Published On: Wed, May 20th, 2015

What is Section 17? 

 

 

By SCOTT MCKIE B.P.

ONE FEATHER STAFF

 

It’s been over a year since Tribal Council passed a resolution (No. 182 – 2014) authorizing a draft to be crafted for a Section 17 corporate charter for the Eastern Band of Cherokee Indians.  The main goal, per Res. No. 182, “is seeking economic diversification” that will benefit the Tribe into the future.

Section 17 is literally the seventeenth section of the Indian Reorganization Act of 1934 (sometimes known as the Wheeler-Howard Act).  It states in full, “The Secretary of the Interior may, upon petition by at least one-third of the adult Indians, issue a charter of incorporation to such tribe: Provided, that such charter shall not become operative until ratified at a special election by a majority vote of the adult Indians living on the reservation.  Such charter may convey to the incorporate tribe the power to purchase, take by gift, or bequest, or otherwise, own, hold, manage, operate, and dispose of property of every description, real and personal, including the power to purchase restricted Indian lands and to issue in exchange therefore interests in corporate property, and such further powers as may be incidental to the conduct of corporate business, not inconsistent with law, but no authority shall be granted to sell, mortgage, or lease for a period exceeding ten years of any of the land includes in the limits of the reservation.  Any charter so issued shall not be revoked or surrendered except by Act of Congress.”

Jason Lambert, EBCI Commerce Division director, said the goal of a Section 17 corporate charter is revenue diversification for the Tribe.  “Gaming has been extremely good to us.  It comprises an overwhelming majority of the revenue for the Tribe currently…the goal is how do we diversify our revenue stream?”

He said economic diversification was one of the goals as outlined in the 2012 Comprehensive Economic Development Strategy.  “The first objective under that goal was to development a structure to govern and manage tribal enterprises.”

Lambert added, “It’s a means to help segregate business and politics.  It’s been done very successfully in other Tribes.  A Section 17 chartered corporation is a federally-chartered corporation.”

“So, we said that we need to diversify our revenues,” he said.  “We need to create a separate and distinct entity to do that.  One of the primary reasons do to that is the protection of tribal assets such as the Minor’s Trust Fund.  If suit were to come against one of our business, we don’t want that to negatively impact our Endowments or any of our accounts.”

According to the Tribal Business Structure Handbook, published by the BIA through the Office of Indian Energy and Economic Development, Tribes and their corporations are separate entities under the law.  “The execution of a judgment against the corporation is limited to the business activities of the corporation and to ‘assets specifically pledged or assigned’ to the corporation.”

It continues, “The property of the corporation is at risk in the amount necessary to satisfy creditors and developers.  However, property owned by the tribal governmental body is still protected by sovereign immunity and is safe from the execution of a judgment against the corporation.”

Lambert said that a Section 17 corporation carries the tax advantages carried by the Tribe itself – that being no federal corporate tax.    Federal IRS Revenue Ruling 94-16 states, “Neither an unicorporated Indian tribe nor a corporation organized under Section 17 of the Indian Reorganization Act of 1934 is subject to federal income tax on its income, regardless of the location of the activities that produced the income.”

Once approved, a Tribe can suspend a Section 17 corporate charter itself.  Lambert stated that there is a process to officially dissolve the charter.  He said once the process was begun, the shareholders and the Board of Directors would send notice to the Secretary of the Interior of their intent.  “To actually dissolve the corporation, it would have to be in some act of Congress, but, at the same time, we can suspend the activities of the corporation without going through the whole process.”

Lambert related that probably 80 percent of the language in a Section 17 corporate charter is the same as other state-chartered corporations, but there are some differences.  “The holding company, as a whole, can never be sold.  It rests with the shareholders who are the enrolled members of the Eastern Band.”

Even with the passage of Res. No. 182, a Section 17 charter is still a ways off for the Tribe.  “The resolution was just an authorization to draft.  So, now we’re in the drafting phase…the corporate charter is not going to be approved this fiscal year.  We’re not going to get an approved charter from Interior this fiscal year even if we submit today.”

Lambert said once a draft is completed, the Tribe will petition the BIA and turn in the draft at the same time.  Once received, BIA will review the draft which he said can take 6-12 months.  “Once the BIA sends back their approved draft, then the Council has to ratify it.  Once its ratified and signed by the Principal Chief, then you can look at the seating of the Board.”

Once the Board is seated, the policies (fiscal, personnel, etc.) of the corporation would be decided.  “Some people are concerned about a lack of specifics in a corporate charter.  That is by design because you don’t want to overly constrain yourself with a corporate charter.  Afterwards, when your Board is in place, you can develop by-laws.”

Lambert stated, “This is nothing new for this Tribe.  We have the Tribal Casino Gaming Enterprise (TCGE) that has a Board, and they have certain actions that they can and cannot do.  We have the Cherokee Broadband Enterprise.  We have the Cherokee Boys Club.  I think a lot of people forget that the Cherokee Boys Club is an incorporated entity through the State of North Carolina.”

In the current draft form, the Board of Directors in the corporate charter will consist of five people appointed by the Principal Chief and approved by the Tribal Council.  Elected officials will not be allowed to serve on the Board.  “The Chairperson of Council, or their designee, and the Principal Chief, or their designee, do get to sit on the Board in a non-voting capacity,” said Lambert.

The home office of the corporation will be in Cherokee, and Lambert said it will more than likely mean more job opportunities in the area.  “I’m sure there will be employment opportunities in the drop-down companies that will be developed or acquired by the holding company itself.  I think there are opportunities for us to do things here (Cherokee), but, at the same time, we cannot be shortsighted to think that everything must be based here.  We have to take advantage of larger markets that are out there.”

Lambert concluded by saying, “At the end of the day, the enrolled members of the Tribe are the shareholders and they’re the owners.  We want to build something that they’re proud of.  We want to build something that will diversify revenue so that, we as a Tribe, can continue to maintain a high level of service.”

 

 

 

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