Marshall Islands DAO LLC as a DAO Legal Wrapper: Comprehensive Guide

Complete guide to Marshall Islands DAO LLCs as legal wrappers: formation, governance models, benefits, taxation, legal and compliance implications, fees and costs involved. Create DAO legal wrapper


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 article 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 admitting the DAO’s governance token holders as members, based on the token holding criterion.

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 major activities, offering limited liability and an additional level of protection to all its members 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.

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. This type of entity is advantageous for DAOs that need to segregate different projects, assets, or business activities while maintaining a unified overall structure. Each series operates independently, meaning the liabilities of one series do not affect the others.

  • 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.

  • 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.

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.

However, entities involved in the custody of digital assets must comply with international standards for anti-money laundering (AML) and counter-terrorist financing (CTF).

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, which includes submitting a passport, proof of address and certain personal information.

For those DAOs that aren’t comfortable with revealing their core members’ identities, taking additional legal exposure or other risks, DAObox offers its signature legal wrapper management service. As part of this service, among other responsibilities, we assume positions of director and/or supervisor at the legal entity and, in this capacity, undergo identification and KYC checks ourselves. This allows the DAO members and contributors to avoid disclosing their identities or taking additional exposure. For more details on the service, please refer to the link above.

Legal wrapper formation starts with the design and preparation phase, during which we educate DAO members about the legal wrappers, including by participating in the AMAs and other events, design the wrapper in close cooperation with DAO’s core contributors, produce the necessary corporate documentation, and prepare everything required to form a legal wrapper.

After the design and preparation phase is complete, the formation and incorporation of the legal wrapper usually takes no more than 30 days.

Please refer to our Gearbox case study to learn more about how we designed and implemented a Cayman foundation legal wrapper for them, understand the roadmap and major structuring phases. You may contact us to learn more or book a free consultation, and navigate here to see our standard engagement procedure.

Operational Requirements

A RMI DAO LLC may opt to have a managing member, who would be responsible for implementing decisions taken by the members and representing the LLC before third parties, however, their appointment is not mandatory. By default, the DAO LLC is managed either by members or by smart-contracts.

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.

The price for our Marshall Islands 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 operating agreement 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. 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.


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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