Wrapping a DAO with a UK Legal Entity

[hughkarp]

DAO’s and their interaction with the physical world (#48)

Team name: Nexus

Proof of concept / research whitepaper

Burn rate: $25k/month for 4 months, $100k USD total + $50k ANT Success Reward

Legal structure: Not-for profit UK Company

Team and Roadmap See related files or team and deliverables section of research paper.

Proposal

Objective: Produce the legal templates and method to link DAO’s to a membership-based company in the UK.

Pure blockchain only DAO’s cannot easily interact with the non-blockchain world as they have no specified legal personality. They have to interact via a member or 3rd party organisation that is willing to engage without a legal contract, and instead rely solely on the smart contracts. This can limit what DAO’s can achieve in the medium term.

The legal classification of a DAO is also uncertain, and it’s quite possible they would be treated as an unincorporated association should legal action be taken against them. This potentially means individual members are exposed to unlimited liability on a joint and several basis. Meaning you only have to identify one member of the DAO and they can be sued for the entire loss caused by the DAO.

Therefore, it may make sense for some DAO’s to legally incorporate themselves to access limited liability and enable easier contracting with the non-blockchain world. This introduces some centralised components but may be considered a worthwhile trade-off to achieve other objectives.

Our proposal has the following benefits:

• UK based company with no shareholders and no equity by definition, only members.
• Legally defined purpose and objectives for the DAO.
• Ability to contract with the non-blockchain world.
• Limited liability set equal to a chosen guarantee amount, usually set at £1 per member.
• Anyone in the world can join a UK company.
• Certainty of tax position as well as other legal protections.
• Potential Downside: All members have to be listed on the company register, so they become identified and KYC is likely required.
• Potential Downside: A board is required, though nearly all material powers can be delegated to the membership base.

Deliverables

1. Detailed outline of each legal template required (showing differences between standardised and customisable sections) – these are likely to be the Articles of Association and Member Rules, and possibly a Scheme of Delegations.
2. One complete example of each document, based on one specific configuration for each customisable section.
3. Accompanying documentation on the steps involved to actually set-up such a company as well as any restrictions / requirements.

All output will be made open-source.

[CLAassistant]

All committers have signed the CLA.

[mariapao]

Hi @hughkarp thank you for submitting your application.

The UK company limited by guarantee seems like a flexible legal structure, easy to setup. What I like the most is the ability to automate operations without the need for new regulation or legislation to be passed. However, the part that interest us the most is the smart contract template on Aragon to create a UK company limited by guarantee. Unfortunately, you said you don't have the technical resources to work on this part.

A template only for the legal documents is something useful as well. We plan to open source most of our legal docs so people can use it if they need it. However, this legal project is not a fit for the program. What we intent to fund with this proposal is not the legal setup of projects. We want to fund initiatives to bridge the gap between DAOs and the non-blockchain world. For example, having a smart contract template on Aragon for the incorporation of the UK company limited by guarantee could help projects that instead of going full DAO prefer to start with a traditional but flexible legal structure. For this you would need a team with legal and tech skills. Thus, we have decided not to approved this request for funding this time. If in the future you have the needed tech resources please do not hesitate to apply again! We appreciate your participation very much and the time and effort you have put into the application.