Swiss Foundation as a DAO Legal Wrapper: Complete Guide
Introduction
Are you looking to establish a DAO and need a robust legal structure? This comprehensive educational guide explores why a Swiss Foundation can be a suitable legal wrapper for DAOs, detailing its features, formation process, costs, compliance requirements, and more.
By the end of this guide, you'll understand how to leverage a Swiss Foundation to enhance your DAO's operations and ensure regulatory compliance.
Understanding Foundations in Switzerland
What is a Swiss Foundation?
A Swiss foundation is a legal entity formed under the laws of Switzerland that blends features of corporations and trusts. In the context of DAO legal wrappers, we’re referencing the ownerless foundation – an orphan organization established by the endowment of assets for specific purposes rather than generating profits for shareholders.
Owing to these features, a Swiss foundation DAO wrapper can 'outlive' the founding team and core contributors of the project, potentially lasting indefinitely — as long as it has objectives to pursue and resources to finance operations. By having a perpetual entity, the foundation can ensure that long-term projects and objectives are pursued consistently, without disruption due to changes in the team composition or DAO contributors.
Purposes of the Foundation
Since this DAO legal wrapper is established for specific purposes which determine its objectives and activities, it is critical that the foundation's purposes are properly drafted and formulated. Purposes could include the development of a specific blockchain protocol and related infrastructure, facilitating the protocol’s decentralization, promoting and marketing the protocol and associated services, financing certain activities or endeavors, and more.
As a rule, the purposes of a Swiss foundation cannot be changed post-formation, therefore, the purposes should be broad enough to ensure that the foundation can engage in all necessary activities while restricting the authority of the directors to matters within the scope of these purposes. This ensures that the foundation remains focused on its mission and prevents any deviation from its core objectives.
Management & Governance
A Swiss foundation DAO wrapper is managed by the board of directors. Unlike the majority of foundations, it is not possible to appoint a private supervisor in a Swiss foundation – the local regulator always assumes this role is always assumed by the local state authority. This means that, in certain circumstances, the state authority could intervene in the operations of the foundation or issue instructions affecting them and the organization overall.
In an ownerless foundation, the directors owe fiduciary duties to the purposes of the foundation rather than to the interests of shareholders, which is essential for structuring the DAO and protecting its property. The supervisory body, in its turn, ensures that the board adheres to the foundation’s purposes and legal requirements.
This setup ensures that no single person can usurp power within the wrapper, and requires the management of the entity to always align their actions with the declared purposes, thereby mitigating various attack vectors.
Advantages of a Swiss Foundation as DAO Wrapper
As a DAO legal wrapper, the Swiss foundation has its advantages when compared to other forms of legal wrappers, and even similar foundation wrappers created in some other jurisdictions.
Credibility: Switzerland’s neutrality, reputation and excellence in financial matters lend credibility and trust to DAOs that establish their wrappers in the form of Swiss foundations, especially given that numerous large blockchain protocols have integrated these foundations.
Legal Personality: A Swiss foundation is an entity having its own legal personality, which allows it to enter into contracts, own property and rights, and be party to legal actions independently from its members or managers. This separation ensures that the property of the foundation is legally protected, and that it can interact seamlessly with traditional financial and legal systems.
Limited Liability: Same as any other legal wrapper, a Swiss foundation can offer limited liability protection to the DAO members and core contributors, shielding them from personal liability in relation to any acts and activities carried out through the foundation.
No Members/Shareholders: Since the foundation has no members or shareholders, it can be fully subordinated to the purposes outlined in the constitution and further integrated with the DAO governance. State supervisory authority oversees the board of directors and their performance.
Asset Protection: Assets held by the foundation are segregated from personal liabilities of its directors/supervisors and the DAO generally, ensuring robust protection against external claims. This ring-fencing of assets is particularly beneficial for DAOs managing significant digital assets or intellectual property.
No VASP Regulations. Switzerland has not yet adopted its VASP framework, which is positive in terms of compliance and regulatory implications the crypto projects are facing here. Nonetheless, traditional financial, securities and other laws may be applied based on the so-called ‘substance over form’ approach.
