Marshall Islands DAO LLC as a DAO Legal Wrapper: Comprehensive Guide
Introduction
Are you looking to create a legal wrapper for your DAO or Web3 organization and considering a Marshall Islands DAO LLC for these purposes? This educational guide by DAObox explores why DAO LLCs in the Republic of Marshall Islands (RMI) can be an excellent legal wrapper for DAOs, detailing their features, formation process, costs, and compliance requirements.
By the end of this guide, you'll have a clear understanding of how to leverage the Marshall Islands DAO LLC to enhance your DAO’s operations and regulatory standing.
Understanding Marshall Islands DAO LLCs
What is a DAO LLC?
A DAO LLC – is a limited liability company that integrates decentralized governance and can recognize DAO token holders as members. One of the most essential features a DAO LLC offers is the ability to recognise and admit token holders as DAO LLC members based solely on the token holding criterion, without additional compliance or onboarding procedures.
The ability to admit token holders as members enables full integration between the on-chain DAO and the off-chain LLC, whereby the members of the DAO become the members of the DAO LLC. This way, the DAO LLC can essentially wrap the entire DAO and its members, offering limited liability and an additional level of protection to all its members and core contributors by default.
Recognition of Token Holders as Members
Membership in the DAO LLC can be based on the token holding criterion and tracked on-chain, with the blockchain (distributed ledger) being the primary source of information about the members and their membership interest.
This permits the DAO LLC to admit as members all persons holding the governance tokens, without requiring them to complete onboarding formalities or undergo KYC. Such a setup further facilitates potential membership transfers, which would occur simultaneously with the transfer of applicable tokens.
Governance & Management
Governance in a Marshall Islands DAO LLC is highly flexible and can be adapted to meet the specific needs of the DAO and conform to their existing on-chain governance and procedures.
Nonetheless, the management and corporate procedures in a DAO LLC vary dramatically depending on the specific type of wrapper, as discussed below. For instance, in a member-managed organization, governance would vest in the members, while in an algorithmically-managed one, it would vest in the smart contracts. Similarly, a DAO LLC may or may not have managing members authorized to represent the DAO before third parties and conclude legal agreements, and so on.
In its baseline setup, a RMI DAO LLC has no directors or officers, which may further enhance the decentralisation of the DAO.
Types of Marshall Islands DAO LLCs
Depending on specific features or parameters, DAO LLCs, as a DAO legal wrapper form, can be divided into several categories as follows:
Depending on Governance Model
Member-Managed: In a member-managed DAO LLC, governance is exercised by the members through voting, often based on their token holdings. This model is suitable for DAOs that prefer direct member involvement in decision-making processes, ensuring that all members have a voice proportional to their stake in the DAO.
Algorithmically-Managed: In an algorithmically-managed DAO LLC, governance is exercised by the DAO’s smart contracts rather than by the members. This model relies on pre-programmed rules and conditions encoded in smart contracts to make decisions and is ideal for DAOs that prioritize automation and wish to minimize human intervention in their governance processes.
Depending on Tax Status
Non-Profit: A non-profit DAO LLC operates in a virtually tax-free environment but is prohibited from distributing any funds or property among its members. The income and earnings of the DAO LLC are not taxed in the Marshall Islands, and the entity is not required to report its revenue or complete regular filings.
For-Profit: A for-profit DAO LLC is subject to a 3% tax on gross revenue and must report its financials annually, but is allowed to make distributions among its members. Earnings, including interest received, are subject to tax, while capital gains and dividends are excluded from taxable income.
Depending on Corporate Type
Ordinary LLC: An Ordinary LLC operates as a traditional limited liability company, providing limited liability protection to its members.
Series LLC: A Series DAO LLC in the Marshall Islands allows for the creation of multiple, distinct series within a single LLC, each with its own separate assets, liabilities, and governance structures:
Each series is essentially a separate 'legal entity' with its own assets and liabilities;
Each series operates independently, meaning the liabilities of one series do not affect the other series or DAO LLC in general;
Series can be effectively used to segregate different projects, property, or even siloed high-risk activities from the DAO LLC and its property.
Advantages of a RMI DAO LLC as Legal Wrapper
Native Legal Framework: The RMI DAO LLC Act established a special legal framework for these entities, tailored specifically to decentralized governance and Web3 operations. A special framework ensures that RMI DAO LLCs can operate as intended in their constitutional documents and helps avoid legal ambiguities that can arise in jurisdictions lacking specific DAO regulations.
Legal Recognition: Every DAO LLC is recognized by default in the Marshall Islands and has its own separate legal personality. This recognition grants DAO LLCs the ability to enter into contracts, own property, and sue or be sued in their own name, providing a solid legal foundation.
Elective Tax Status: Every DAO LLC can elect its own tax status and choose to operate as either a for-profit or non-profit entity. For-profit entity pays 3% tax on its gross profits, but is permitted to make distributions amongst members. Otherwise, a non-profit entity may be used.
Governance Flexibility: This entity can be highly customized to fit the specific needs of the DAO, which includes integrating traditional management procedures with on-chain governance models, decentralized voting mechanisms, and smart contracts. The flexibility ensures that the DAO can maintain its decentralized nature while complying with legal standards.
No VASP Regulations: Currently, the Marshall Islands have not introduced the VASP regulations, which substantially reduces legal and compliance requirements applicable to Web3 entities. Nonetheless, RMI DAO LLCs cannot engage in custody of virtual assets and financial assets on behalf of others.
