We are regularly asked to help people setup their FFL properly. 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.
- 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.
- 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 licences nor collect the required excise taxes.
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.
If you would like to schedule a time to discuss your circumstances and goals, Contact Us by using the form on this page or by call us to discuss a review or creation of FFL specific business documents to comply with the regulations.
If you are already a FFL, you may consider using a service like FFLGuard for instant updates of what is going on in the industry and what you can do to help improve your policies and procedures. They are involved in FFL audits on a weekly basis and allow FFLs to be instantly updated by the trends and techniques used by the BATFE.
I felt that I should disclose that I do work for FFLGuard as an independent contractor in regards to NFA and Trust issues for their FFL’s but do not receive any compensation from FFLGuard in regards to their FFL services which are included in the products and or services they offer to the FFL community.