need LLC info for gun part manufacture?

A buddy of mine does lots of gunsmithing, and has an ffl. I made a few parts for him and he sent one to brownells and they placed an order for some. His accountant says he has a liability issue and I would suppose I do too.

I'm not at all up to speed here. Do I also need to form an LLC?
What about liability insurance? What will any of this stuff cost.

The part is a trigger guard and I've been told by another gunsmith that I do not need an ffl to manufacture a trigger guard. Correct?

Currently I am a sole proprieter on my shop. What will it cost to get protected here?

Please no "what gun are ya making it fer" as I'm not the one selling this.


Thanks,
Ted

I think generally, the only time you need an FFL would be if you're manufacturing the receivers. As far as the trigger guards, I don't see how you could be liable as long as you were building them to the specs your buyer is asking. He's the one selling them as gun parts.

As the designer and mfg of the trigger guard I think I incur the greater liability. The main thing I need to know is what type of corp. to set up. I will get a mfg ffl if I need to. Right now i'm more worried by liability than the big bad wolf.....

i am no expert in business nor did i stay at a holliday inn last night but from what i understand, a llc protects personal assets if something should happen with the company. in california, you file the llc with the secretary of state and i would assume it would be the same in other states. there are several online companies that send all the forms that you need and then you just fille them out and mail them. i think the cost for this service was very reasonable.

from what you are describing, it doesn't sound like you would need an ffl of any sort. you are never dealing with anything considered a "firearm".

From my understanding of the regulations you don't need an 07 manufacturers license or an 01 dealers license to make a trigger guard.

As far as what kind of corporation to set up you REALLY need to speak with an attorney to find out where you are. Anything we say here is a guess unless an attorney responds who is familiar with federal/state corporate law as it pertains to you.

The question isn't whether or not the part you manufacture can cause you to be named in a suit, you will. If a lawsuit is filed on behalf of a dead person's family or by someone who was injured by a firearm with one of your parts on it you will get neamed in that suit. Everyone get's named in the lawsuit. Suppose someone installs the part incorrectly and the incorrect installation causes an accidental discharge which results in injury or death, whose fault is that? Yours in the eyes of the personal injury lawyer because you should've made the part to be foolproof.

My dad was a federal judge and a professor of business law, I guess you could say he was familiar with the law, he wouldn't do anything without talking to his attorney to check on liability. He's been gone since '93 and our society has become more litigious since then. Judging from your question you are interested in protecting your personal assets and family from lawsuits. You really should speak to a lawyer to be sure (or reasonably sure) you are on the right track.

If you are garnering an income stream from any manufacturing, you will need an LLC or a full incorporation. This is, in my mind, as necessary as having a safe for your guns. Its protection. Its power also.

An LLC will open doors for you that were previously closed. If Brownell's is starting to buy products that you made, its like a paragraph on your resume. Having an LLC makes you legit.

Sounds like it's time to buy some legal time....dang...their "shop rate" is so high...

Is an LLC better than any of the other type of corps for doing gun work? How much is product liability insurance?

I would assume that any gunsmith would have some of the same liability issues. You customize a gun and it goes kah-bloohee you're the guilty party no matter how much of the wrong powder he reloaded with....

What do you guys do? Both for structure of company and insurance.....

I am a licensed type 7 manufacture in MT. if you want PM me and I call you to discuss how and what we set up for this. There is a few other hoops to jump thru then just the LLC and insurance. you dont need a FFL license for trigger guards, mainly if your just manufacturing receivers (parts the batf view as needing serial numbers)
Thanks
Jason

I am an atty, I don't do business law but I have dealt with the issue a few times doing contracts work.

a sole proprietorship is the easiest and the riskiest. there is nothing between a plaintiff and almost everything you own, except a judge.

a corporation is the best way to prevent business liability from reaching your personal assets, but it's the most expensive and the most complicated.

the limited liability company is often just as good as a corporation for small operations, is simpler, and cheaper. that's what I would look into.

while a lawyer's advice is always a worthwhile, JRigby's advice is likely priceless. you should contact him.

Thanks guys...as a machinist with 30 yrs in the trade but very little gun experience I'm a bit cautious on jumping into the gun mfg end of things.

JRigby...pm sent. Thanks for the offer!

I know of a few small shops that make parts and sell at gun shows to fill in between contracts. Even they have LLCs just to CYA.
Some times you may want a seperate LLC just for firearms work.

There are a few companies that will not contract for jobs with what they call gun nut shops.

Another reason to keep the gun part work under a separate LLC is you can dissolve the LLC and form a new one every couple years. this makes it very hard to track a company if some idiot mis-uses the product 5 10 or 15 years down the road.
I always did this on mining projects just so the environmentalist did not look up my past record.

I always used nevada to do mine.
Asset Protection, Nevada LLC and Nevada Corporation:

* In Nevada, liability stops with the corporation. As an officer or director, you cannot be held responsible for lawsuits against your corporation except in the case of outright fraud. You also have the ability to use nominee officers and directors.
* It is very hard to pierce the veil of a Nevada corporation.
* Nevada also does not require corporations to file a list of assets. Therefore, the corporation's assets are not linked to you in any way.

