MIDAO LLC Corporate Structuring Scenarios
Examples of MIDAO DAO LLC project structures, including combining non-profit and for-profit entities.
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.
Key takeaways
- A Marshall Islands DAO LLC can operate alone as a non-profit or combine with a for-profit entity such as a Delaware C-Corporation.
- In the single-entity arrangement, the DAO LLC funds, operates, and supports its protocol while distributing earnings to tokenholders and retaining non-profit status.
- In the two-entity arrangement, the DAO LLC can pay an affiliated for-profit entity for services such as protocol development or intellectual property.
- A non-profit DAO LLC pays no entity-level tax in the Marshall Islands, while a for-profit entity pays a 3% Gross Revenue Tax on revenue alone.
- Unlike Cayman structures, the Marshall Islands DAO LLC requires no local lawyer or director and provides native legal support for token-based membership and algorithmic governance.
Scenarios
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.
Arrangement 1
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.
Arrangement 2
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.
Takeaways
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.
Frequently Asked Questions
Should a DAO register as a nonprofit or a for-profit entity?
It depends on how the DAO generates and uses funds. A nonprofit entity pays no entity-level tax in the Marshall Islands and suits organizations without a revenue model; a for-profit entity pays a 3% Gross Revenue Tax on revenue only (not capital gains or dividends) and suits organizations selling a product or service. Some organizations structure a hybrid across two entities for this reason.
What tax treatment applies to a nonprofit vs. a for-profit Marshall Islands entity?
A nonprofit entity pays no entity-level tax in the Marshall Islands. A for-profit entity pays a 3% Gross Revenue Tax on revenue from products or services. It does not apply to capital gains, dividends, or investment income. An entity's owners still owe whatever tax their home jurisdiction requires on their share of its activity.
What are the core practical advantages of the Marshall Islands DAO LLC structure over comparable offshore entities?
No local lawyer or director requirement, unlike Cayman, which requires both. Native legal support for token-based membership and algorithmically managed governance. A nonprofit option comparable to a Cayman foundation at a fraction of the cost, and a for-profit option taxed only on gross revenue, not capital gains or dividends.