Reserve your DAO LLC

MIDAO: A Leading Legal Entity for DAOs; A Response to the recently released White Paper “Legal Wrappers and DAOs.”

By

MIDAO

June 13, 2022

It is disappointing the Marshall Islands (RMI) was not to be mentioned in the recently released White Paper from Chris Brummer and Rodrigo Seira on “Legal Wrappers and DAOs.” It’s an excellent paper that details the importance of wrapping your DAO with a legal structure to prevent unlimited liability, and much more. However, in our opinion, it's missing one of the most comprehensive legal entity options available, the Marshall Islands Non-Profit DAO LLC.

What is a Marshall Islands Non-Profit DAO LLC? It is based on legislation passed by the Marshall Islands government with the help of the founders of MIDAO that amended the previous LLC legislation and provided clear instructions for establishing a DAO as a non-profit LLC based in the Marshall Islands. MIDAO is the registered agent on behalf of the Marshall Islands and helps DAOs incorporate using this amendment.

This law is perfect for DAOs because it accommodates a wide variety of DAOs. For example, many of the legal wrappers provided in the White Paper are based in the US, which is not a good fit for many global DAO members. The Marshall Islands is a perfect landing place for global and US-based DAOs, as it is a sovereign nation with its own independent legislature, but also a freely associated state with the United States. Therefore, the US and foreign lawyers have familiarity working in the RMI.

This graphic taken from the White Paper, and Chris Brummer’s twitter.

From the paper’s graphic we see many of the decision points are delineated by “Non-Profit” vs “For-Profit”. Any DAO that has non-profit aspirations should definitely consider a RMI DAO LLC. The law was built with non-profits in mind and only takes 1 to 2 months to set up. If one is concerned with US tax deductibility, it may be difficult to obtain 501(c)(3) status as RMI LLCs are foreign entities. It’s certainly possible, but a more proven method would be to also set up a “Friends Corp” in the US after your DAO obtains a RMI LLC. This “Friends Corp” would be eligible to receive tax deductible donations from US donors on behalf of the RMI LLC if that is your DAO’s aspiration. To learn more about how this type of corporation click here, Hurwit & Associates is a law firm that helps to establish “Friends Corps”.

Unlike what is implied by the “For-Profit” section of the graphic, many for-profit enterprises can actually leverage a non-profit entity in the RMI. Admiralty DAO (the governing DAO of the Clipper Exchange) is one example of a DAO that would be considered “For-Profit” by this graphic, but are leveraging an RMI Non-Profit DAO LLC as part of a multiple-entity system that optimizes taxes while allowing for members to profit from the for-profit entity or protocol itself. Please see the diagram below for further explanation.

If your DAO is an investment DAO with the goal of providing concrete dividends to members, keep an eye out for a new option hopefully coming from the RMI soon. MIDAO will be collaborating with the government to propose for-profit legislation in the Marshall Islands that will provide the best DAO LLC option to accommodate for-profit organizations.

In short, while MIDAO was not explicitly mentioned by the White Paper, at MIDAO we believe a rising tide lifts all boats. The paper provides incredible research on the DAO landscape and why DAOs must incorporate to protect their organization and members. At the end of the day, we would love for the RMI to be your choice for your DAO’s legal entity, but as long as your DAO is incorporated somewhere, you are protecting your members from unlimited liability. DAOs with legal entities are built to stand the test of time, and will grow the DAO ecosystem for years to come. Here at MIDAO, we believe that protecting your DAO should be easy so that you can go back to building your dream. We will continue to keep working hard to ensure that all DAOs are protected so your DAO dreams are fulfilled and the future remains bright.

Sincerely,
MIDAO
team ✌️

P.S. Be on the lookout for more blogs! We know there has been a ton of info published on legal entities and DAOs, and we plan on responding to all of them.
This is not legal advice, please consult your own attorney