Starting Your New Firearms Business – FFL/LLC Formation

Posted on by Joshua Prince, Esq.

If you are planning on starting a new firearms business (dealer, manufacturer, or importer), you really need to consider proper corporate/company protections that are available, as well as, ensuring that the Operating Agreement or By-Laws are tailored to your business in the firearms industry. While I have been providing this service for Pennsylvania Federal Firearms Licensees (FFLs) for years, I recently began working with Attorney David Goldman of GunTrustLawyer.com and his network of attorneys to provide this service across the United States. Because there are so few attorneys across the United States that practice in this niche area, and due to the number of inquires that I receive across the US, I felt it was important to find a way to provide this service to everyone.

While some individuals may turn to online corporate formation providers or contact their family attorney, neither of these avenues can provide the proper legal advice on setting up either a Corporation or Limited Liability Company (LLC) for an FFL, unless the provider has experience with the firearms industry and pertinent issues. I have developed FFL-specific By-Laws (for a Corporation) and Operating Agreements (for an LLC) that deal with these issues and set the foundation for any firearms industry specific issue that may arise. Some of the issues that I deal with in this documents are:

  1. If the business entity is properly set up and administered, it can provide asset protection for the owners/members/managers own personal assets, ensuring that they are not personally liable. Furthermore, many of the generic corporate/LLC documents limit the conduct or activities of their owners/members/managers. If utilized and those limitations are ignored, the business entity may not shield the owners/members/managers from liability.
  2. Properly drafted, the By-Laws or Operating Agreement allow for growth, including taking on new members or shareholders that can provide additional revenue streams for the business.
  3. Any By-Laws or Operating Agreement for an FFL needs to take into consideration the possibility that an owner, member, or manager could become a prohibited person, and if so, what occurs in relation to their investment or right to control the business. Properly drafted By-Laws and Operating Agreements define when a person becomes prohibited and provide guidelines of what that person may and may not do in relation to the business and the FFL. Similarly, it should set-forth what occurs if an employee becomes prohibited and the steps necessary for that employee to immediately take upon becoming prohibited.
  4. If you decide that you no longer wish to continue the business, properly drafted By-Laws and Operating Agreements allow for you to sell the business with the licensing already in place. This makes for an easy sale and transition to the new owners without a loss in revenue during the transition period.
  5. If, on the other hand, you desire to keep the business in the family for generations to come, properly drafted By-Laws and Operating Agreements provide for the Corporation or LLC to be passed down through the family for generations.
  6. Another often overlooked issue that should be contained in these documents is direction for the Corporation/LLC to enact policies and procedures that are more stringent than federal and state law or regulate issues that are not dealt with by federal and state law. By having additional policies and procedures in place, you are less likely to lose your FFL as a result of violations, provided that the violations are mitigated by those policies and procedures.
  7. Specific issues that arise and legal advice pertaining to the different types of licensing. Many FFLs innocently think that their purchase of a receiver and assembly of that receiver with a parts kit constitutes gunsmithing, when in reality, it constitutes manufacturing. By seeking out proper legal advice, you be assured that you understand the proper licensing for your business and desires.

In addition to firearms industry specific By-Laws and Operating Agreements, you want to ensure that your FFL application and Special Occupation Tax (SOT) application are correctly filled out and filed, so that they are not rejected.

If you would like to schedule a time to discuss your circumstances and goals, contact us today to discuss your needs. If you already are an FFL, we can amend your existing By-Laws or Operating Agreement, or, if you are a sole-proprietor or partnership, set up a proper corporate structure to protect you.

Published by Joshua Prince, Esq.

With our 2nd Amendment rights being attacked at both the Federal and State level, and the ATF (Burea of Alcohol, Tobacco, Firearms, and Explosives) trying to close down FFLs (Federal Firearms Licensees) for minor infractions while making FFLs the scapegoat when the ATF's records are inaccurate, I want to take this opportunity to introduce myself. I am one of only a handful of attorneys across the US that practices in the niche area of law known as firearms law. I decided to concentrate my legal practice on firearms law not only because I am a shooter and firearms enthusiast, but also to ensure that our inalienable Right to Keep and Bear Arms is never encroached upon. I handle cases at the Federal and State level for both FFLs and individuals. At the federal and state levels for individuals, I actively defend the 2nd Amendment of the US Constitution and Section 21 of the PA Constitution, as well as, help individuals with: - License to Carry Firearms Denials; - Challenges to Erroneous PICS Denials; - Relief from Firearms Disabilities; - Estate Planning Advice; - Gun/NFA Trusts; and - 42 USC 1983 Actions for Deprivation of Civil Rights At both the state and federal levels, I represent FFLs and SOTs throughout Pennsylvania and the US regarding: - ATF Compliance Inspections; - Warning Letters and Hearings; - FFL Revocations; - Corporate Structure Advice - Indoor/Outdoor Range Implementation; and - Forfeiture Proceedings In following my love for firearms and firearms law, I have taught several Continuing Legal Education (CLE) seminars on Firearms in Estates and Trusts and Firearms Law 101 for several Bar Associations, including Berks, Cumberland, and Dauphin Counties. I also planned and taught several Firearms in Estates CLE classes for the Pennsylvania Bar Institute (PBI). While at Widener Law School, I was a member of the Widener Law Journal. I wrote an article on the Inaccuracy of the National Firearms Registration and Transfer Record (NFRTR). I also had an article published on Fee Disputes in Workers Compensation cases in the Widener Law Journal, Volume 18, No. 2. You can often find me posting on several internet forums, including Subguns, Uzitalk, AR15, and PAFOA. I also hold PA Firearms Law classes for local ranges to inform the public on the firearm laws of the Commonwealth. Following in my father's footsteps, I am also a Board member for the Pottstown Police Athletic League (PAL).

2 thoughts on “Starting Your New Firearms Business – FFL/LLC Formation”

  1. Pingback: Is an LLC Formed to Get a Federal Firearms License Different from Other LLCs? | Arizona Limited Liability Company Law

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