Compliance: Avoid Costly Business Change Mistakes

Thinking About Making Changes in Your Business?

Don’t Make These Costly Mistakes

Prepared by Harry McCabe, Former ATF Deputy Assistant Director and Consultant to the National Shooting Sports Foundation

From time to time, federal firearms licensees (FFLs) need or want to make changes to their businesses.  Maybe you have been very successful and you need a larger store. Maybe you started as a sole proprietor and you’ve decided it’s time to take on a partner, form a limited liability corporation (LLC), or incorporate. Any number of rather normal business changes can come up, both planned, some unplanned. Either way, when it comes time for you to make certain changes in your business, the ATF needs to know about them—failing to let them know of your plans can have disastrous results.

The first thing you need to remember is that your Federal Firearms License is not transferable. It is issued to a specific person, specific business entity, for one specific physical location, and for a specific class of operations for a three-year period. Aside from in-state gun shows and a limited number of other “recognized” events, that license is an otherwise useless piece of paper for any other business at any other location.

With that knowledge as our foundation, let’s review some of the easier changes you might encounter. Let’s suppose you have outgrown your current location, or maybe your landlord decides not to renew your lease. Either way, you’re now in search of a new place in which to run your business. The ATF regulation (27 CFR 478.52) applicable to this situation provides that you may properly change the address at which you are licensed to conduct your firearms business by filing an Application for an Amended Federal Firearms License, ATF Form 5300.38, in duplicate, with the Chief, Federal Firearms Licensing Center (FFLC) in Martinsburg, West Virginia, not less than 30 days prior to the date you intend to conduct business from the new location.

Another scenario: Suppose you are currently licensed as Johnny B. Good, doing business as Johnny’s Gun Shop, and you decide you now want to operate as Johnny’s Guns and Ammo. In this case, you simply send your original license to the chief of FFLC for endorsement of the change in trade name. If, however, you are currently licensed as a sole proprietor like Johnny B. Good, and you decide to change your business’ legal structure (e.g. add a partner, form a partnership, form a corporation or an LLC), then such a change would constitute a completely new business entity under the Gun Control Act, and there are significant differences in how you must handle these types of changes.

First and foremost, this type of change (change in legal structure), requires that you obtain a completely new license before you ever conduct any business as the new business entity. It’s just like starting over from the beginning—a new Form 7, photographs, fingerprints, etc.

So, what’s the risk if you fail to follow the requirements and regulations when changes such as those we’ve just talked about happen in your business? What happens to you and your business?

The good news is that, for a simple change of trade name, failing to notify ATF may result in being cited for a violation of 27 CFR 478.53. Not so bad, but that’s where the good news ends. Failing to notify of a change of address or of forming a new business entity is the death sentence for your business, if ATF comes in to conduct an inspection and discovers these unreported changes. Obviously, ATF inspectors would know when they arrive that you have moved to a new address, but the process of conducting a complete compliance inspection will almost certainly result in their becoming aware that you operating as a business entity different from what their records indicate. In either case, you will receive, in pretty short order, a letter from the Director, Industry Operations of your field division, advising you that you must immediately cease all firearms operations that require a license, and that such cessation will remain in effect until you get a new license.

Why such a penalty? The reason for the letter is that your actions resulted in your current FFL becoming completely invalid—remember, FFLs are not transferable—and no one at ATF has the authority to authorize you to conduct a firearms business without a valid Federal Firearms License. You’re effectively out of business, until you get your new license. Don’t make that mistake!

Remember, if you are at a point in your business where you need to make changes in your structure, keep these tips in mind. If you need additional help regarding license issues, remember that the NSSF is just a phone call away, just as is your local ATF office. Make the call—your business, livelihood, and good reputation are at stake.