This is an early proposal for the legal identity of the DAO. Please add feedback.
https://docs.google.com/document/d/1y4-JapU93qzpEvBtPXLlf1sc-w927gtf_xO1QhLlB3M/edit?usp=drivesdk
Thank you
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I went through the document and it feels to me that only the USA has been considered in the analysis. The USA has a very complex legal and fiscal system. If we are a global DAO, why not incorporating offshore, in a more friendly and easy jurisdiction?
Perhaps you already had enough discussion around this in the Legal Guild, and if thatās the case maybe you could summarize the reasons why you discarded all other options.
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Thanks. I am only familiar with US laws. Iām 100% open to foreign options. My goal is to bridge the centralized world with the decentralized world. I also want to minize any legal recourse and minimize taxes as much as possible. Please send me info on other options you feel can do this. Iām happy to research.
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My two gwei
Your concerns are valid and I am glad the legal guild is working on this and wanted to bring it forth to the community.
Thoughts on proposal:
Overall really like the approach and agree that having an llc, coop, and
nonprofit makes the most sense because of all the points you highlight.
As for my feedback:
With freelancers/contractors
I think their payment options should be more restrictive.
What I mean by this is they should not have full autonomy
on how they get paid and what proportions unlike full members
who may have more rights into their compensation. I personally would rather burn
stablecoins or BANK on a freelancer than eth. That eth could be staked instead by the DAO.
I think their payment options should be more restrictive.
What I mean by this is they should not have full autonomy
on how they get paid and what proportions unlike full members
who may have more rights into their compensation. I personally would rather burn
stablecoins or BANK on a freelancer than eth. That eth could be staked instead by the DAO.
Interns
Be really careful with the language here. When I ran my own tech bizz for a while in u.s. we had interns and had to make sure we were not āpromisingā them a job pending on stipulations.
Employees
Think this all makes sense but logistically how we will facilitate payroll?
Iām thinking if we have hundreds of people all wanting different proportions
of Eth, $BANK, or stablecoins how are we going to accommodate so much variation?
Way I see it we will need to find an application to manage something like,
build one ourselves, or simplify and perhaps offer a handful of predetermined customized options
Concerning LLC
āSince the LLC is owned by the Corporation and the Non-Profit, the tax return would create 2 K-1s that pass through to those companies.
None of the members would pay any income tax on profits made by the DAO.
Each member would be responsible for their own income tax based on earnings paid out to them through the DAOā
So how would this work if say I decided to get Opolis and effectively became my own corp. How would that interaction look like? I would assume many contractors may have their own entities.
Nonprofit
Making Board member selection voted on by DAO members is essential.
I see a lot of nonprofits fail with a bad board. Board members should
be expected to contribute up front capital investment as well
when taking an elected position (very common for board members
to give a small donation for taking a role nothing huge but a sign of good faith).
I think we should make sure our profits that our passed to nonprofit
are used for things like community outreach, education programs, nft drops
and creative fundraising events that use defi. We should not being
throwing big salaries at the nonprofit leaders which I see happen a lot with nonprofits.
In the U.S. (as you know Iām sure) we can even lose our nonprofit status
if we overpay nonprofit executives.
Bankless Member Coop
Concerning point 3 āThis would be a private held corporation.
Membership would require purchase of shares using $Bank.
We would also require proof of contribution to the DAO.ā
Are you saying that we use $BANK to buy our shares? What are āsharesā in this context?
I donāt want to use my crypto to by crummy fiat. Iām worried that this one transaction could create a lot of centralization and inequality.
1 vote regardless of shares is essential to stay decentralized so glad
that is how it is structured.
Concerning point 7 āThere would be an annual fee, payable with $Bank only.
This ensures that only active members are granted rights to vote and profit distribution benefits.ā
Iām not sure how I feel about this. That changes are membership requirements to
$35k BANK + yearly fee. I think if we do a yearly fee we should keep it rather
small. Time is the most valuable resource we all have and many of us are spending a lot on this (Iām writing this at 1am ET currently).
