Legal Wrappers for DAOs: Definition, Types, Jurisdictions, and Use Cases
Definition of a DAO Legal Wrapper
A DAO legal wrapper – is essentially a legal entity with its own distinct identity that shields the DAO and its members from legal, financial, and other liabilities, as well as enables the DAO to own property and interact with the real world.
Think of a legal wrapper as a company having its own rights and obligations, integrated into and ultimately controlled by the DAO.
Types and Forms of Legal Wrappers
Not all organizational forms are suitable as legal wrappers for DAOs. Commercial structures like traditional corporations and LLCs require owners who hold ultimate governance, which contradicts the decentralized nature of DAOs.
Currently, several organizational forms, or legal person forms, can serve as DAO legal wrappers:
DAO Foundation (DIFC).
These forms can be further divided into the following two categories, depending on how the DAO wants the wrapper to be used:
To wrap the whole DAO – DAO LLC or Association;
To act as a unit or contributor within the DAO – Foundation or Trust.
Each of these forms, except for the DAO Foundation, which is specific to DIFC (UAE), is available in different countries around the world. As each country has its laws and regulations, the specifics and peculiarities of the same wrapper form may differ dramatically across jurisdictions. For example, a Foundation in Switzerland will be very different from a Foundation in the Cayman Islands in terms of costs involved, taxation, governance, control, and flexibility.
Among the jurisdictions which are usually used as home for DAO legal wrappers are (the list is not exhaustive):
British Virgin Islands;
State of Wyoming, US.
Therefore, it is important to choose not only the legal form, but also the jurisdiction of the wrapper wisely, taking into account the specificities of a particular DAO, its requirements, goals, and the ways they want the legal wrapper to be applied.
DAO Legal Wrapper Use Cases
One of the main purposes for which DAO legal wrappers are created is to obtain legal, financial, and tax protection for DAO members, multisig controllers, and contributors. But this is only a small fragment of things a DAO can do with its legal wrapper.
The legal wrapper can be used by the DAO to manage those activities that cannot be carried out off-chain, e.g., hiring developers and contributors, making fiat payments and so forth. The wrapper can be further used to hold, manage and protect property, such as virtual assets, IP, code, trademarks, domain names, etc.
The most common DAO legal wrapper use cases include:
Entering into contracts;
Engaging in real-world transactions;
Holding and protecting intellectual property, trademarks and domain names;
Owning and managing property and assets, including crypto, fiat and even real-world assets;
Having a bank account and access to fiat payments;
Engaging and managing contributors and personnel;
Issuing grants and similar incentives;
Managing services, subscriptions, and infrastructure (cloud, service subscriptions, socials, etc.);
Improving overall reputation and appearance;
Fuelling decentralization of the whole organization.
In reality, the use cases for the wrapper are remarkably diverse, implying that it can essentially serve any purpose that the DAO deems necessary.