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.
Following the inception of GoFundMe and similar apps, individuals were able to raise capital for projects and causes they believed in. Through the power of the internet, I could give 100 dollars to a campaign I felt especially touched by and receive the tax-deductible benefits provided by the IRS for gifts to charities. Fundraising through the internet represented a revolution in using technology to solicit tax-deductible donations. Just as GoFundMe represents a radical transformation in philanthropy, so too, do DAOs have the potential to be the next iteration of fundraising innovation.
While there are many complex and revolutionary applications for DAOs, one practical use case is a DAO dedicated to fundraising for a charitable purpose. In essence, all DAOs fundraise, but some do it for the sole purpose of philanthropy. A good example would be Ukraine DAO, which raised 8 million dollars during the start of the Ukraine-Russia conflict and was backed by the Ukrainian Ministry of Digital Transformation. Today, the DAO continues to spread awareness and donate money to the cause.
Suppose a DAO is being used as a vehicle to help fundraise. A concern these DAOs face is: Will our entity be treated as a 501(c)(3) and be eligible to receive tax deductibility status for United States citizens? Unfortunately, 501(c)(3) tax status is difficult to obtain. Each application is carefully scrutinized, and the process can take as little as a month to as much as a year.
As for DAOs, you must be incorporated to be considered for 501(c)(3) status. Many global DAOs form an entity by incorporating in the Marshall Islands or other non-US jurisdictions. The problem is that for non-US incorporated charities, obtaining 501(c)(3) status is even more difficult. However, there are still many ways a DAO incorporated offshore can provide tax deductibility to attract US donors.
These options are considered more traditional and may be less effective for incorporated DAOs than some new opportunities emerging.
These options are considered more innovative and may be more effective for some incorporated DAOs than some of the previous options discussed above.
While it may seem difficult for foreign non-profits to gain 501(c)(3) status, thankfully, there are many solutions available to solicit US-based donations. Special thanks to Endaoment and Hurwit Associates for their excellent support and providing resources for this post.
MIDAO is happy to be able to refer philanthropic DAOs to Endaoment following your incorporation with us. We believe Endaoment is solving a significant issue for philanthropic DAOs, and we can’t wait to see the positive impact they make in the Web 3 community. If you are considering incorporating as a philanthropic DAO, don't hesitate to get in touch with MIDAO. We are happy to assist you in all your incorporating needs and refer you to organizations that will help increase the positive impact you have in the world.
As a reminder, this is not legal or financial advice; it is always important to consult a CPA or lawyer for tax or legal advice. Assertions made in the article have been generalized to apply to a broad audience. Every situation is unique, and you should seek professional advice for your specific situation.