Guidebook on Tribal Business Structures

TRIBAL BUSINESS STRUCTURES:

A GUIDEBOOK ON DIFFERENT STRUCTURES FOR TRIBAL BUSINESS ENTITIES

SEPTEMBER 14, 2011

TABLE OF CONTENTS

I. INTRODUCTION II. TRIBAL BUSINESS STRUCTURES

A. Unincorporated Businesses B. Political Subdivisions C. Section 17 Corporations D. State Law Corporations and Limited Liability Companies E. Tribally Chartered Corporations F. Tribally Chartered Limited Liability Companies G. Considerations on Selection III. TRIBALLY CHARTERED CORPORATIONS A. Model Tribal Business Corporation Code B. Explanation of Model Articles of Incorporation C. Model Articles of Incorporation for a Tribally Chartered Corporation IV. TRIBALLY CHARTERED LIMITED LIABILITY COMPANIES A. Model Tribal Limited Liability Company Code B. Explanation of Model Articles of Organization C. Model Articles of Organization for a Tribally Chartered LLC

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The goal of the Michigan Economic Development Corporation's tribal business development unit is to be a resource to Michigan's federally recognized Indian tribes in achieving sustainable

tribal economies through business diversification, and to build state-tribal relationships that foster business development beyond gaming. Successful business development in Indian country

has occurred where there is a legal and organizational structure in place that creates a separation between tribal governments and economic enterprises, insulating governmental

assets and politics from business activity, while retaining appropriate oversight and accountability. The following Guidebook is intended to be a resource to tribes pursuing business

development.

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TRIBAL BUSINESS STRUCTURES

In today's economy and gaming landscape, more and more Tribes are beginning to diversify their economic portfolios by creating business structures for tribal businesses beyond gaming. This Guidebook contains a brief overview of the different structures available to Tribes, along with the advantages and disadvantages of each, model tribal codes for business corporations and limited liability companies, model articles of incorporation and articles of organization, including a comprehensive look at each section in the model articles with options for each Tribe to consider as it develops its own codes and articles.

To begin, a Tribe should decide which business structure is most appropriate for its goals and its existing laws. There are several options that a Tribe may find desirable for one reason or another. This Guidebook gives an overview of six different business structures for tribally owned businesses as well as the potential advantages or disadvantages of each structure,1 including:

? Unincorporated Businesses

? Political Subdivisions

? Section 17 Corporations

? State Law Corporations and Limited Liability Companies

? Tribally Chartered Corporations

? Tribally Chartered Limited Liability Companies

No one structure will work for every Tribe, or even every tribally owned business. Thus, a Tribe may choose a different structure for different ventures in which it is engaging, depending on the particular business needs of each venture. The use of one structure does not preclude the use of another for a different venture. The goals of the Tribe and its business must be the guideposts in organizing a business enterprise. Key considerations should include the importance of forming businesses under tribal law, the importance of isolating the tribal businesses from the political process of the Tribe, the importance of segregating the assets of the Tribe from the business and vice versa (including whether and to what extent the business enjoys the Tribe's sovereign immunity), and the time available and the time required to create the desired structures.

As part of the structure selection process, Tribes should also consider the applicability and impact, if any, of State-Tribe Tax Agreements on any potential business. In Michigan, for example, nine Tribes have negotiated tax agreements with the state on when state taxes will be

1 Neither this Guidebook nor the Model Codes address nonprofit tribal corporations or provisions related to corporations or limited liability companies formed outside of tribal law ("foreign corporations" or "foreign companies"). The Tribe may still decide to include these provisions in its Codes or decision-making, but they are beyond the scope of this Guidebook.

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paid or will not be paid under certain circumstances, including the payment of income and business taxes. Those Tribes that have not entered into tax agreements have had difficulties determining when, or whether, state taxes apply.2 The impact of any tax agreements may influence a Tribe's choice of business structure. Selecting the correct structure for the tribal business will impact the Tribe's ability to maximize the potential benefits of the enterprise while still exerting sovereign control over the Tribe's economic development.

1. Unincorporated Businesses

Tribal sovereignty and the right of self-governance inherently include the right to control or participate in business activities. Because Tribes' sovereign powers are not derived from the United States, but from their status as sovereigns, Tribes may exercise their rights to engage in business and commercial activities through their own constitution or codes. In fact, tribal governments often do so through unincorporated businesses. These businesses are not separate, distinct legal entities; rather, they are "economic arms" of the Tribe.

Because unincorporated businesses are not distinct legal entities, they share the same legal characteristics of the tribal government. Thus, an unincorporated entity will share in the Tribe's sovereign immunity from suit. This fact is important as sovereign immunity allows a Tribe to protect the Tribe's ability to self-govern and to protect the Tribe's resources from a judgment, especially because the assets and obligations of an unincorporated tribal entity are usually intermingled with the assets and obligations of the Tribe itself. No person or entity can sue the Tribe or its unincorporated business without a clear waiver of the Tribe's sovereign immunity. Courts have rejected attempts to limit the extension of a Tribe's sovereign immunity to operations by the "economic arm" of the Tribe. The disadvantage to this model, however, is that a Tribe's unincorporated business cannot unilaterally waive the Tribe's sovereign immunity, unless tribal law so provides. Thus, anytime the business enters into a contract, the board or the officers must return to the tribal government to obtain a waiver of sovereign immunity. This process can be time-consuming and burdensome in the business world.

As all tribal officials recognize, a Tribe's sovereign immunity from suit applies to tribal government actions both on and off the reservation and applies in tribal, state, and federal courts. Tribal immunity can only be abrogated through two methods--through an express waiver of the Tribe or through an act of Congress. However, the fact that a Tribe cannot be sued (or an agreement with a Tribe enforced) without a waiver of sovereign immunity is a new concept to many outsiders and creates uncertainty that may intimidate some potential investors. This uncertainty may prevent lenders or prospective investors or partners from entering into contracts with a Tribe unless there is a clear method for the investor or lender to protect its investment. The Tribe can certainly limit the waiver of sovereign immunity--either by limiting the available legal relief, assets, or the enforcement mechanism (e.g., arbitration, courts, mediation). But such decisions directly impact the Tribe's ability to secure financing for its businesses. Many lenders may not extend credit or financing if the agreements are not enforceable though judicial action.

2 See, e.g., Keweenaw Bay Indian Community v Rising, 569 F.3d 589 (6th Cir. 2009).

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