Key Legal Issues for Indigenous Entrepreneurs

As Saskatchewan’s fastest growing segment of the population, indigenous persons are getting involved in a large number of new business ventures. At First Nations throughout the province, economic development is occurring at a breakneck pace. This economic development is providing tangible benefits to First Nations. According to one study, 40 per cent of economic development corporations (EDC) are the dominant employer in their community. Further, Indigenous persons comprise on average 72 per cent of the employees of EDCs.

In order to help Indigenous entrepreneurs navigate some of the legal complexities when starting a business, we’ve put together a list of some of the more common issues they face.

  • Choosing a Business Structure

While a corporation is often the “go to” for most businesses, there are many advantages to structures such as limited partnerships or trusts for indigenous entrepreneurs. These alternative structures often provide ways to tax income directly in the hands of indigenous persons, thereby minimizing (or eliminating) tax payable. Examples of this type of planning might include using a limited partnership structure with a First Nation or indigenous persons as limited partners; paying reasonable salaries and bonuses to Indigenous persons; or using a trust structure with a First Nation or indigenous persons as beneficiaries.

Specific attention needs to be paid to ensure a sufficient “connection” between (i) the First Nation or Indigenous person receiving income, and (ii) a particular First Nations reserve. Planning such as ensuring board and client meetings occur on-reserve and having a physical office on-reserve will help in ensuring this “connection” exists. If the “connection” is not sufficient enough in the eyes of Canada Revenue Agency, tax-exempt status will be lost.

  • Funding

When starting a business, financing is often critical to a business’ survival. Thankfully for Indigenous entrepreneurs, there are excellent government programs to provide funding for their ventures. Aboriginal Business and Entrepreneurship Development (ABED) can provide up to $99,999 in funding to indigenous businesses. In addition, the national Procurement Strategy for Aboriginal Business (PSAB) helps these indigenous businesses do more contracting with all federal government departments and agencies.

In addition to government grants, organizations such as the Business Development Bank of Canada (BDC) provide preferential loans to indigenous entrepreneurs. BDC itself has a loan program that can provide up to $150,000 to start a business or $250,000 for an existing business. Other organizations such as Futurpreneur Canada (which services all entrepreneurs) can provide up to $15,000 in loans for new businesses.

  • Governance

Governance concerns itself with documents setting out how the business will work. Board of director charters, shareholders agreements, and partnership agreements are some of the most common types of these documents. Where entrepreneurs are expecting to bring on additional shareholders or partners, these documents become especially critical. They will help set the “rules of the game” as far as the business is concerned and ultimately help deal with disputes in the future. Some tangible examples of these “rules” include the ability of shareholders or partners to sell their interests in the venture; how fundamental business decisions are made; how profits of the business are to be paid; and processes for resolving disputes among business partners.

Notably, these internal governance documents can have a direct impact on access to financing. Many financial institutions providing loans to indigenous entrepreneurs will actively review these governance documents; if they do not exist or are not comprehensive enough, loans may not be advanced.

  • Professional Services

As a business matures, entrepreneurs will meet lawyers, accountants, bankers, and insurers who will help them along the way. Many of these professionals are now offering specific service packages aimed at entrepreneurs. Indigenous entrepreneurs are encouraged to reach out to these professionals as early in their business life cycle as possible; most are willing to have a free conversation just to see if the time is right to engage their services. Living by the mantra “an ounce of prevention is worth a pound of cure” saves not only headaches later on but could save a business altogether.

At McKercher LLP, we have groups of lawyers focused on start-ups and entrepreneurs as well as First Nations legal issues. Our indigenous practice group is specifically focused on economic development, governance and rights based issues. Together, we take a holistic approach to indigenous entrepreneurship and collaborate with our clients to help them succeed. We are also proud to offer fixed-fee solutions to help keep costs in check during the critical start-up phase of a business.

Joseph A. Gill
McKercher LLP
374 Third Avenue South
Saskatoon, SK 
(306) 653-2000