Many tribes operate for-profit enterprises for the benefit of their members, and an LLC is a common vehicle for operating such companies. If your tribe is like most, you are probably considering adopting an LLC code specifically to allow for the establishment of tribally-owned companies.

Because of the nature of tribes as legal entities separate from individuals and corporations, entities that exercise some governmental authority and enjoy sovereign immunity, there are certain issues that arise when an LLC is wholly owned by a tribe. Thus, in addition to all the sections and provisions included so far, we include this section on wholly-owned tribal entities.

Your tribe will need to decide whether it wishes to spell out the consequences associated with the establishment and operation of AN LLC. If your tribe is planning to establish wholly-owned LLCs, including a chapter in the LLC code dealing with wholly-owned entities is a good idea, as including such a section will help avoid ambiguities down the line.

Even if your tribe does not have immediate plans for such entities, it is advisable to consider including a chapter of this nature in the event that the tribe decides to create them in the future.

When a company is wholly owned by a tribe, the question automatically arises whether the tribe’s sovereign immunity carries over to the company. Most tribes choose to have sovereign immunity transfer by default to any wholly- owned companies, but it is common to reserve the right to issue limited waivers of sovereign immunity. The primary issue here is what types of relationships the LLC will have with other entities. Retaining sovereign immunity provides some protection to the company, but there is a risk of decreased willingness of outside parties to contract with the company if the company is immune from suit.

It is in the area of contracts and commercial transactions that the waiver of sovereign immunity has received the most attention in recent years. [FN230] Sovereign immunity remains a necessary component of tribal sovereignty. From an economic standpoint, it ensures that tribes are able to protect the public trust from unlimited suits. [FN231] As is true for governments generally, however, the trend has been toward limited waivers of tribal immunity as means of stimulating economic development. [FN232] The key factor here (from an allocation of resources standpoint) is that tribes and not the federal government are determining the scope of the waiver to employ based on individual tribal circumstances. As one tribal attorney puts it "sovereign immunity is best understood as the power of a government to define the forum, procedure, and limits to be placed upon suits against itself." 

-80 N.D. L. Rev. 597

The decision whether to allow limited waivers of sovereign immunity to tribally-owned LLCs is one that should be considered carefully.

At any rate, it is important to be particularly careful with the language of any statute allowing such a waiver, as the tribe will want to ensure that none of its sovereignty is compromised by waiving the sovereignty of the company. In general, courts have found that sovereign immunity is preserved unless the tribe explicitly waives it.

In addition, courts look to whether the business entity functions as an arm of the tribe; casinos formed under the auspices of the tribal government are often imbued with the sovereign immunity of the tribe, whereas separately formed business entities (particularly companies formed under Section 17 of the Indian Reorganization Act) typically waive sovereign immunity and are also typically organized as businesses owned by the tribe rather than an arm of the tribe.

Because of this perspective the courts have adopted, tribes must tread carefully when considering waivers of immunity for entities that function as arms of the tribal government. Although no case law has yet done this, it is possible that a court might interpret a waiver of immunity for one of these entities to extend to the tribal government itself. This is precisely what makes it so imperative that tribes conduct business operations under LLCs where possible rather than through arms of the tribal government, particularly wherever a limited waiver of sovereign immunity will be a practical necessity.

Because of the issues involved with sovereign immunity, tribes need to be especially cautious when tribally-owned companies are involved in mergers and other transitions. In Marceau, one of the cases quoted above, the tribe had issued a waiver of sovereign immunity to the Housing Authority, allowing it to be sued. The Housing Authority subsequently ceased to exist as a separate entity and became an arm of the tribal government. Nevertheless, the court in Marceau ruled that the Housing Authority could be sued.

Although the court did not discuss specifically the implication of folding the Housing Authority back into the tribe, the decision suggests that turning an entity into an arm of the government does not reinstate sovereign immunity that has been waived.

Marceau did not address how sovereignty of the rest of the tribe would be affected by the fact that the Housing Authority could be sued, but because case law on this point is not settled, it is a good idea for tribes to be careful that business ventures and governmental functions stay separate.

Keep in mind that sovereign immunity is a very valuable asset to a tribe, both in terms of identity and economic development. It cannot be stressed enough the importance of carefully considering any decision to waive sovereign immunity or to change the status of entities for which some immunity has been waived. Again, using LLCs can help in this process and allow a tribe to execute some waivers without worry. And, remember waiving sovereign immunity is not a waiver of sovereignty; it is an act of sovereignty. Nevertheless, as with any enactment of statute, an attorney familiar with this area of law should be consulted prior to making any final decisions.