Until recently, band-owned businesses in British Columbia tended
to be structured in one of three forms:
owned directly by the band (also
known as a band proprietorship);
as a company (often called an
economic development corporation); or
as a limited partnership.
Deciding between these options was generally a matter of
balancing administrative simplicity, liability and tax
Recent tax guidance in British Columbia has suggested that a
fourth type of ownership, the limited liability partnership
("LLP"), can be very efficient from a taxation
perspective. When used correctly, LLPs can result in significant
savings on provincial sales taxes (such as PST and fuel tax) for
businesses owned wholly or in part by Indian bands. These savings
are generally not available to corporations or limited
Many bands are now rushing to convert their existing businesses
into LLPs in order to recognize savings on provincial sales
But Wait – There are Downsides to LLPs
Tax efficiency is not the only consideration. Choosing the
correct corporate vehicle for a band-owned business requires an
analysis of a number of factors, including administrative
simplicity, tax efficiency and liability.
In many instances, LLPs do not offer the same degree of
liability protection as corporations or limited partnerships. If
you rush into an LLP for tax reasons, you may be putting your
band's assets at risk – including money earmarked for
things like education, health and social development.
Here are some of the LLP liability traps you need to keep an eye
Liability for Negligent and Wrongful acts
A limited liability partner may be personally liable for
negligent or wrongful acts if the partner knew of the act and did
not take reasonable steps to prevent it. In many cases, this means
the band could be on the hook for the business' negligent or
Consider the example of an LLP with two owners: an established
business and a band. Let's say that these two owners open a
gravel pit business, and the band is concerned about retaining some
control over the business, so it appoints a band representative to
jointly manage the business on a management committee. The business
is not as profitable as planned, so the management committee
decides to defer some maintenance on a piece of equipment for a few
months until revenue from a large contract comes in.
If the equipment malfunctions due to the deferred maintenance,
an employee was injured, and the employee sued on the basis that it
was negligent to defer the equipment maintenance, the band could
potentially be liable for the damages.
Most business people are aware of the potential liabilities that
come with being a director of a company. The same liabilities also
attach to partners in a LLP, and include:
Liability for unpaid wages and taxes
Under the British Columbia Employment Standards Act, a
director of a corporation can be liable for unpaid wages to
employees. Additionally, many tax laws (both federal and
provincial) impose liability on directors for unpaid tax
obligations. This can include unpaid source deductions (such as
employee income tax, CPP, EI), withholding taxes or GST. If a band
is a partner in an LLP, it faces these same liabilities.
Liability for environmental damage or contamination
Under federal and provincial statutes, directors of a
corporation are potentially liable for certain environmental
impacts. For example, if a business causes environmental damage by
polluting fish habitat or contaminating land, the directors could
be liable under the Fisheries Act or the Environmental Management Act. Moreover, under
provincial environmental legislation, if a company simply acquired
an already contaminated piece of land, the directors could be
considered "responsible persons" and liable for costs of
Think of a gas station run by a band-owned LLP. Many gas
stations are on land that has been contaminated by hydrocarbons as
a result of decades of operation. If the gas station is owned or
operated by a band-owned LLP, the band itself could be liable for
the costs of remediation – which could be in the millions of
Should Bands Avoid Using LLPS?
Despite these liability drawbacks, there can be major advantages
to using LLPs, especially for businesses that rely heavily on goods
that attract PST or fuel tax. Sometimes it will make sense for a
band-owned business to take advantage of these tax savings.
However, it is critical to consider the liability trade-off for tax
savings: prudent leaders and EDOs will ensure that they understand
the liability risk, and make an informed decision about whether the
tax benefits outweigh the risks.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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