Privacy:

* No other state takes privacy as seriously as Nevada. In Nevada, there is no requirement for the names of stockholders who own an Nevada corporation or Nevada LLC to be filed with the state. Stockholders are anonymous-not a matter of public record.
Nevada LLC and Incorporation FAQ | Frequently Asked Questions (F.A.Q.'s) - Nevada NV Corporation and LLC Formation FAQs

+1 on LLC

What the llc does is separate your personal assets from the business assets, while allowing you to still file simple tax reports. The llc does not "make" money (at the end of the year all profit must be divided among shareholders and reported on their individual taxes), but it separates you from the business for liability reasons (hence 'limited' liability). As far as the FFL, Pacific Tool and Gauge (google it) makes trigger guard and floorplate assemblies, as well as replacement bolts for Rem 700s with no FFL. It is only required if you manufacture receivers OR DO WORK ON ANY FIREARMS in your shop. This means if you have a bunch of rifles in your shop to check the fit of your parts, you should probably have a class 1 FFL. At least this type is only $200 for 3 yrs, as opposed to a class 7 (manufacturers) @ $1000/ yr!. I would recommend the LLC, but skip the FFL unless you leave guns at the shop.

Tom (FFL and LLC holder that makes gun parts)

Thanks Tom!

Have any of you guys using an LLC ever had to defend in court?

OK, first off the 07 FFL is not $1,000 per year. I'm an 07/02. The 07 FFL is $150 for 3 years. The 01 FFL is $200 for 3 years initial and $90 for 3 years on renewal.

My company is a firearm, NFA firearm, and ammunition manufacturer. It's formed as an LLC. My desire was to incorporate as an S corporation but in MI there can't be a sole owner corporation, has to be at least 2 people. LLC can have one owner so I went that route instead. Cost me $50 to file the paperwork and $25 to renew each year.

I started as a bullet caster and ammo maker with a sole proprietorship and DBA. When things looked like they were going to work out, I got the new FFL and incorporated into an LLC.

Benefits of an LLC is you get the protection of personal assets that a corporation does but by default also enjoys pass through taxation like an S-corp does. However an LLC may elect to be taxed as a corporation, so the LLC files a separate tax return and the members (owners of the LLC). Reason for the second method is to save on the self employment tax. Helpful if you are making several hundred thousand dollars a year in profit. You can have a low salary and pay out dividends or owner draw/officer draw throughout the year much like a bonus. They are still subject to the federal and state income tax but they are not subject to the self employment tax because they are not wages or salary. You still pay tax on the money but you save the 15.3% on self employment tax. Like I said, if you are only making $20-30,000 gross profit a year in this venture it doesn't make sense to complicate the taxes just to save a few hundred dollars.

With the standard tax filing of an LLC, you just file a Schedule C and Schedule SE along with your 1040. The business stuff is listed on C and your self employment tax (ie the Social Security, etc) is calculated on the SE. It's filed along with your personal income tax, to streamline the process, and is due when your personal income tax is due (April 15).

***Disclaimer: The above is not legal nor tax advice, which can only be given by an attorney and/or tax professional.***

With that out of the way, the trigger guard you are making, be it for a bolt action or what have you, it's really a low risk part as far as liability goes. The trigger guard does not have a significant role in the safety nor operation of the weapon. A portion of the liability is shared by the gunsmith who will install it, the company that will sell it (Brownells) the company that will wholesale it (your buddy), and the end user if they install it. In the event of a liability suit, the suit will bring everyone in that is associated with the part and put them on the chopping block trying to figure out what happened and whom is responsible for the failure, negligence, etc. If it's a design or defect, it's on you. If it's an installation failure, it's on the gunsmith and could be on you if you fail to provide proper instruction with the product. If the end user failed to properly install it, part of the liability would be on them, but then the next in line would be you. Most gun parts, even a slip on grip from Hogue for your pistol, will have some language that it should be installed by a competent gunsmith. This doesn't save your bacon in all cases, but if the end user does not install properly, you have some defense to use.

In any event, contact guninsurance.com. Joe insures a lot of the big name manufacturers in the industry and will insure you. Prices vary but for the coverages I have, it's very reasonable.

Also I would sit down with a product liability lawyer and work on ways to reduce your exposure to liability. Also work with the insurance company on ways or things to change to reduce your premiums as well. The insurance company I referred also has a finance plan. 30% down to start the policy and balance in equal increments.

I have litigated many piercing the corporate veil cases and think that in most states a LLC offers as much protection as a corporation. The key to winning a corporate veil case is to actually follow proper procedures for the corporation, such as keeping proper financial and corporate records, not co-mingling personal and corporate assets and liabilities and disclosing on your letterhead, cards and emails your corporate status. Also, make sure you keep the entity in good standing by filing the reports and franchise fees when required by the state.

I recommend that you form the LLC in your own state rather than in Deleware or Nevada. The problem with an out of state LLC is (1) that you can be sued in the state where you are incorporated and (2) you still have to register to do business in your home state. While Nevada corporations are popular for tax evasion I would not be surprised to see federal tax laws changed to take away some of the secrecy that Nevada now offers.

An LLC is a corporation that is taxed like a partnership, which vastly simplifies the tax accounting on the corporate level. The major disadvantage of an LLC is that the default governance structure is closer to a than to a corporation. This does not matter if there is one owner but if you have more than one owner you should have a good operating agreement drafted which deals with governance and how to admit and get rid of owners.

When I decided I wanted to start an 07/02 I went to my lawyer and told him what i wanted. $500 and it was done, no headache for me and it was done right the 1st time.

"JRigby's advice is likely priceless. you should contact him. "

Jrigby called and gave me a lot of very useful info. product liability ins. varies greatly and needs to be shopped around. And, as others here have said LLCs are the way to go for a one man band.

I'm now not as apprehensive to move forward on some stuff....

Thanks a bunch guys!