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To incorporate or not to incorporate

SEATTLE – As business prospects for tribal entities continue to become more confusing as legislation and questions of sovereignty are constantly put to the test tribal entities may wonder if they should incorporate, become a sole proprietorship or list themselves as a nonprofit entity.

Gabriel “Gabe” Galanda is a descendant of the Nomlaki and Concow tribes and an enrolled member of the Round Valley Indian Tribes. Galanda is an attorney and member of the board of directors at the Williams Kastner Law Offices in Seattle.

In 2002, Galanda founded his firm’s Tribal Practice Group, which focuses on multi-party Indian law and gaming litigation and tribal representation. He assists tribal governments and Indian-owned companies with economic development and works with corporations, financiers and gaming vendors doing business with Indian country.

Galanda is co-author of “The Law of Business in Indian Country” and has been selected one of seven “Up and Coming Lawyers” by Lawyers USA. He has served as chair of the American Bar Association Business Law Section’s Committee on Gaming Law since 2007. His list of achievements include developing an inter-tribal gaming machine permit allocation consortium and assisting tribes with corporate formation, real estate, financing and gaming transactions.

Indian Country Today asked Galanda’s advice on what business decisions would be most advantageous to tribal entities.

ICT: Is it a good idea for tribes to incorporate, or should they seek nonprofit status.

Galanda: We recommend that, when a tribal government wants to form a for-profit or nonprofit corporate entity, they first consider forming the business under tribal law. That’s consistent with fundamental notions of tribal sovereignty and self-governance.

Consideration should ultimately be given to the goals of the business and to insulating the entity from state, federal or private encroachment. Improper tribal entity formation cannot only expose the tribal government owner to abrogation (discontinuation or stopping) of sovereignty, but all of Indian country through bad case law or Congressional action.

For example, a tribally chartered nonprofit corporate entity should be formed in such a way that the IRS will not pause to extend it 501(c)(3) status. A tribal for-profit business should be established with issues of federal tax treatment and sovereign immunity in mind, and likely situated on tribal or reservation lands to prevent state regulatory interference.

ICT: What decision are tribes making today?

Galanda: An increasingly popular tribal for-profit business structure is the limited liability company, which can insulate the tribal government member from third-party liability and state taxation and also allow the LLC to enjoy favorable federal tax treatment. Tribal for-profit entities can also be chartered under Section 17 of the Indian Reorganization Act and generally receive favorable federal tax treatment and state tax exemption.

ICT: What type of advice can you give a tribal government seeking to incorporate or register as a nonprofit in their state?

Galanda: We typically recommend that a tribal government not form a for-profit or nonprofit corporate entity under state law, as doing so could expose the business to state regulation and taxation as well as lawsuits in state court and waiver of the entity’s immunity. Still, we recommend tribes carefully explore all the sovereign and economic consequences of tribal or

federal incorporation before setting up a business.

For instance, tribal governments can be what’s called a ‘7871 organization’ that is eligible to receive tax-exempt donations pursuant to the Indian Tribal Governmental Tax Status Act of 1982, which may alleviate the need for a tribe to form a nonprofit entity and seek 501(c)(3) status from the IRS.

ICT: What does your firm think about business entities joining a Native chamber of commerce?

Galanda: Local Indian chambers of commerce are popping up throughout the country. Some are set up within tribal communities and some extend to non-tribal communities in the form of tribe/city chambers of commerce. Tribal chambers of commerce are excellent manifestations of the resurging ‘buy Indian’ movement.

Tribes should support local Indian chambers of commerce however they can – and, in fact, Indian country can do far better in supporting Native-to-Native commerce than we are at present.