Question: I want to form a limited liability company that will obtain a federal firearms license (FFL). Are there significant differences between a “vanilla” LLC and one that will hold an FFL for the sale or manufacture of firearms?
Answer: Yes. Although Arizona LLC law is the same for all LLCs formed in Arizona regardless of an LLC’s intended purpose, LLCs that intend to obtain an FFL for the sale or manufacture of firearms require an Operating Agreement that contains provisions that relate to the LLC’s purpose and the need to comply with federal weapons laws.
I work with attorney David Goldman, the Guntrust Lawyer, to prepare a special type of trust called a gun trust for Arizona residents. David is an expert on federal weapons laws and he has a wealth of information about gun trusts and firearms law on his website. This what David says about LLCs that will obtain an FFL:
“One of the biggest problems with many FFL’s is that they use regular operating agreements or corporate bylaws. There are some specific issues why using a canned or shell company documents may not be appropriate and why you should consider using agreements that are specifically drafted for FFLs.
- Your Operating Agreement or By-Laws needs to deal with specific FFL related issues as well as issues that are common to the firearms industry. Prohibited Person issues must deal with not only the owners or manages as mentioned above, but also employees. These documents should mandate policies that need to be in place for issues regarding federal and state requirements and recommendations.
- Part of the process included determining the proper licenses as we often see that FFLs are confused about what is manufacturing and what is gunsmithing and the requirements of each. Many FFLs sell parts and then assemble them for clients and are actually manufacturing firearms because of the way the transaction and work is structured. They often do not have the licenses nor collect the required excise taxes.
If the business entity is used correctly, the business entity can stop the liability from going to the owners and managers. Many corporate and LLC docs can prohibit some of the activities that FFL, their owners, managers, and employees engage in. If you are violating the terms of your agreement, your business entity may not shield you from the actions or liability
Properly drafted agreements allow for growth including taking on new members or shareholders which could provide additional resources to the business. Today a prohibited person may not know they are prohibited and traditional operating agreement do not shield them from prohibited transactions or activities. Your agreement should help a person determine if they are prohibited as well as guide them in which activities they may and may not participate and who needs to be updated upon such a change.
A properly drafted business agreement can help you sell the entire business with the licensing already in place. Most FFL’s when sold have to go through a new authorization process because they are not properly structured and/or do not allow for this type of transition.
Thinking about how the ownership of the business is structured and dealing with this in the business agreements can allow the business to pass down through the generations and keep it within the family.”
In addition to the industry specific business agreements, it is important to properly prepare your FFL and/or SOT applications so that they are not rejected and they should be designed and incorporated into an overall plan to provide insulation from problems down the road.
FFL’s are historically weak in business and the understanding of the complex rules and regulations regarding the firearms industry. Many have skated by in the past, but with the new 100% compliance audits, it is more important than ever to be setup correctly or modify your existing business rules and documents to comply with the industry.”
To learn more about this topic real Joshua Prince’s article called “Starting Your New Firearms Business – FFL/LLC Formation” in which he states:
“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.”
Hire Arizona LLC Attorney Richard Keyt & Firearms Attorney Joshua Prince to Prepare an Operating Agreement for an FFL LLC
The Operating Agreement I prepare for people when I form an Arizona LLC does not contain language that should be in the Operating Agreement of an LLC that will be an FFL for the sale or manufacture of firearms. If you have or intend to have an Arizona LLC that needs this special industry specific Operating Agreement I recommend that you hire Pennsylvania attorney Joshua Prince and me to prepare the unique industry appropriate Operating Agreement needed for this type of LLC. See Josh’s blog topics on Firearms Law and Gun Trusts.
Joshua Prince’s primary area of law practice is federal firearms and weapons laws. For more information about this special Operating Agreement or if you have questions about why your LLC needs it call Josh at 610-845-3803. When Josh and I work together on an Operating Agreement, he is responsible for the federal firearms portions and I am responsible for the Arizona law portions. If you hire Josh and I to prepare a firearms law specific Operating Agreement, the fee you pay us includes Josh’s services to prepare and file all of the paperwork required to get the type of FFL or licenses needed from the BATF for your LLC (the fee does not include filing / application fees or costs). Josh does so much work in this area that he uses the services of a retired BATF agent who reviews applications and makes sure there are no problems before submitting them to BATF.