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Recently, dOrg incorporated in Vermont as a BBLLC. This legal structure allows a DAO to operate as a legal entity. Additional information and background can be seen here: https://github.com/dOrgTech/LL-DAO. Below are answers to various questions you might have regarding the dOrg incorporation process:
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What is the background of dOrg?
- dOrg is structured as a cooperative of freelancers, created to enjoy economies of scale while maintaining freelancer independence. dOrg started as a spinoff of the Genesis DAO community around December, and developed a business model to fund themselves through client software development work, helping companies & teams with DAOstack integrations.
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Why should a DAO incorporate?
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Limited Liability: There's a big issue with debt and other legal liabilities for unincorporated DAOs. As an unincorporated entity, any member could create debts for the entire collective. This exposes every member to debts & liabilities caused by any other member, which is not a good thing.
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Legal Capacity: In addition, unincorporated DAOs have a hard time entering into legal agreements with existing legal entities. Incorporating gives the DAO the ability to enter into legal contracts, to sue and to be sued.
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How long did dOrg's legal process take?
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2-3 months
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During this time, dOrg and its legal advisors worked out a lot of details that other projects might not need to work out now. Learned a lot that should make process for new teams easier and less expensive.
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An entity can be registered through Vermont's online portal in as little as 1-3 business days.
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What were dOrg's objectives?
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Limited Liability, Legal Capacity
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Shield members from personal liability
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Not liable for other members' actions
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Not liable for the entity's debts
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Personal assets are not at risk
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Fluidly interoperate with other individuals and legal
entities
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Allow contributors to come and go
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Give other legal entities (Clients, Partners, & Service Providers) a point of contact for financial agreements
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Minimize admin overhead (paperwork, fees, official titles, board meetings, lawyers, accountants) and any interfacing with legal docs/system
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Handle all potentially contentious processes on-chain
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Including the processes for changing processes
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No need to update documents as new members are added or removed
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What are dOrg's Ownership / Governance goals?
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dOrg aimed to give its worker-members full control of the entity in a meritocratic, non-hierarchical fashion. The more value a member contributes to the company, the higher their reputation (voting power).
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As for ownership, dOrg is currently owned entirely by its worker-members. Revenues that come into the entity are allocated over time through proposals to members, contractors, and third party service providers.
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Does dOrg's legal entity have shareholders?
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The owners of an LLC are referred to as "Members". Currently there are no external investor owners, only worker-members
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Anyone with any amount of Rep is considered to have 1 share of the company
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Can the BBLLC issue out dividends?
- Shares are not considered a means of profit-sharing. In dOrg's case, the entity is designed to be zero-profit. The LLC itself won't pay taxes because there won't be profits. The only way to get money out of the DAO is through proposals.
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Does the legal entity have a board of directors?
- No it does not. The reputation holders are the ultimate decision-makers. Nothing above or beyond that.
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Who would represent this legal entity in court?
- dOrg can define administrative member(s) to act as a centralized point of contact for formal roles such as filing legal documents, maintaining a mailing address, appearing in court, etc. Members have the ability to update who this person is at any time.
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Is there KYC requirements for the DAO?
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US LLCs don't have KYC requirements for owners. Ownership can be completely anonymous.
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The only thing you need identifying information for is taxes, so you'd only need that to issue the 1099s to people the DAO is paying.
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For customers of the DAO, it has to follow the same guidelines that any other business would when dealing with customers.
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Are there any restrictions on who dOrg is able to work with?
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Just like a normal corporation, dOrg needs a tax ID of businesses it deals with.
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Corporations from countries that the US has trade sanctions on would not be able to do business with dOrg at this time.
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What are the roles within dOrg's DAO?
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Contractors - get paid by the DAO (agree to Contractor Terms & Conditions)
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Members - hold reputation in the DAO (agree to Operating Agreement)
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Customers - pay the DAO (agree to Customer Terms & Conditions)
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What happens if someone steals from the DAO?
- If someone attempts to defraud the DAO or breach existing agreements, then there is legal recourse to sue.
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Can a DAO incorporate in any other States other than Vermont?
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Technically, yes. See here for an example of a New York LLC-DAO.
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Vermont explicitly created legislation to create a new legal entity classification called the BBLLC, that permits companies to manage governance, ownership and conduct material operations on a blockchain. This provides certainty that other jurisdictions lack.
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The risk in incorporating in another State is that the legal system may not have categories or accept the legitimacy of the DAO governance decisions.
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Does the DAO need to file taxes?
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Just like any other company, dOrg needs to file taxes
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Members will pay self-employment taxes according to their own jurisdictions
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Are your incorporation documents publicly available?
- Yes, they are here.
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What is the benefit of LLC?
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Super lightweight
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Low admin requirements (annual report)
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What are possible variations in these legal documents that might be popular?
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dOrg spent months fine-tuning all the legal agreements so that full power would be vested in the reputation holders as dictated by the community governance engine (DAOstack's Alchemy Earth).
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LLCs are very flexible, so any variations to the above could be specified in an entity's formation documents (Operating Agreement)
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dOrg also chose to use DAOstack, but this approach could work for any DAO-like protocol if explained properly in the formation documents.
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Do you recommend people using these legal documents as-is?
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No, these documents are meant to serve as a useful starting point for others, but each DAO will have its own design goals and considerations.
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If interested in speaking with us about the technical, economic or legal aspects of starting your own DAO, feel free to contact dOrg on Discord or at [email protected].
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Are there any challenges you are currently running into?
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UX for maintenance / operational / admin activities
- For example, a new client comes on and signs new service agreement with them. Right now, this would require putting a document in github, then create proposal to pass it within alchemy
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Requiring a bank account to receive payments from other traditional corporations
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Next steps
- Software, templates, and guidelines to make legal DAO formation and maintenance easier.