DAO Legal Wrappers: Definition, Types, Jurisdictions, and Use Cases

Definition of a DAO Legal Wrapper

A DAO legal wrapper – is a legal entity that a DAO employs to operate within existing legal systems, gaining separate legal personality, limited liability, and tax protection.

A well-designed wrapper essentially provides a legal framework for a DAO to interact with traditional financial and legal systems while maintaining their decentralized nature. Think of a legal wrapper as a company having its own rights and obligations, that is integrated with the DAO and its governance.

Types and Forms of Legal Wrappers

Not all organizational forms (legal entities) are suitable as legal wrappers for DAOs. Commercial structures like traditional corporations and LLCs require owners who hold ultimate governance and in whose interests the management is required to act, which contradicts the decentralized nature of DAOs.

Currently, only several organizational forms, or legal person forms, can be used as DAO legal wrappers. These are mostly characterised by ability to have no owners and shareholders.

Here are major DAO wrapper forms (entity types):

1. Foundation;

2. DAO LLC;

3. Association;

4. Trust;

5. DLT Foundation;

6. DUNA;

7. DAO Association; and

8. Company limited by guarantee.

These forms can be further divided into the following two categories, depending on how the DAO wants the wrapper to be used:

• To wrap specific activities or development directions:

  • Foundation,

  • Association,

  • Company limited by guarantee, or

  • Trust.

• To wrap the whole DAO:

  • DAO LLC,

  • DLT Foundation,

  • DAO Association, or

  • DUNA.

Almost all of these wrapper forms are 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.

Jurisdictions for DAO Legal Wrappers

Among the jurisdictions which are usually used as home for DAO legal wrappers are (the list is not exhaustive):

• Switzerland;

• Cayman Islands;

• Marshall Islands;

• British Virgin Islands;

• Panama;

• Singapore;

• Hong Kong;

• Liechtenstein;

• Guernsey;

• ADGM, RAK DAO (UAE);

• Wyoming, Utah (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;

• Engaging auditors;

• 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.

Complete DAO Legal Wrapper Guide

For additional information, structuring tips and latest updates, please navigate to our most recent DAO Legal Wrappers Complete Guide available at the link below:

Guide to DAO Legal Wrappers: Best Practices, Frameworks & Jurisdictions