Decentralized Autonomous Organization Legal Structure

-

 


Decentralized Autonomous Organizations (DAOs) have gained significant attention in recent years as a way for blockchain-based projects to fundraise and govern themselves. While DAOs offer a number of advantages, they also present unique legal challenges that must be carefully considered in order to ensure compliance with relevant laws and regulations. In this article, we will outline the key stages involved in setting up a legal structure for a DAO, as well as some of the key documents and considerations that may be relevant at each stage.

Stages for DAO Legal Structure

(i) R&D Company Registration The primary function of this company is to start hiring the team and developing intellectual property. This company is typically set up in the jurisdiction of the core team, and may be structured as a corporation, limited liability company, or other business entity.

(ii) Token Issuer Registration This is typically necessary in order to start signing Simple Agreements for Future Tokens (SAFTs) and raising initial funding or investment from venture capital firms (VCs). SAFTs are essentially a promise or obligation to issue tokens in the future and are commonly used in the blockchain space as a way to raise capital for technical development.

(iii) Issuing Tokens This is a critical step in the process, as it involves converting SAFTs into tokens and issuing them to VCs. It is important to carefully consider the terms and conditions of the SAFTs, as well as any other legal documents that may be relevant, in order to ensure compliance with relevant laws and regulations.

(iv) Foundation Legal Setup The final stage of establishing a DAO legal structure involves setting up a foundation legal structure. This typically involves transferring the tokens into the foundation’s treasury and making token holders members of the DAO. The goal of this structure is to create a legal entity that can hold all tokens in trust and allow token holders to vote on decisions and make minor suggestions on behalf of all token holders.

Classification and Jurisdiction of Tokens


Checklist of Documents There is a number of documents that may be relevant at each stage of the process, including certificates of incorporation, articles of association, bylaws, director’s consents, board resolutions, and capital table structures. In addition to these general due diligence documents, specific blockchain legal documents may also be required, such as SAFTs, conversion agreements, and legal documents for the foundation legal setup.

Simple Agreement for Future Tokens (SAFTs) plays an instrumental role to define what will be the conversion events in the SAFT itself. Founders need to understand when they are obliged to issue tokens to the investors. If investors are interested in equity, they might want to execute traditional documents like Subscription and Shareholder agreements as well. The best suggested practice would be to structure all of these deal terms in the term sheet, before drafting the SAFT.

It is important to note that the legal status of tokens and cryptocurrencies can vary significantly depending on the jurisdiction, and it is therefore important to seek the advice of a local legal advisor when setting up a DAO legal structure. In many cases, the exchanges or other market participants may require a Token Legal Opinion (TLO).

Token Legal Opinion A token legal opinion is a document prepared by a lawyer or law firm that analyzes and assesses the legal status of a particular token or cryptocurrency. It typically includes an evaluation of the token’s classification under the law (e.g., as a security, commodity, or utility), as well as a discussion of any relevant regulatory considerations and potential legal risks. Token legal opinions are often sought by token issuers or investors in order to understand the legal implications of their involvement with a particular token or cryptocurrency and to ensure compliance with relevant laws and regulations. They may also be requested by exchanges or other market participants as a condition of listing a token or accepting it for trading.

Conclusion Therefore, a well-designed legal structure for a DAO within a Web3 project is essential to mitigate legal risks and ensure compliance with relevant laws and regulations. It can also make listing tokens on secondary market platforms easier and provide greater confidence to investors and other stakeholders.

Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice. Feel free to reach out for any specific queries at sultaniagarv@gmail.com

 

Comments

Post a Comment

Popular posts from this blog

Space Law and Commercialization: Who Owns Outer Space?

-
Image
Introduction The era of space exploration has entered a new phase. Once the exclusive domain of superpower governments, space is now being explored and commercialized by private enterprises like SpaceX , Blue Origin , and Virgin Galactic . These companies are not only launching satellites but are also planning missions to mine asteroids, colonize planets, and offer space tourism to the public. However, with the growing commercialization of outer space, a legal vacuum is becoming increasingly apparent. The current legal frameworks, rooted in treaties from the 1960s, are ill-equipped to manage the unprecedented challenges of space commercialization. Who owns the moon? What laws govern asteroid mining? And who is responsible for space debris? This article will delve into the complexities of space law in the commercial age and address the question of whether outer space is a frontier for global cooperation or private exploitation. The Outer Space Treaty (1967): A Cold War Relic in a Commer...
Read more

Ethical and Legal Implications of AI-Generated Content in the Creative Industries

-
Introduction The integration of artificial intelligence (AI) into the creative industries—such as art, music, fashion, and writing—has introduced a revolutionary approach to content creation. AI systems like OpenAI’s GPT-4 , DeepArt , and AIVA (an AI composer) can generate original works, from paintings to symphonies to written content, with minimal human input. AI-generated content is now a mainstream phenomenon, blurring the lines between human creativity and machine intelligence. However, the rise of AI-generated content also brings forth a host of legal and ethical challenges. Questions about intellectual property (IP), copyright, authorship, and fairness in the creative economy are becoming increasingly pertinent. As India positions itself as a growing hub for digital creativity, understanding the implications of AI-generated content is crucial for the country's legal and creative sectors. This article explores the ethical and legal implications of AI in creative industries a...
Read more

Deep Tech and the Law: A Converging Frontier of Opportunity

-
Image
As the world transitions into the next technological era, the legal landscape is witnessing a profound shift. The rise of "deep tech"—advanced technologies with far-reaching societal impacts—demands legal frameworks that can address unprecedented challenges in areas like artificial intelligence (AI), Web3, space exploration, biotechnology, renewable energy, and even fashion tech. This shift is giving rise to a new breed of legal professionals whose expertise transcends traditional law, opening a plethora of career opportunities in areas that were once the realm of science fiction. This article delves into the intersection of deep tech and the law, exploring how their convergence will redefine legal careers and why more individuals are likely to pursue this intersection over traditional legal paths. The technological domains we focus on include AI, Web3, renewable technologies, space law, biotech, and fashion law, each presenting unique legal complexities that demand advanced...
Read more