Links to Learning
Starting a First Nation’s Economic Development
Corporation Workshop
Part 1
December 10, 2014
Westin Bayshore
By Transformation: Social and Economic Development
Carol Anne Hilton, MBA
Outline
1.! Why an Economic Development Corporation?
2.! Vision and Mandate
3.! Legal overview and Structure
4.! Functions- HR, operations, finance, marketing, and
governance
5.! Board strategy – role and responsibility and risk
1. WHY A DEVELOPMENT
CORPORATION?
•! Systematically removes barriers to development
•! Is a structure for accessing business opportunity
•! Structure to manage business, projects and distinguish
from the FN Government
•! Separate risk from the FN
•! Corporate/business approach- instead of program/
services- requires different thinking
•! Means to access business funding- capital/equity
1. How?
•! What it does•! As a corporate structure- Creating the legal body and
relationships of the First Nation to carry out economic
development functions
•! As a governance structure- Establishes the processes, roles and
responsibilities for the First Nation’s economic development.
Links lands management processes to economic development
•! Reduces liability exposure
•! Maximizing profits
•! Separating political considerations from business decisions.
1.The Development
Corporation
•! EDOs are the economic and business development
arm of a Nation
•! The EDO is responsible for developing a Strategic
Plan, and approving annual business plans and
budgets consistent with the Strategic Plan.
•! Provides structure to approve new business ventures,
contracts and major financial transactions
1. Continued
•! Support of new and existing economic development
projects and businesses
•! Increase investment readiness
•! Increase engagement with outside partners and
organizations
•! Pivotal point of business relationships
•! Entry point for industry participation
2. VISION, MISSION AND
MANDATE
A vision is:
•! Often confused with mission, goals, statement of
purpose, and other terms used by organizations.
•! The preferred future, a desirable state, and ideal state
•! A general statement encompassing the direction an
organization wants to take and the desired end result
once it gets there. It is the vision of what those
involved what their organization to become or
impact it will have
2. Vision Checklist
•! Provides the necessary framework within
which business planning occurs
•! Describes how to see the future
•! Sets out the desired destination
•! Embrace key values of the organization/
community
•! Focus on key words and outcomes
2. Vision Examples
•! Enhance and strengthen the Long Plain First
Nation economic base and meet the
employment and economic needs of its citizens.
•! We, the Champagne and Aishihik First
Nations people and our government, shall
promote a healthy, unified and self-reliant
people, while conserving and enhancing our
environment and culture.
2. Example
•! !“To create an economically self-sustaining community with financially
independent members through the effective use of economic tools that
maximize the available resources, respect the Dakota culture and
protect the environment while protecting and enhancing inherent
rights.”
•! To achieve self-reliance through economic development and to preserve
the First Nation culture through the creation of jobs on our lands for
future generations – Osoyoos Indian Band
•! To create economic opportunities and develop business initiatives and
partnerships for the primary benefit of our First Nation communities
both on and off reserve - Wasaya Group, A Native Venture Corp.
3. LEGAL OVERVIEW
AND STRUCTURE
•! There are many types of business entities defined
in the legal system•! Sole Proprietorship
•! Partnership
•! Limited partnership
•! What is a corporation?
•! Cooperative
LIABILITY?
•! Legal liability is the legal bound obligation to pay debts.
•! A person./entity is legally liable when they are financially
and legally responsible for something
SOLE PROPRIETORSHIP
•!
The sole proprietorship is the simplest business form under which one can operate a business- it is
not a legal entity. It simply refers to a person who owns the business and is personally
responsible for its debts.
•!
Need only register the name and secure required licenses, and the sole proprietor is ready for
business. -- It is an unincorporated business owned and run by one individual with no distinction
between the business and the owner.
•!
‘You’ are entitled to all profits and are responsible for all the business’s debts, losses and
liabilities.!
•!
Because a sole proprietorship is indistinguishable from its owner, sole proprietorship taxation is
quite simple. The income earned by a sole proprietorship is income earned by its owner.
•!
Complete control. Because you are the sole owner of the business, you have complete control
over all decisions. !
•!
