states that need the NAICS code include:

1. Alaska
2. Arkansas
3. Mississippi
4. New Hampshire
5. Georgia
6. Louisiana
7. Connecticut
8. New Mexico

Obtaining NAICS codes is a seamless process since they're self-assigned; you need to select your correct industry. Use the official government website to select your NAICS code. Alternatively, if you're having trouble, getting your NAICS or you aren't sure of the industry classification, email [email protected] or phone at (888) 756-2427.

How to check the NAICS Code for your LLC

These are steps you can use to look for the NAICS code:

1. Visit the list of references on the government website; use the Internet to search by the field of activity.
2. Choose the industry most relevant to your business.
3. Proceed to the subsector that provides the specific classification of your business type.
4. Select the industry group and national industry most appropriate to your business.
5. Select a precise, complete six-digit NAICS code for your LLC.

NAICS Code vs. SIC Code: What's the difference?

NAICS was implemented in 1997 as a more refined replacement for the Standard Industrial Classification (SIC). It enables statistical analysis of one business against other companies in other North American countries, such as Mexico and Canada. 

Although some local agencies continue to use SIC codes, and you might see them in business credit reports, the federal government no longer uses them.

NAICS Codes provide more details about business activities and a wider industry classification than SIC codes. The NAICS code has 1,170 industries, while the SIC code only covers 1,004 industries. NAICS has 358 new sectors, including 250 focusing on service providers.

The NAICS codes smooth industry organizations, making it easy to classify LLCs. Furthermore, NAICS codes categorize businesses using similar processes to produce goods and services, while SIC codes categorize based on production or demand methods.

Your business credit report could show both of these codes: your business's NAICS and SIC codes. Both codes should typically be similar, although the NAICS code is usually a more detailed classification.

Can I get more than one NAICS Code?

The federal government provides one NAICS code per establishment, but systems such as the System for Award Management (SAM), which the government uses for contracting, may use multiple codes. Companies in SAM may have a primary NAICS code and secondary codes for the other products or services they offer.

A business with more than one establishment with different activities can have more than one NAICS code. The term ‘establishment' applies to a physical place where business transactions occur. The term ‘enterprise' applies to a business with multiple establishments owned by the same business.

The NAICS codes assigned by the U. S. Census Bureau are based on the establishment's business activity, measured by sales or shipment value.

Where are NAICS Codes used?

These are ways your LLC NAICS may affect your company:

1. Qualify your business as a small business

According to the U.S. Small Business Administration (SBA), small businesses are defined by the specific NAICS codes that determine companies' eligibility for federal contracts. Industry categories have different size standards based on total sales or the number of people working in the business. 

For instance, a footwear manufacturer classified under NAICS 316210 is considered a small business with less than 1000 employees. On the other hand, a wholesale trade business (NAICS 423000) is considered a small business if it has less than 100 employees.

Selecting the right NAICS code is very important because codes with different numbers have different sizes, which can affect the opportunity to receive federal contracts, loans, and tax credits.

For instance, a bakery (NAICS 311811) is defined as a small business if its annual revenue is less than $8 million, while a restaurant (NAICS 722511) if the annual receipts are less than $12 million. The failure to use the right NAICS code will likely deny you access to grants for your business type.

If your current NAICS code eliminates you from federal, local, or even private small business bids, but your business's products or services fall under a new NAICS code, it may be beneficial to make the change.

2. Tax benefits

Federal and state agencies mostly use the NAICS code for tax purposes such as tax analysis, data collection, and reporting. Your state Tax Department may also use these codes to award certain industries with tax credits. If you have an improper NAICS code, you may not have an opportunity to receive these advantages. Discuss with your financial advisor to identify possible opportunities.

3. Qualify for business funding.

Some businesses are in high-risk industries, such as gambling political campaigns, which pose a red flag to most lenders. Lenders will look for business NAICS codes to evaluate if they fall into high risks. The NAICS code you choose could boost or break your ability to acquire business loans from incredible lenders.

For example, local freight hauling (484), which is considered less risky than passenger transportation (485), is mostly regarded as dangerous. Choosing the right NAICS code can greatly affect your loan, hence the need to ensure it is well-filled when applying.

Importance of NAICS Code for your LLC

Getting a NAICS for your business categorizes your company, qualifies it for a small business program, and enables government agencies to decide your company size for eligibility in different opportunities.

Here are reasons why NAICS is essential for your business:

1. Tax benefits and exemptions

The IRS applies NAICS codes to compare the accuracy of your tax return to businesses within a similar industry category. NAICS codes will also help your LLC qualify for numerous tax credits and incentives supported by the government. Possible permanent deductions could be the manufacturing costs, cost incurred on training its employees, agriculture, ensuring sustainability, and cost spent on research and development. You should visit your state's Department of Taxation and Finance website to find updated eligibility criteria.

2. Federal contracts

The principal use of obtaining a NAICS code is to secure government contracts. One cannot bid on or be awarded federal projects and contracts with it. It also enables the government to sort out your business per NAICS codes for different construction, engineering, and technology industries and accumulate different industry statistics.

3. Loan approval

Funds are necessary for small businesses to acquire equipment, improve it, or even grow. Lenders, such as banks, utilize NAICS codes in evaluating loans. Preventing loan rejections due to wrong NAICS codes is possible and ensures that your business' risk level is thoroughly assessed by the risk level of your industry.

4. Grants & incentive programs

Government grants can hugely boost your small business. You must have a NAICS code to enjoy the state-sponsored grants.

For instance, New York provides an Energy Cost Saving Program. In case your LLC has this code, your company could be qualified to reduce costs by 45%. For your LLC to be eligible for the Energy Costs Saving Program, you need to apply with your NAICS code.

Low and High risks NAICS codes

High-risk and low-risk NAICS codes show the overall risks associated with some types of businesses. These classifications depend on aspects such as the nature of the industry, risk levels associated with exposure, and financial susceptibilities.

Low-risk NAICS codes

Industries with low risks refer to classes with fewer safety, laws, and financial risks. These include legal, accounting, consultancy, and administrative firms.

High-risks NAICS codes

High-risk NAICS codes include industries that are more vulnerable to experiencing an accident or becoming liable or financially unstable, especially those that require manual labor, work with dangerous substances or chemicals, or operate under strict government guidelines.

This includes construction, heavy industry, transportation, mining, and some health industries, such as nursing homes. However, it is also important to note that not all companies in these industries are high-risk, and not all the sectors that are considered low-risk are safe.

Can I change my NAICS code?

No prescribed method for altering a company's SIC or NAICS code exists. Various federal agencies develop their own lists of businesses and use classification codes relevant to their specific needs. These codes often rely on data that the company reports in official documents or on administrative, survey, or census forms. So, if the code assigned to you by the agency needs to be corrected, it is better to turn to the agency directly.

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Winding Up

Getting the correct NAICS code for your company is beneficial in various ways, such as qualifying for loans, securing government contracts, and accessing tax benefits. NAICS codes categorize your business within an industry, which helps government agencies, lenders, and tax authorities understand whether your business meets the necessary criteria or compliance.

Choosing the wrong code can hamper your company’s growth. To obtain the most suitable opportunities for your business, select the right code and modify the option when necessary. Do you have any questions about NAIC Code? Kindly contact one of our experts here.