- What’s the difference between an LLC and a DAO LLC?
- How does this change the way companies can solve problems?
- What are the benefits and risks of forming a DAO LLC?
- How might one form a DAO LLC?
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Wyoming LLC DAO Overview
AND IT’S OFFICIAL!! 🤠#Wyoming will recognize #DAOs as a new type of LLC, effective July 1! Thank you legislators & @GovernorGordon for building on Wyoming’s history of inventing the LLC, which all other states followed roughly a decade later. We’re doing it again! A thread👇. 1/ pic.twitter.com/4x7VpcPTkk— Caitlin Long 🔑 (@CaitlinLong_) April 21, 2021
In March 2021, Wyoming Senate-passed Bill 38, enabling companies to structure as “Wyoming DAO” (or LAO)
TL;DR - the state senate has approved Wyoming’s DAO-focused “Bill 38”. The bill would allow decentralized autonomous organizations (DAOs) to gain legal company status in the state of Wyoming. DAOs could register themselves as limited liability companies (LLCs) and more easily engage in contracts and legal agreements.
Governor Mark Gordon signed the Wyoming DAO supplement and will be law effective July 1st, 2021.
Its passing enables businesses to operate as DAOs by legally registering themselves as limited liability companies (LLCs).
You can think of a DAO LLC as a hybrid of two concepts:
- A legal Wyoming LLC - a legit Limited Liability Company formed in Wyoming and governed by Wyoming statutes.
- A decentralized autonomous organize (DAO) - an organization represented by rules encoded as a computer program that is transparent, controlled by the organization members and not influenced by a central government.
What does this mean?
Similar to how we know some other states as tax headquarters for companies all over the world, soon Cheyenne Wyoming is about to have more cryptocurrency based companies.
DAOs are not new. But its structure has a lot of different potential, including off-chain employment, property and financial structures, and other technical and non-technical resources.
The DAO answers a lot of questions that member managed cooperatives and mom and pops never could before.
Of course, keep in mind any DAO needs to operate under legal law structure, so this is where it’s been a bit of a gray area before.
The crypto space already has an ecosystem of existing DAOs. A company called Aragon supports building Ethereum DAO orgs and soon will support Cardano and other networks.
They have a great website and lost of content to absorb and learn more about DAOs.- https://aragon.org/
What does this change?
A DAO helps solve the problem of member interest. But the Wyoming DAO supplement helps goes further and helps solve the problem of liability for participants in an organization.What is unique about the Wyoming DAO supplement is that it finally answers unknown questions such as “how to guarantee joint and several liabilities”? This means if the DAO gets sued, you won’t lose your house because of someone else’s mistake. (Well, depending on your operating agreement.)
How does it work?
The Wyoming DAO supplement applies standard Limited Liability Cooperation protections to Wyoming DAOs.
Just like an LLC may be “member managed” or “owner managed”, the Wyoming DAO supplement gives legal protection to property and capital contributions that owners have delegated. It also helps provide a way to divide member “shares” as tokens. By providing a path to list an operating agreement, the DAO enables organizations to capitalize on merging distributed ledger technologies that help solve accounting problems for the modern era.
Coupled with emerging technologies like Cardano Native tokens, members can reliably document member’s DAO activity from sources either on or off the chain. This lets you store and transfer dollars and bitcoin and maybe even your house too.
By the law, the DAO articles of organization or operating agreement must article a statement substantially in the following form:
NOTICE OF RESTRICTIONS ON DUTIES AND TRANSFERS
> The rights of members in a Decentralized Autonomous Organization may differ materially from the rights of members in other limited liability companies. The Wyoming Decentralized Autonomous Organization Supplement, underlying smart contracts, articles of organization and operating agreement, if applicable, of a Decentralized Autonomous Organization may define, reduce or eliminate fiduciary duties and may restrict transfer of ownership interests, withdrawal or resignation from the Decentralized Autonomous Organization, return of capital contributions and dissolution of the Decentralized Autonomous Organization.
What are the risks?
It’s possible that the Wyoming Secretary of state can see a project has engaged in fraud or illegal activities. As a result, it can withdraw them all liabilities’ protections against the DAO.
Unfortunately, since many DAOs will operate globally, it may be hard to gauge exactly what could be illegal. But it is safe to bet as long as your conducting legitimate business activity in according with US Law, have very little to worry about. Either way, it’s recommended to seek legal counsel, especially with someone knowledgeable about Wyoming LLC laws.
Who is eligible?