On-Chain Membership: RMI DAO LLC can recognise token holders as the LLC members, without requiring them to complete onboarding, identification or KYC procedures. This allows the DAO LLC to potentially wrap the whole decentralized organization and not only certain siloed activities or transactions performed through the wrapper.
Legal and Regulatory Compliance
VASP Regulations
While the Marshall Islands is progressive in its support for DAOs, it currently does not impose specific Virtual Asset Service Provider (VASP) regulations on DAO LLCs. This absence of stringent VASP laws allows DAO LLCs to operate with fewer compliance burdens related to virtual asset transactions, fostering innovation and growth in the blockchain space.
Entities involved in the custody of digital assets must comply with international standards for anti-money laundering (AML) and counter-terrorist financing (CTF).
Note, however, that while a RMI DAO LLC cannot engage in the custody of digital assets, it may still support organizations that conduct such activities.
Financial and Securities Laws
The Marshall Islands applies multiple regulatory frameworks to traditional financial and securities markets, and these can extend to activities involving virtual assets depending on their nature. DAO LLCs must be aware of how these financial and securities laws might impact their operations.
Nonetheless, as a rule, the local securities laws apply only in the instances of selling securities to the citizens of the Marshall Islands.
UBO Reporting
A DAO LLC is required to identify and report its ultimate beneficial owners (UBOs). In the Marshall Islands, the ‘UBO’ refers to any individual with significant control over the DAO LLC, typically holding 25% or more governance or voting rights, managing members and officers, if any. Managing members and officers of the DAO LLC, if any, are normally considered UBOs. There is a requirement to identify at least one UBO, who is required to undergo identification and KYC screening.
Creating a Marshall Islands DAO LLC Legal Wrapper
DAObox's mission is to equip decentralized organizations and Web3 communities with the comprehensive tools and services that resolve their major legal, operational, and governance pains. Every service we provide is designed to solve specific challenges DAOs face. Our ultimate aim is to enable DAOs to focus on what they do best: building, scaling, and innovating, while DAObox provides comprehensive operational support, strategic guidance, and specialized advice to help them navigate complex regulatory landscapes with confidence.
Our services are designed specifically to resolve the regulatory uncertainties, operational inefficiencies, and compliance risks that hinder your innovation and growth.
By engaging DAObox, the DAO gains access to:
Top-tier DAO wrapper structures globally
Transparent, fixed, and all-inclusive fees
In-depth cross-border intelligence
All major wrapper forms and jurisdictions
Bespoke, turn-key solutions
Co-hosted AMAs and community events
Learn more about DAObox, our unique service offerings, and how we resolve major pains and challenges for the DAOs:
Formation Procedure
Although this depends on a number of factors and circumstances, generally, the procedure for forming a Marshall Islands DAO LLC looks as follows:
Discussion of the initiative within the DAO. May include co-hosted AMAs and community events, forum or discord discussions, etc., which allow to map the DAO interest
If the DAO shows interest, DAObox puts up a proposal, which is then put to vote (on Snapshot or otherwise)
Once proposal passes, the DAO allocates the approved formation budget to DAObox
Preparation phase (wrapper design, governance and procedures)
Formation phase (incorporation, state registrar). Registration usually takes up to 30 days after the date of filing
Post-formation phase (completing formation, appointing management)
Operational Requirements
A RMI DAO LLC is not required to have officers or directors, and can be fully member-managed or algorithmically (smart-contract) managed. Nonetheless, the entity can have a managing member, who would have a limited authority to deal with corporate actions, continuations, reportings, etc., or even execute agreements based on the DAO resolutions.
Furthermore, a DAO LLC must at all times maintain a registered office address and registered agent within the Marshall Islands. Every year, the DAO LLC must complete corporate continuation to be renewed for the next year of operation, which includes making the necessary filings and reportings, payment of the government fees, registered agent fees, and associated expenses.
Pricing: Cost of Marshall Islands DAO LLC Legal Wrapper
The price of a RMI DAO LLC wrapper begins at $12,500. This is DAObox’s all-in-one legal wrapper establishment fee, which includes:
Designing the DAO legal wrapper, developing corporate architecture tailored to a DAO’s specific needs, requirements and existing on-chain procedures;
Developing and implementing the necessary internal controls, checks and balances, and emergency procedures;
Drafting all requisite corporate documentation, including memorandum and articles of association, and related corporate actions;
Integrating the legal wrapper with the DAO and its on-chain procedures;
Coordination and collaboration with the DAO’s core contributors, participation in AMA sessions, continuous guidance and support;
All associated costs, including formation fees, first year’s government fees, registered agent’s services, and registered office cost.
With DAObox, you make a single payment with no additional costs incurred throughout the process. We ensure transparency and accountability at all stages.
Note, however, that for a RMI DAO LLC, the final set-up fees would depend on the combined size of treasury and financing raised before the formation.
Conclusion
A Marshall Islands DAO LLC provides a robust and flexible legal structure for DAOs, offering legal recognition, limited liability, and a tax-neutral environment. By carefully designing the DAO LLC’s governance and ensuring compliance with local regulations, DAOs can leverage this structure to enhance their operations and achieve their strategic objectives.
Contact DAObox or schedule a free consultation to learn more and embark on your journey towards a secure, compliant, and efficient decentralized organization.
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