By

This is the third in a series of articles on doing business with Native American Tribes in Nevada.  These articles provide an overview of the political and business structures employed by Indian tribes, as well as the advantages and challenges of doing business in Indian Country.

 

Tribal Owned Businesses

Non-Indians conducting business in Indian country are exposed to a mix of tribal, federal, state, and local laws.[1]  Due care should be taken to know the legal status of the entity with which one is conducting business.

Economic Development Arm of the Tribe

Many tribes conduct business internally and with non-Indians through an economic development arm of the tribe without a separate legal structure.  These are sometimes called agencies, or divisions of the tribe.

Federal Tribal Corporations

Alternatively, a tribe may conduct its business with a federally-chartered corporation formed under Section 17 of the Indian Reorganization Act of 1934 (“IRA”).[2]  A Section 17 corporation is wholly owned by the tribe and is essentially its alter ego.  Until 1990, this type of corporate structure was only available to tribes organized under the IRA.  Since 1990, the structure has also become available to non-IRA tribes.  A Section 17 corporation is chartered by petitioning the Secretary of the Interior.  Once chartered, it legally separates the tribe’s business assets from those of the tribal government.  These corporations also have their own officers and directors.  A Section 17 corporation enjoys the ability to conduct lawful business, including the following:

  • Buy and sell real and personal property, including the purchase of restricted Indian Lands;
  • Enter into leases and mortgages of tribal land for a term of 25 years without approval by the Secretary of the Interior;[3]
  • Enter into contracts without approval by the Secretary of the Interior;[4]
  • Operate as a holding company or operating company for a tribal subsidiary, including an energy business;
  • Sue and be sued in its corporate name; and
  • Waive sovereign immunity where desirable.

A Section 17 corporation enjoys the same tax status, privileges, and immunities belonging to the tribe.[5]  Some courts have held that a Section 17 corporation with a “sue and be sued” clause in its charter has waived its sovereign immunity.[6]  In response to these decisions, the BIA has amended its model Section 17 Corporate Charter to provide that any waiver of immunity must be by resolution of the entity’s board of directors.  Most Section 17 corporations have similarly amended their charters.

Indian Corporations Under Tribal Law

Some tribes have adopted laws allowing the formation of tribally-chartered for-profit corporations.  Several courts have held that these corporations, when owned by the tribe, enjoy sovereign immunity.[7]  The tax status of these entities is uncertain.  The IRS has used an “Integral Part” test to determine tax status in the past, but has discontinued that practice while promising to resolve the uncertainty at some point in the future.

Indian Corporations Under State Law

A tribe may choose to form a corporation under the laws of a state.  By doing so, the tribe operates the same as any other corporation chartered by the state, including tax treatment.[8]  It may enjoy the same immunity as the tribe, however, depending on the laws of the state in which it is incorporates.  Tribes may choose form corporations under state law because such corporations are familiar to potential lenders and business venturers.

Indian Limited Liability Companies (LLCs)

Limited Liability Companies are an attractive option for entity formation.  LLCs can be formed under either tribal or state law.  The transaction costs for creating an LLC are low, and combine the flexibility and tax benefits of a partnership with the limited liability attributes of a corporation.  Its members’ liability is limited in a manner similar to stockholders in a corporation, while the LLC’s income is subject to only one level of taxation.  The LLC may elect to be taxed as a corporation, like a partnership if owned by more than one member, or as a disregarded entity if wholly-owned.  An LLC formed under tribal law enjoys the same benefits as a tribally-chartered for-profit corporation.  LLCs formed under state law will be subject to the same immunity treatment as state law corporations.[9]

Joint Ventures

Joint ventures are generally treated in the law as a type of partnership established by a contractual relationship where two or more parties conduct business and agree to share profits and losses jointly, in proportion to the capital contributed.  Joint ventures between the tribe and outside businesses or individuals may also be formed as a corporation or an LLC under either tribal or state law.  Sovereign immunity cannot flow to the joint venture entity itself, but the tribe would still enjoy immunity for its ownership interest in the venture.  Similarly, a tribe will not be taxed on its share of income in a partnership or a Joint Venture entity taxed as a partnership.  Joint Ventures can raise money through private placements, private lending, commercial banking arrangements, or through government-guaranteed loans in some circumstances.

 

 


 

[1] California v. Cabazon Band of Mission Indians, 480 U.S. 202 (1987); White Mountain Apache Tribe v. Bracker, 448 U.S. 136 (1980) (describing the Federal Indian Law preemption doctrine); Montana v. United States, 450 U.S. 544 (1981) (describing the circumstances under which non-tribal members are subject to tribal jurisdiction).

[2] 25 U.S.C. § 477; 25 C.F.R. § 82.

[3] 25 C.F.R § 84.004(b).

[4] Id.

[5] Cohen’s Handbook of Federal Indian Law § 4.04[3][a][iii]; 21.02[2].

[6] Rosebud Sioux Tribe v. A&P Steel, Inc., 874 F.2d 550 (8th Cir. 1989).

[7] Cook v. AVI Casino Enterprises, Inc., 548 F. 3d 718 (9th Cir. 2008); Native American Distributing, et al v. Seneca-Cayuga Tobacco Co., et al, No. 07-5104 (10th Cir. 2008).

[8] Rev. Rul. 94-16; PLR 9826005.

[9] Treasury Regulations 301.7701-1 through 301.7701-3.

About the Author

Jay Young is a Las Vegas, Nevada attorney. His practice focuses on acting as an Arbitrator and Mediator.

Mr. Young can be reached at 702.667.4868 or at jay@h2law.com.

The information provided on this site does not, and is not intended to constitute legal advice. You understand each legal matter should be considered to be unique and subject to varying results. You should not take or refrain from taking action based on any information contained on this website without first consulting legal counsel, as it is not intended to advise you on your particular matter. Further, you understand that no guarantee is given that the information contained herein is an accurate statement of the law at any given point in time, as the law is constantly changing. Please see http://nevadalaw.info/disclaimer

 

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.