Since the DAO supplement applies common Wyoming LLC standards, it legally required you to appoint a Wyoming registered agent
To do business in Wyoming, all LLCs organized outside of the state must register with the Wyoming Secretary of State. Foreign LLCs must appoint a registered agent for service of process. The agent may be a Wyoming resident, or a business entity allowed to do business in Wyoming.
How to form a Wyoming DAO
Read the statutes
Warning: This article is based on my research and understanding of current Wyoming Law. It’s important to review this information with a lawyer. I am not a lawyer. Nor have I yet asked a lawyer to review this process. That is my disclaimer. I have warned you.
Note: Wyoming Law does not formalize DAO LLCs until July 2021. Keep in mind this process is subject to change. What I’ve supplied is a general overview of creating Wyoming LLC, and adding required operating agreements that meet current formats provided by the Wyoming DAO supplement.
To understand current requirements for Wyoming LLCs:
Read the Wyoming Limited Liability Company Articles of Organization Instructions
Read the “Wyoming Decentralized Autonomous Organization Supplement.”
Verify name compliance
Wyoming has strict name requirements, so take time to ensure the name you plan on creating is available. If you submit articles of organization with an ineligible name, you will give up your filing fee and you will have to resubmit articles and pay a standard fee.
As an overview of requirements:
- Your name must include the phrase include wording or abbreviation to denote its status as a Decentralized Autonomous Organization, specifically “DAO”, “LAO”, or “DAO LLC.”
- Your name cannot include words that could confuse your LLC with a government agency (FBI, Treasury, State Department, etc.).
- Restricted words (e.g. Bank, Attorney, University) may require additional paperwork, and a licensed individual, such as a doctor or lawyer, to be part of your LLC.
- Your name must be distinguishable from any Wyoming limited liability company (LLC), corporation, limited liability partnership (LLP), or limited partnership (LP).
To understand and check the requirements
Read the Wyoming Secretary of State How to Choose a Company Name
Use the Business Entity Search on the Wyoming Secretary of State website.
Tip: because of nature of online filing system, it’s possible someone may have taken the name you attempt to register between the time you searched and submit your documentation. You should try to submit this quickly.
Appoint a legal Wyoming Registered Agent
You do not need to live in Wyoming to create a DAO LLC. But you will need to appoint or hire a registered agent. By doing so, Wyoming's local state authorities recognize the DAO and its subsidiaries as legal entities. This allows new blockchain based companies to develop legitimate contracts and legal agreements that are enforceable in the eyes of state law.
Registered Agent services are available online and come in affordable formats.
Complete articles of organization
Per the Wyoming Secretary of state, you will need have this information ready at the time for formation:
- Name and address of the DAO LLC’s registered agent
- Mailing address of the DAO LLC
- Principal office address of the DAO LLC
- Signature and contact information for the DAO LLC’s organizer.
- A statement defining the Decentralized Autonomous Organization as either a member managed Decentralized Autonomous Organization or an algorithmically managed Decentralized Autonomous Organization (if not provided, it’s assumed it is member managed).
Pay the Wyoming Secretary of State the required filing fee
There is a onetime filing fee made payable to the Wyoming Secretary of State (Nonrefundable)
- Pay the required \$100 onetime filing fee with Wyoming SOS
- Pay the Required \$2.00 convenience fee for Wyoming SOS online filing
Start an operating agreement
You MUST being working an operating agreement with a required statement that the company is a Decentralized Autonomous Organization as described in subsection (c) of Definition and election of Decentralized Autonomous Organization status (17‑31‑104)
The Operating Agreement is where you can link to any smart contracts or blockchains that keep track of your ledger. This could be a link to a public address on a blockchain, or just a link to a website. (Sort of how a non-profit needs to post records).
Keep detailed records
Annual reports are due every year on the first day of the anniversary month of formation. If not paid within 60 days of the due date, you can be subject to dissolution.And that’s basically it. Although there are that needs to be worked out in the operating agreement and processes you need to figure out regarding how to keep annual reports, that should be everything you need to get started as an independent Wyoming DAO LLC.
You might wonder why Wyoming?
Block chain companies all over the world already register themselves as “Wyoming LLC” because of their unique structure. But this new law is very interesting. Speaking as a former resident, the ethos of digital ledgers speaks to Wyoming culture and laws, so it makes sense this is happening here. The surprising part is to see a government body respond so quickly and accurately.
Here are some the legal details on the bill that passed this year in Wyoming.
Read some research
There is a blockchain consultant team that puts together a nice dive into DAOs and how they can be optimized. You can read their paper here (it’s detailed):
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