Following up to this concerning point 11 āNo-one is required to be a member of the Cooperative.ā
So all Coop members are BANKLESS members but not all BANKLESS members are coop?
Really great progress but as you say towards the end this is a huge undertaking. I think we should def
allocate time and resources to ensure we get all the needed consultation and do this right.
Last question, have we reached out to other DAOs and their legal teams for advice/examples?
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Freelancers/Contractors
I only mention other forms of payment because contractors may not be interested in $Bank. Ultimately, it would be the members decision on what form we agree to pay with. I agree I would rather pay with $Bank or Stablecoin. These would be negotiated engagements.
Interns
Agree, interns is a delicate term. That said, there is absolutely no promise of a job. It would be made clear ahead of time in the āStart Hereā section for all new interested potential members.
Employees
Honestly, we arenāt going to have very many employees to start. Maybe 1-2 to begin with and depending on the growth, I can see maybe 5-10 full/part time employees in a yearsā time. Everyone else is paid $Bank and 1099d at the end of the year.
Concerning LLC
If you wanted to be your own corporation, then you would be a contractor, not an employee. You would bill the DAO for services and we would pay you for your services. Then, you would be responsible for your own payroll, and your own taxes, etc.
NonProfit
This would be part of the articles of incorporation. We would decide ahead of time what percentage of funds can be used for wages. Iām thinking wages are limited to 25% of previous year profits. Then there will be bonuses to be paid out if there is a good year, not to exceed 25% of current year profits (including wages paid YTD). So if the profits for the previous year was $50,000 the annual salary for all employees has to be $12,500 or less (1 employee at that rate). If the current year was showing profits of $100,000 ā we could choose to grant bonus, not to exceed $12,500 totaling $50,000 for the year or 25%. Just an example.
Co-Op
By using $Bank, it helps to ensure that only active member want to be member owners of the coop and not just some whale wanting a piece of a growing business. The only way to get $Bank is by helping out the DAO, which is another requirement. I think it would help prevent people from just buying their way in.
Most of the $Bank would be paid back to the members in a dividend anyways. It doesnāt have to be $35,000 $Bank. We could set it to be 10,000 $Bank initial membership purchase and an annual renewal of 500 $Bank. All to be decided by the DAO.
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I think this is a great idea. I will look into that. Any DAOās in particular you think I should contact?
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Sounds interesting project. I would like to help if needed.
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I agree with cryptomooniac, I believe as a decentraliced organization one of our biggest advantages is that we are not necessarily bound to one particular jurisdiction. As such if we find the need to establish a legal identity I believe we should choose wisely and try to find a jurisdiction that is crypto friendly and allows for maximum flexibility when it comes to the DAOs operation.
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Have you considered Wyoming given their recognition of a DAO as a special form of LLC. Not perfect, but it seems like progress. Regulators Everywhere Should Follow Wyomingās DAO Law
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Sure. As an international DAO maybe we have people in the Legal Guild based in other jurisdictions that might be willing to help. I am not an expert by any means, however have read recently a lot regarding internationalization and residences (I am looking to leave my country in the near future) and as part of that there have been some articles and videos Iāve seen regarding offshore company formations and the potential advantages. Since Bankless is global and not tied to a group of individuals that are resident in any country, I believe that there might be several advantages to set up an offshore structure in a reputable place, with lower capital requirements, lower taxation (or nil for foreing sourced income) and high level of confidentiality.
I wish I could help, but as mentioned, I am not expert. I still think it is worth exploring though.
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I am not sure if that would hold. Think about global tax. It does not matter where you āregisterā your ID, as American you pay tax in USA.
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Yes, I think as American you have to pay tax in America no matter where you are. But I was more thinking about taxes the DAO has to pay on profits generated from treasury investments. Or even simple exchanges of treasury funds for example like the proposed option for dao employees to exchange part of their āsalaryā into different crypto currencies at no cost from the treasury. Wouldnāt that create a taxable event for the dao each time?
