This guide was built to help you understand the benefits of incorporating your DAO and how the process of DAO incorporation works. We help you answer questions like:
Why should I incorporate my DAO? In what geographic jurisdiction should I incorporate my DAO? What legal entity type should I choose?
Get all the information you need to make the best decisions for you DAO by reading this guide.
By
Leo Henkels
August 3, 2022
Every DAO contributor knows how complex corporate structuring can be for DAOs who want to establish legal entities to interact with the traditional corporate arena. By providing a legal entity that recognizes DAOs using smart contracts for governance, MIDAO makes corporate structuring easier. We hope to relieve the burden faced by founders and members when weighing legal entity options. A MIDAO LLC is adaptable, just like traditional corporate entities are, and we are excited to share with you some creative structures our clients are using.
We frequently see two scenarios involving DAOs that govern and support a protocol / DApp / smart contract (from now on, we’ll say “protocol”), which often generates earnings. One common scenario we encounter is the one found in Arrangement 1. The MIDAO LLC is the DAO that governs an unincorporated protocol while issuing governance tokens to its members. The MIDAO LLC can also be combined with an unincorporated protocol and a traditional for-profit entity, such as a Delaware C-Corporation, as shown in Arrangement 2.
In any arrangement, the non-profit DAO can still pay contributors, employees, & managers; purchase intellectual property; generate revenue & earnings, etc. What makes it a non-profit is that it does not distribute profits as dividends or have economic owners.
In this scenario, the DAO’s purpose is to govern and support a protocol. This arrangement fits well with our MIDAO DAO LLC, as the DAO can fund, operate, and support the protocol that can still distribute earnings to tokenholders, allowing them to benefit from the protocol while retaining the non-profit status of the DAO.
We have also seen a common scenario where the DAO is combined with a protocol and a for-profit entity, e.g. a Delaware C-Corporation. The DAO governs and supports the protocol and can pay the incorporated entity for services such as building and operating the protocol or for intellectual property. This arrangement allows for various ways to compensate tokenholders and for-profit entity owners while still allowing the DAO to operate as a non-profit LLC.
Of course, many DAOs need just one entity, the MIDAO DAO LLC. However, for those that do need increased complexity, we look forward to seeing the innovative corporate structures you develop. As always, please reach out with any questions. The MIDAO team is happy to help you talk through how you can leverage a DAO LLC in the Marshall Islands to achieve your goals.
Please remember that this post is not legal, financial, or tax advice. MIDAO never provides legal, financial, or tax advice. We recommend hiring a lawyer or financial/tax advisors to understand your particular situation and help you figure out what legal entities and structures work best for your DAO. We can make referrals if you would like recommendations.
