Regulations for DAOs

Do I need to incorporate a DAO?


  • "DAOs are effectively unincorporated associations. The law holds every person in the group to liability for everything the group does (through any of its members). This means that if one member purports to act for the group and gets into trouble, everyone else will be responsible and have to bear the debts.

    It is not a separate legal entity and cannot sue or be sued in its own name.

    Suffice to say, given all the above limitations, it is preferable to have an alternative structure to an unincorporated association with loose constitutional contractual terms.

    One option is to incorporate a company limited by guarantee (CLG). CLGs afford separate legal liability benefits, and can thus hold property or maintain bank accounts on its own and sue and be sued in its own name. Considered a public company, it can have more than 50 members and because it has no share capital, it must simply maintain a register of members. The practical challenge would be to administratively update the register of members (which must contain the name, address and date of obtaining membership of members) since most DAOs confer membership based on possession and control of governance tokens simplicities. Share-based membership is possible and would address this issue since people who want to be members must submit a proposal to be a member.

    Alternatively, the CLG can comprise only certain key founding members of the DAO as members and directors of the CLG; and to constitutionally provide expressly that the CLG’s members and directors must take into consideration the decisions of the DAO made in voted resolutions from time to time. Perhaps other rules could be spelt out in the constitution concerning the DAO membership."

    Source: Ronald JJ Wong (blog)