Legal and Regulatory Compliance
Economic Substance
Switzerland has economic substance regulations that local entities must comply with if they are engaging in certain relevant activities, which includes banking, insurance, fund management, finance and leasing, headquarters business, shipping, holding company business, intellectual property business, distribution and service center business.
These regulations are designed to ensure that entities benefiting from Switzerland’s favorable tax regime have a genuine economic presence in the country. Entities subject to the ES regulations must demonstrate substantial economic presence in Switzerland, which may include maintaining a physical office, hiring local employees, and conducting core income-generating activities within the jurisdiction.
Financial and Securities Laws
In Switzerland, traditional legal frameworks governing securities, financial services, and regulated instruments may be applied to crypto- and blockchain-related activities.
The Swiss Financial Market Supervisory Authority (FINMA) provides comprehensive guidance on these matters, ensuring that activities related to cryptocurrencies and other blockchain-based financial services comply with existing regulations. In 2018, FINMA issued guidelines on the regulation of ICOs in Switzerland, emphasizing the need for compliance with existing financial market regulations. They further offer guidance on the types and legal qualification of blockchain tokens, application of the Swiss regulations to the businesses and transactions involving virtual assets, and other associated matters.
UBO Reporting
A Swiss foundation is required to identify and report its ultimate beneficial owners (UBOs). In Switzerland, the ‘UBO’ refers to any individual with significant control over the foundation, typically holding 25% or more governance or voting rights, or otherwise exercising control over the entity. If no such individuals exist, senior managing officials must be reported instead. The UBOs are required to undergo identification and KYC screening, which includes submitting a passport, proof of address and certain personal information.
Taxation and Tax-Exempt Status
For-Profit vs. Non-Profit Swiss Foundations
Typically, the Swiss foundations established for purposes associated with blockchain or cryptocurrencies cannot qualify as non-profit entities. This means that, as a rule, any ‘blockchain foundation’ in Switzerland would be considered for-profit, requiring proper accounting and payment of taxes.
This is because in Switzerland, only a foundation serving public interest with clearly defined non-profit purposes can gain a non-profit tax status. However, when a foundation is created for purposes associated with a particular blockchain project, token or protocol, the above requirements aren't considered met.
Taxes and Rates
In Switzerland, the DAO foundation would be required to account for and pay taxes. The taxes include federal tax, as well as cantonal and communal taxes.
Records & Reporting
Generally, Swiss foundations are required to maintain accurate financial records and comply with the local accounting standards, which includes preparation of annual audited financial statements. Audit is nor required if the foundation’s assets did not surpass CHF 200,000 during the last two years and it’s not asking for donations publicly.
If the foundation’s assets exceed CHF 20 million, revenue exceeds CHF 40 million, or number of employees exceeds 250 individuals (provided that at least 2 of 3 criteria were met), the foundation may be considered ‘large’ and subject enhanced audit requirements.
Creating a Swiss Foundation DAO 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 Swiss foundation company 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)
Post-formation phase (completing formation, appointing management)
Operational Requirements
The capital of a Swiss foundation must be no less than CHF 50,000. It can be contributed following the date of incorporation, and can be provided in any form, including fiat, virtual assets and other property. If contributed in form other than cash, the value of contribution must be appraised.
A Swiss foundation must at all times have at least one director who is resident in Switzerland. A director can be either an individual or a body corporate. In case a DAO does not have a local resident who could be appointed as director, a nominee director may be engaged.
The foundation is further required to maintain a registered office within Switzerland at all times. Every year, the foundation must complete corporate continuation, which includes making the necessary filings and reportings, payment of the government fees, registered agent fees, and associated expenses.
Pricing: Cost of Swiss Foundation DAO Legal Wrapper
The price for our Swiss Foundation DAO wrappers begins at $14,500. 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.
Conclusion
A Swiss foundation can become a reliable DAO legal wrapper, existing in one of the most prestigious and credible ‘crypto-friendly’ jurisdictions globally. It can offer both legal recognition and legal/financial protections to the DAO.
Contact DAObox or schedule a free consultation to learn more and embark on your journey towards a secure, compliant, and efficient decentralized organization.
Last updated