By and large, opening an LLC is as simple as filing the Articles of Organization with the state. However, on the way, you might stumble over some details and peculiar requirements that will hinder your business incorporation unless you cover them. Have you ever heard about the NAICS code? You might be required to provide one when registering an LLC with some states, as well as afterward. What is this code? Why do you need it? And where to get it? In our quick review, we’ll provide answers to these and more questions about the NAICS code.
What Is a NAICS Code?
The abbreviation NAICS stands for the North American Industry Classification System that was launched in 1997 to replace the Standard Industrial Classification (SIC), which didn’t match the industry requirements anymore. Designed by the United States, Canada, and Mexico, NAICS classifies businesses by industry. It was done mainly for statistical purposes to keep an eye on the countries’ economies from an industrial perspective by analyzing each industry’s development and changes, as well as to spot their growth and stagnation. NAISC classification is a sort of common standard or benchmark widely used by state agencies and regulatory authorities for business identification and monitoring.
In the NAICS database, all industries and activities are described in detail and assigned numeric codes. Clear industry titles and unique NAICS codes make it easy to navigate through the system and find the necessary industrial or business group. It’s worth noting that apart from classifying your business by the type of activity your run, the NAICS system also sets forth business size standards widely used by government agencies and Small Business Administration to check if a specific business entity falls under “Small” or “Other than Small” category. They do it to see if the company qualifies for special state-maintained programs for small businesses.
Why Do I Need a NAICS Code?
NAICS manuals are renewed every 5 years. The last manual was published in 2017. It will be updated in 2022 to catch up with the needs of the modern business environment and its changes. So, all the system info and databases are maintained valid and up-to-date. While primarily created for statistic analysis, the system was developed to be compatible with other government systems and is widely used by state authorities, regulatory agencies, trade associations, and other government bodies for their own internal purposes. If you wonder why you as a private businessman might need a NAICS code, there is more than one reason for that as well.
First off, you might need the NAICS code when forming an LLC. In such states as Georgia, Alaska, Mississippi, Connecticut, Arkansas, Louisiana, and New Mexico the code is a law requirement for filing an LLC. Besides, by searching for your code, you can also identify competitor establishments that operate in the targeted industry sector and even sort them by territory, which is of use for those who plan to open retail shops, cafés, service centers, or other offline ventures. This way, you’ll be able to estimate your direct competition, as well as the chances for your business to succeed locally and within the industry.
The NAICS code is also needed to obtain SBA (Small Business Administration) certification and get access to SBA privileges, helpful benefits, and programs offered for smaller businesses. Likewise, some NAICS codes come up with tax bonuses you can take advantage of if your business falls within this code group.
You’ll have to provide the NAICS code when applying for an SBA loan and many banks call for this six-digit identifier when considering commercial loans for your business.
Working as a government contractor or trying to get some government grants, you’ll need this business code to get access to contract proposals within your NAICS group or qualify for those grants.
Finally, to receive a “women-owned”, “veteran-owned”, or another specific status for your smaller business, you’ll have to get the NAICS code too.
How Do I Get a NAICS Code?
Unlike EIN numbers issued by the IRS, NAICS codes have no application requirements. In fact, you should look for your code and select it by yourself. To do the search, visit the official NAICS website and use their keyword search tool to find the appropriate business group or category best matching your main business line. Notably, you can use more than one NAICS code if you run more than one business activity. Thus, it’s advisable that you get several corresponding NAICS codes that will increase your chances when applying for government contracts, grants, or special bank loans.
Rules for Getting a NAICS Code
To designate a NAICS code for your LLC, use the search tool on the NAICS website. You’d better start simply scrolling through the industry list you’ll spot under the search bar. This way, you can easily figure out the necessary category if you are not sure which industry group is right for your LLC. In case you know the targeted category, simply enter the first word and click the search button. To further narrow down the search, you can also browse by a keyword such as “shop”, “wholesale”, “healthcare”, “arts”, “educational services”, etc.
Though the NAICS database is well-organized and all industries and business categories have clear titles, you might find yourself in a situation when you are not sure which NAICS code is right for your business type. In this case, you can check the FAQ page to get some added info or call the US Census Bureau to get assistance on that matter from a professional.