Indigenous Economic Development Corporations – The ABCs

June 27, 2016

Sometimes when the name says it all, the name says it all. This is true in a basic sense with Indigenous Economic Development Corporations. Namely a corporation (or group of corporations) formed to develop the economic activity of a community.

 

Economic Development Corporations (also known as “EDCs”) in short form are corporations formed under the laws of governmental regulation to manage the economic arm of the Indigenous community. They are becoming more and more commonly used in Canada and, more importantly, are becoming more influential in the overall Canadian corporate environment.

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There are many benefits to forming an EDC and five of the main benefits in my opinion are:

  1. Reduce risk to the Indigenous Nation and its members
  2. Effectively compartmentalize businesses and allocate resources
  3. Separate business from politics
  4. Allow outside expertise/advisors when circumstance warrant
  5. Maximize tax benefits rightfully held by Indigenous groups

 

For those Indigenous groups contemplating setting up an EDC the good news is there are many successful EDCs already “up and running” from which to follow best practices. Hindsight is 20/20 and we can learn from those who already have walked the path. In addition, reputable professional service firms (lawyers and accountants) are very familiar with the setup of these corporate structures and the cost of forming such EDCs have been reduced from the early years.

 

Any Indigenous group serious about setting up a vehicle to create and expand economic opportunities being presented to them will want to seriously consider an Economic Development Corporation structure. It allows for the formation of wholly (or partially) owned Limited Partnerships or Limited Liability Partnerships which are, in turn, owned by the “parent company”, namely the EDC as a holding company. The ability to put all business activity under “one roof” also allows for cost savings on administrative and other costs, talent attraction, capacity building and, ultimately, Nation building. All of these “positives” are what the existing corporate world currently enjoys and that is the main beauty of EDCs. Namely, it allows Indigenous groups to enter the corporate world in a legally and financially sound manner while maximizing the constitutionally existing rights and assets held by each Indigenous community and individual.

 

Setting up the legal and accounting framework is relatively straightforward. Legal counsel creates and registers corporations and partnerships with the appropriate regulatory authorities and the accountants assist in ensuring these entities have the appropriate financial reporting system and are registered/complying with the Canada Revenue Agency. However, the Indigenous group should always be giving input to those setting up the legal entities in the areas of: how the EDC should be managed, objectives of the Nation, “off-limit” businesses, number of independent directors etc. The EDC is for the community and the vision for the path forward should come from the community.

 

EDCs have a role to play in achieving economic independence of each Indigenous community. However, like any business, the time to set them up correctly will pay benefits in the future. Start with enlisting the input of your trusted legal professional and financial advisors. Ensure someone is appointed as the “point guard” and is in close dialogue with the community to ensure the wishes of the community are incorporated in the setup. From this, Indigenous communities can grow businesses, protect the Nation as a whole, enjoy the fruits of their labours and move towards economic independence and pride.

 

If you have any questions on Economic Development Corporations, please do not hesitate to reach out to Jim at the contact information listed below.

 

About Jim Bennett

Jim’s desire is to work together with Indigenous groups to realize their economic goals and play their rightful role as key contributors to the economic fabric of a Nation. He sits on the Board of Directors of various Indigenous Economic Development Corporations and also holds the position of Treasurer in those EDCs. Previously, Jim had over 22 years with KPMG (a leading international professional accounting firm) where he was a partner.

jimbennett@live.com

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