Easy tax preparation. Your business is not taxed separately, so it’s easy to fulfill the tax reporting
requirements for a sole proprietorship. The tax rates are also the lowest of the business structures
PARTNERSHIPS
•! A partnership is a single business where two or more parties
share ownership.
•! Each partner contributes to all aspects of the business,
including money, property, labor or skill. In return, each
partner shares in the profits and losses of the business.
•! Because partnerships entail more than one person in the
decision-making process, it’s important to discuss a wide
variety of issues up front and develop a legal partnership
agreement. This agreement should document how future
business decisions will be made, including how the partners
will divide profits, resolve disputes, change ownership (bring in
new partners or buy out current partners) and how to dissolve
the partnership
Types
•! 3 types of Partnerships
•! A) General Partnerships
•! B) Limited Partnerships!
•! C) Joint Ventures!
A. General Partnerships!
•!
assume that profits, liability and management duties are divided equally among
partners. If you opt for an unequal distribution, the percentages assigned to each
partner must be documented in the partnership agreement.
•!
Ease of creation. The partnership is created when the partners begin business
activities.
•!
Low cost of operation. Because general partnerships are not formed by means of a
state filing, they are not required to pay a formation filing fee, ongoing state fees or
franchise taxes. The partnership must still obtain the business licenses and permits
required for operation however.
•!
Few ongoing requirements. Unlike corporations, general partnerships are not
required to hold annual meetings of the owners, issue partnership interest, and keep
personal asset separate from business assets. Having a partnership agreement that
outlines how the partnership will be managed, the roles of each partner, and what
events will cause the partnership to end operations is recommended.
•!
!
Example
•! The Province is enhancing economic opportunities and forest stewardship
on Cortes Island by granting a local group a community forest agreement,
Forests, Lands and Natural Resource Operations Minister Steve Thomson
announced today.
•! The agreement was granted to the Cortes Forestry General Partnership,
made up of the Klahoose First Nation and the Cortes Community Forest
Cooperative, and covers a 3,775.5-hectare area on Cortes Island. Under the
agreement, the partners can harvest up to 13,600 cubic metres of timber a
year.
•! A community forest is a forestry operation managed by a local government,
community group or First Nation for the benefit of the entire community.
Community forest agreements are long-term, area-based tenures designed
to encourage community involvement in, and management of, local forests.
B. Limited Partnership (LLCLimited Liability Company)
•! Limited Partnerships!(also known as a partnership with limited
liability) are more complex than general partnerships. Limited
partnerships allow partners to have limited liability as well as
limited input with management decisions. These limits depend on
the extent of each partner’s investment percentage. Limited
partnerships are attractive to investors of short-term projects.
•! A limited liability company is a hybrid type of legal structure that
provides the limited liability features of a corporation and the tax
efficiencies and operational flexibility of a partnership.
•! In a limited partnership, there must always be one general partner
and one limited partner.!! The limited partner gets all the benefits
of limited liability, but loses out on the ability to manage the
business.! They cannot actively manage the business.!
Cont.
•! The "owners" of an LLC are referred to as "members." The
members can consist of a single individual (one owner), two or
more individuals, corporations.
•! Unlike shareholders in a corporation, LLCs are not taxed as a
separate business entity. Instead, all profits and losses are "passed
through" the business to each member of the LLC. LLC members
report profits and losses on their personal federal tax returns, just
like the owners of a partnership would.
•! The First Nation can invest in the business without exposing itself
to the significant risks normally associated with partnership.
•! Since June 1998, as a result of certain changes to the Income Tax
Act, the limited partnership has become the preferred business
vehicle for First Nations.
Example
Why choose a limited partnership?
•! Why choose a limited partnership?
•! Unlimited liability for general partners only. In a limited
partnership (LP), at least one partner has unlimited liability—the
general partner(s). The other partners (limited partners) have
limited liability, meaning their personal assets typically cannot be
used to satisfy business debts and liabilities.
•! Limited partners are not involved in management. The general
partners oversee the day-to-day operations of the LP. Limited
partners are basically silent investors.
•! Short-term projects/ventures. LPs are often the business type of
choice for special situations versus true businesses. For example,
films are often formalized as LPs and family estate planning often
utilizes LPs.
Formation
•!