Or possible implications of SEC regulation when it comes to ideas like profit sharing of DAO revenue. For example I have seen the idea floating around to create something like unconditional basic income. Wouldnāt this be considered dividend payment by the SEC?
Another question I have is what the regulatory requirements would be for non Americans to become DAO full time employees. Is this easily possible when registered as a LLC or are there restrictions for some people? And will this create extra beaurocratic load like getting a tax id for a foreigner, is there a sponsorship by the employer necessary to have this done? What additional costs would this create compared to hiring American nationals?
Also some countries donāt demand income tax payment from their citizens if they do not live in the country. In that case they would have to pay taxes in the country they live in, and depending on where they are employed, possibly also to the country they are employed in. I am not sure if this would be the case for the US. For those of us who are not forced to pay taxes in their home country if living outside, it could be beneficial to have a residency in a country that does not tax crypto gains.
If the dao would be registered in a country that does not tax crypto gains and also allows for easy residency the dao could even help its members as a spring board to get set up there. This way if you chose to have a residence there you would not be taxed. In this case all you have to worry about is if you have to pay taxes in your home country (which you have to worry about in any case).
Those are just my thoughts and concerns and I am by no means a legal expert. But I do have many years of experience living and working in different countries and was therefore exposed to a fair deal of bureaucratic intricacies. Personally I would love to see the dao become a place that makes it easy for people from around the world to become part of and get to work, ideally by providing a legal set up that is as uncomplicated and inexpensive (in terms of dao operation) as possible, as well as being as inclusive as possible. I think the proposal is very good and thought out for the US case but I believe further research is required to be able to consider other options and make a thorough comparison of the options out there.
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Why have employees at all? vs. Contractors supported by Opolis?
Employment relationships, fiduciary duties, and employment law compliance risk creates a rivalrous dynamic between the entity and the employee which tends to (rightfully) centralize too much power into compliance functions (legal/HR/finance) to manage that risk. Replicate the old model and youāll get the old model just digitized. DAOs have potential to be so much more and we need to consider empowering the āfull-time contributorsā ā note I donāt use the language of employee ā and allow them access to solutions to manage compliance w/ tax laws but avoid becoming to āpaternalisticā in our relationship between entity and labour. Appreciate that weāre looking at an entity and think this is a necessary stepā¦but letās try to be careful to keep the liabilities and domains directly managed by the entity super thin.
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Follow up for you. Is there anything in my proposal that is limiting anyone?
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I would be happy to use Wyoming for the LLC portion of my proposal. I just donāt believe using an LLC as the sole shell for DAO is the best choice for the reasons explained in the proposal.
Again, Iām happy to look into options. If anyone has options for me to look into, please forward me source links.
Correct. Everyone will be responsible for any earnings they make in the location they live in. My goal was to make sure the proposal allowed for foreign ownership, which it does.
I donāt know much about sec laws. I think because the $Bank token would e a utility token, and membership is private, we wouldnāt have to worry about sec regulations.
If we try and sell tokens to the public or make them a security token, then weāll have to register with the sec.
But I am anxious to talk with someone with securities knowledge.
90% of the payouts would be in the form of 1099s. The non-profit and Coop are required by law to pay their board members as employees. Weāre talking only 2-6 employees. It wouldnāt be a rather small portion.
And paying employees is 100x safer to the organization. Iāve had several instances of companies trying to ācontractā employment only to get audited and forced to pay 10ās of thousands of dollars in back taxes as a result of improper classing employees as contractors.
Making everyone a contractor is a game of Russian Roulett.
We have the chance here to transcend the legacy system and operate purely in the digital space as a global organization and I donāt think itās worth it to work on, sometimes conflicting, integrations with hundreds of nation states for payrolls and other things that should be simple with any extra details handled by the paid party on their end. This is a requirement anyway as some people will be anonymous and thus it will be impossible to integrate with their unknown legacy systems. Letās keep things simple and efficient and just be as honorable as we can.
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