NAICS Code for an LLC, What It Decides Later

NAICS is the North American Industry Classification System. It is a 6 digit number. It describes what your business does to make money, and your legal structure has nothing to do with it. There is no NAICS code for an LLC. There is a code for what your LLC sells.

You assign it yourself. No agency hands you one and no form applies for it, which is why nobody tells you it happened. The register lives at the US Census Bureau. Does your company do several things? The code follows whichever one earns the most.

That is the whole definition. Google's answer box gives you the same thing. What it leaves out is everything below.

Four kinds of reader ask for the code later. The IRS wants it on your return. Your state's tax agency wants it at registration. SBA reads it to size you. Any lender pulling those returns sees it sitting there. Only one of the four has published rules about what it does next, so that is the one this page spends its time on.

SBA sets a size standard for each NAICS code. That standard decides whether you count as a small business. Most manufacturers qualify at 500 employees or fewer. Most other firms qualify under $7.5 million in average annual receipts, according to SBA's own guidance. Those two figures are the middle of the range, not the rule. The standard moves by industry. Your code selects yours.

There are two ways to be measured. Which one applies also comes with the code.

Receipts means total income plus cost of goods sold, off the return you already file. 13 CFR 121.104 names Form 1120, Form 1065 and Form 1040 as returns an LLC might file, so a single member LLC is measured off its Schedule C. Capital gains do not count. Sales tax you collected and passed on does not count. Nearly everything else does, subcontractor costs included.

Employees means the average headcount per pay period over the last 24 calendar months. Every name counts as one. A part timer counts as one. So does a summer temp. Nobody is counted in full time equivalents here, and that catches people out.

For federal contracting, receipts are the average of your last 5 complete fiscal years. There is no choice about it. For the SBA loan programs there is one. A business with 3 or more completed fiscal years may elect the 5 year average or the 3 year average.

The rule applies that election to the Business Loan, Disaster Loan, Surety Bond Guarantee and SBIC programs. It names the Business Loan Programs as 7(a), the Microloan Program, the Intermediary Lending Pilot Program and 504. That list is exhaustive.

The election is a real lever. Did your revenue climb? Then the 5 year average reaches back into the leaner years and comes out lower. If revenue fell instead, the 3 year average sits closer to today. You may look at both and pick.

Read that last column twice. For 7(a) and 504, a business that fails its code's size standard can still qualify another way. 13 CFR 121.301 sets that second route at tangible net worth of $20 million or less, with average net income after federal tax of $6.5 million or less across the last 2 completed fiscal years. Your NAICS code has nothing to do with that test. A tight standard shuts one door and leaves a second one open.

One more lever sits underneath. Agree to spend the whole of the assistance inside a labor surplus area, and every standard here except the surety bond guarantee rises by 25 percent. The Department of Labor publishes that list each fiscal year.

SBA adds an affiliate's receipts and headcount to yours before it measures you. On the loan programs the triggers are written down rather than judged. Own more than half of another business and you are affiliated. The reverse is also true.

Then the code appears again, somewhere most founders never look. Say a person owns 20 percent or more of your LLC. If that person also owns more than half of another business in the same 3 digit NAICS subsector as yours, all of you are affiliated. Three digits, not six. Two companies that feel unrelated can share their first 3 digits.

Ownership held by a spouse and by minor children is combined first. That one surprises couples who run separate firms.

For federal contracting the test is wider. Affiliation there rests on the power to control, used or not. Owning half is only one of the ways it arises.

Pick the closest available match. For the IRS and for a state tax registration that advice is fine, and the IRS asks for its own 6 digit code anyway, from the chart at the end of the Schedule C instructions at line B. The stakes change when SBA is the one reading.

Two codes can describe your work equally well and carry different size standards. A contractor might sit under a construction code or a specialty trade code. A consultancy might file under professional services or under management services. Neither is an edge case. Look up the standard on each candidate before you settle.

None of that makes a stretched code safe. Knowingly misrepresenting your size on a federal contract carries criminal penalties under 13 CFR 121.108. The code is how size gets computed. So pick the one that describes the business. Where two describe it equally well, you are entitled to know what each costs you.

No central file holds your code. There is nothing to amend and no fee to pay. You state the code where it is asked for, and you state the new one next time. The next return, the next loan application, the next state registration.

Avoid one thing. Do not tell two institutions two different stories about the same activity in the same year. Your tax registration paperwork and your loan application should agree, because a lender pulling your returns sees both.

A code you did not choose works differently. On a federal contract the contracting officer designates the NAICS code for the solicitation. You can appeal that designation to SBA's Office of Hearings and Appeals within 10 days of the solicitation being published. The window is short. It does not reopen.

The code matters when it is read, and for most founders that is a funding application. Heading toward an SBA microloan or a small business loan in the next year or two? Then spend 10 minutes now. If you are still forming, business licenses and permits is usually where a state asks for the code first.