Select name, File the Articles of Organization, Create an Operating
Agreement. Obtain Licenses and Permits.
•!
The Business Names Registration Act requires the declaration to be signed by
all the partners and to contain the following information:
•!
(a) !the business name under which the limited partnership is to be
conducted;
•!
(b) !the general nature of the business intended to be transacted;
•!
(c) !the names and places of residence of the general and limited partners,
designating those who are general partners and those who are limited
partners;
•!
(d) !the term for which the limited partnership is to subsist;
Foundation of Formal
Partnerships
•! Letters of Agreement
•! Partnership Agreement
•! Contracts
•! Shareholders Agreement
•! Society Constitution
Continued
•! Business Structure is About Ownership!
•! Liability is about risk! !
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•! Project based
•! Tea% based
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•! (General partnership is permanent and share based)
Corporation
•!
A legal entity that is separate and distinct from its owners. Corporations
enjoy most of the rights and responsibilities that an individual possesses; that
is, a corporation has the right to enter into contracts, loan and borrow money,
sue and be sued, hire employees, own assets and pay taxes.
•!
!The most important aspect of a corporation is limited liability. That is,
shareholders have the right to participate in the profits, through dividends and/
or the appreciation of stock, but are not held personally liable for the
company's debts.
•!
A corporation is created (incorporated) by a group of shareholders who have
ownership of the corporation, represented by their holding of common stock.
Shareholders elect a board of directors (generally receiving one vote per share)
who appoint and oversee management of the corporation.
•!
Set goal of providing a return for its shareholders. When you purchase stock
you are becoming part owner in a corporation. Publicly traded company
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4. EDO CORE BUSINESS
FUNCTIONS
A.! HR
B.! Administration/operations
C.! Finance
D.! Marketing
E.! Governance
Pyramids of Reporting
Community
Directors
Board
Corporation
CEO
Managers
Employees
Partners/Clients
Operations- Board vs. Staff
Role
Board
Staff
Provides strategic
direction
Recruits and
manages senior staff
person (Corporation
CEO)
Sets the vision and
Mission
Supports Board in
planning
Recruits and
manages
Corporation
Implementsstaff
the
Monitors outcomes
and performance
Corporation’s
strategic and
operational plans
Implements
operational plan and
oversees budget
Key Roles of the Board
•! Providing strategic direction to the organization
•! Manage the Senior staff person of the Corporation
•! Monitor performance
•! Risk identification and oversight
•! Governance systems and processes
Financial Models
Types of transactional models:
1.! Fixed annual payments
2.! Royalties based on outputs
3.! Royalties based on value of outputs
4.! Profit based royalties
5.! Equity participation of shareholders
Signs of good governance
•! Accountability and Transparency
•! Legitimacy and Voice
•! Direction
•! Performance
•! Fairness
Wealth Management
•! Wealth management is an investment advisory
process that incorporates financial planning and
investment portfolio management
•! Wealth management calls for credentialed
financial advisory - to coordinate retail banking,
estate planning, legal resources, finance and tax
professionals and investment management to
maximize wealth
•! The emerging high net Nation
Wealth Management
•! First Nations are moving from the
underdevelopment of reserves towards wealth
management through economic development and
legal frameworks
•! Nation building and wealth management are
parallel processes
•! Need to manage investment risks, the need for
sound financial advice, and a solid financial for
First Nation governments.
5. Roles and ResponsibilityRisk Management
•! The process of risk management is a simple threepart activity. It involves:
•! looking at a situation and asking what can go wrong
and what harm could result;
•! identifying practical measures that can be taken to keep
such harm from occurring; and
•! if harm does occur, identifying practical measures that
can be taken to lessen the impacts of harm and pay for
any resulting damage or losses.
Selecting Directors
•! Ensure a broad talent pool
•! Diversify board membership
•! Develop a matrix of potential Directors
•! Revolving succession list
•! Ensure bylaws have a turnover requirement
•! Regular and ongoing evaluation
•! Clear expectations of Directors
Competencies of Directors
•! Knowledge, experiences
•! Relationships and connections
•! Aligned with values and culture of the organization
•! Familiarity with Governance/Boards
•! Committed, can deal with role dichotomy
Continued
•! Builds strong relationships with members, clients and other key
stakeholders
•! Actively involved in Strategic Planning
•! Implements systems and controls to safe guard finances
•! Selects, supports, advises, evaluates and terminates the Executive
Director/CEO
•! Provides and develops institutionalized accountability structure
•! Focuses on results and impact of its services
•! Makes objective and independent decisions based on solid
information
Role of the Board
•! Key deliverables
•! Developing strategic vision
•! Key activities
•! Accountabilities
•! Decision- making
•! Risk management
Separation of Politics and
Business
•!
Documented roles and responsibilities that separate strategic and political
roles from day-to-day government administration and business
management.
•!
Procedures to identify and manage possible conflicts of interest.
•!
Procedures to hire and promote staff based on merit and qualifications.
•!
Agreements to keep existing management in place for several years when
purchasing businesses.
•!
Boards that include members other than the Chief or councillors of the
First Nation. These members may be elected, or they may be other
members of the First Nation, or non-Aboriginals with business experience.
The board's voting procedures may ensure that the non-political members
have a significant voice.
Board Strategy
•! Approve the vision and mission
•! Engage in planning
•! Identify and weigh risks
•! Approve the plan and strategies
•! Oversee and monitor plan implementation
•! Monitor performance of organization
Board continued
•!
Determine a governance model and ensure that appropriate organizational policies and structures
are in place
•!
Participate in the development of a mission and strategic plan for the organization
•!
Hire and ensure that an effective management team is in place (i.e., Executive Director)
•!
Maintain effective partnerships and communication with the community, the organization's
members and its stakeholders
•!
Maintain fiscal responsibility, including raising income, managing income, and approving and
monitoring annual budgets
•!
Ensure transparency in all communication to members, stakeholders and the public
•!
Evaluate the organization's work in relation to a strategic plan
•!
Evaluate the work of the board of directors, ensuring continuous renewal of the board, and plan
for the succession and diversity of the board
Key elements of starting an
EDO Corporation
•!
Issues to be considered
•!
Defining goals and objectives of the process
•!
Determining milestones or targets with timelines
•!
How to add an issue/factor
•!
Sharing of information
•!
Dealing with media
•!
Designation of roles
•!
Involvement of legal counsel, financial advisory or technical advisors
•!
What happens without agreement
•!
Decision making framework
•!
Conflict management
Continued
•! Contracts
•! Proposals/grants – funding agreements
•! Leases/rentals/ agreements
•! Insurance - Get a copy of your Directors and Officers
Liability insurance policy, your Comprehensive Insurance
policy, or any other insurance policies and read them.
•! Organizational Calendar - Make a note of any deadlines
or renewal dates and add them to your Organizational
Calendar
Types of Policy
Board decision-making and meeting practices (usually covered partially by by-laws)
•!
!Conflict of interest
•!
Board member conduct
•!
!Role, responsibilities, and authority of the executive director or CEO
•!
!Financial management
•!
!Personnel, hiring and other human resource practices
•!
Treatment and protection of consumers, customers, clients or users
•!
Fundraising (including ethical considerations)
•!
Advocacy and public education
•!
Accountability to members, stakeholders and community (may be partially addressed by
laws in references to annual general meeting and annual financial report)
EDO Organizational Binder
•!
Creating an organizational binder keeps all your important information in one place for easy reference and
tracking and contains:
•!
Governing statute – incorporation papers - Certificate of Incorporation
•!
Key dates - note of any deadlines or other important dates in your Organizational Calendar.
•!
Policies and practice – bylaws
•!
Minutes of board meetings
•!
Minutes of AGMs
•!
Minutes of committees
•!
Financial affairs - annual budget , your audited financial statements, and , monthly or quarterly financial statements
you receive as a board member. -Notes your organization’s major sources of revenue. Notes your organization’s
major expenses. Note your organization’s debts.
Resources
Economic Development Surveys Report - CCAB
ICAB Economic Development Report
CANDO
Harvard Project on Economic Development
•! Thank you!
•!
•!
•!
•!
•!
Please contact Carol Anne Hilton at
250 508 1778
[email protected]
www.transformationinternational.ca
Twitter @Hesquiaht