A DAO or a decentralized autonomous organization is one of the unique concepts successfully developed through blockchain technology. In 2016, a group of developers created this system to automate decision-making on cryptocurrency transactions and other digital assets.
Unlike traditional business structures, DAOs operate with no central authority. Instead, they rely on a series of smart contracts to execute predefined conditions and agreements. This digital asset innovation embeds everything into the code and eliminates hierarchy hurdles or manipulation of investor funds.
Nonetheless, the code used in the first DAO on the Ethereum Blockchain had certain issues. On June 17, 2016, hackers found a flaw in the coding and stole around $50 million worth of ether (ETH), Ethereum’s cryptocurrency. But DAOs have made great strides since then.
In 2019, the launch of Moloch DAO gave new life to the DAO ecosystem, attracting a lot of attention in the Ethereum world. Several other experiments like Aragon, dxDAO, and Kleros came out and resulted in better programming standards. But it was not until the rise of Decentralized Finance (DeFi) in 2020 that new interest in decentralized autonomous organizations stirred up.
Today, DAOs are being used for a variety of purposes. Charitable organizations could use them to accept donations from anyone in the world. Freelancers can create a network of contractors who invest their funds for office spaces and software subscriptions. These decentralized autonomous organizations could also be another way to form an LLC (limited liability company).
It used to be that the legal framework for DAOs barely existed. There was no protection for investors and stakeholders against legal liability for the actions of the DAO.
But in April 2021, for the first time in US history, the State of Wyoming passed a law giving DAOs a legal status as LLCs. It's an add-on to the current Wyoming Limited Liability Company Act.
The new Decentralized Autonomous Organization Supplement allows DAOs to incorporate as limited liability companies (LLCs). As such, members of a DAO Wyoming LLC have the same legal protections extended to traditional LLC members.
Starting a DAO LLC in the state of Wyoming is the same as forming a regular Limited Liability Company. It still involves filing articles of organizations online or by mail and hiring blockchain attorneys when necessary. Read on below to know more about these steps.
You can form a DAO LLC in Wyoming by first filing your Articles of Organization with the Wyoming Secretary of State. It's a document that officially starts your DAO LLC in Wyoming. The person filing the Articles of Organization doesn't have to be a member of a DAO.
But like the traditional LLCs, every DAO must have a registered agent in the state. One of their roles is to accept legal documents on behalf of the DAO LLC if it gets sued.
The new DAO supplement requires a DAO LLC's Articles of Organization to include the following:
According to the DAO supplement, you must also amend these articles when there's an update or change to the DAO's underlying smart contracts.
You can file a DAO LLC's Articles of Organizations online. This is highly recommended since it's easier and faster. However, you are only allowed to file online if:
If you meet the requirements mentioned above, you can register your DAO LLC by visiting the Wyoming Business Center. Once you're there, click start now. Then from the dropdown, choose "Limited Liability Company (Domestic)" and accept the terms and conditions.
But here are some essential points you need to keep in mind before filing your DAO LLC's Articles of Organization online:
If you're filing online, you're responsible for running a search for your business name. It is to make sure that no other entities on record have the singular or plural form of the name you will register. Ensure that you understand the naming requirements for DAO LLC.
The state of Wyoming is very particular about business names being unique. Remember that online filing is non-refundable. To make sure that your DAO LLC name is available, search it on the Wyoming database. Once you're there, change "starts with" to "contains," then begin the search.
As previously mentioned, you have to select a registered agent for your LLC before you can file the Articles of Organization. The LLC's registered agent must be a resident and have a physical address in Wyoming. Note that PO boxes are not allowed. Their address must be a street address in Wyoming.
Based on the Wyoming LLC Act, you have three options when choosing the registered agent. You can be the LLC's registered agent, appoint a friend or family member, or hire a registered commercial agent.
Mail is another way to file your DAO LLC's Articles of Organization in Wyoming. But note that this is your only option if your DAO LLC name:
You need to use the DAO-specific form if you're filing by mail. The requirements are the same as the online filing, except that you need to fill out the paper form and mail the DAO Articles of Organization to the Wyoming Secretary of State. Also, you need to include a check or money order to pay for the fees.
Once you've filed your Articles of Organization, below are some other steps you need to take:
This agreement outlines how to manage the company, who has ownership, and the roles of the DAO members. It protects the operations of the business.
Having an operating agreement is not a legal requirement to create an LLC in Wyoming. But having one is a great idea to establish clear rules and expectations for your LLC. You can start your operating agreement before, during, or after filing your DAO Articles of Organization.
The operating agreement will not be filed with the state. You will only keep it in your LLC's private business records.
An Employer Identification Number (EIN) is a unique nine-digit number to your LLC issued by the IRS (Internal Revenue Service). It's like a social security number for your organization. The IRS uses it to identify your business for tax and filing purposes.
If you need to open a separate business account or apply for certain permits, EIN is a requirement. When you request your EIN, you have to provide the date of DAO LCC formation and the legal name. Therefore, you cannot get an EIN without officially forming your LLC.
Once you set up a decentralized autonomous organization LLC in Wyoming, filing an annual report is also necessary. Doing so will keep your Wyoming LLC in good standing with the Wyoming Secretary of State. Meanwhile, your LLC will be subjected to dissolution if you fail to file or pay within 60 days of the due date.
Like the Articles of Organization, you can file your Annual Report online or through the mail. But whatever way you choose, you're required to fill out the Annual Report online. Then you can submit the file electronically and pay online. Or you can print the form and mail it together with a check or money order.
Depending on the industry you're in, you may need to acquire a business license or permit after forming your DAO LLC. Licenses or permits are required for various business activities on the federal level. Not complying with these requirements may result in penalties and fines.
The taxes for your DAO LLC can be complicated. Thus, it's always best to consult with a tax professional. But as a limited liability company, you're required to pay the license tax for the Annual Report.
You will only pay the $60 annual fee if the value of your total in-state assets is less than $300,000. Meanwhile, if the value exceeds $300,000, you multiply it by .0002, and that's what you're going to pay. You can visit the Wyoming Department Revenue for further information on taxation.
Hiring an attorney is not a legal requirement when starting a DAO LLC. But doing so gives you several advantages. An attorney can draft your Articles of Organization and ensure compliance with Wyoming State and DAO supplement. This makes for fewer administrative hassles and paperwork for you.
If you decide to hire an attorney, we recommend you work with someone who has a background in blockchain and relevant DAO legislation.
The initial filing fee for DAO Articles of Organization in Wyoming is $100. But if you file it online, there's an additional $2 for the convenience fee. After the initial payment, you will need to pay for an annual report, which costs a minimum of $60 every year.
If you need to hire a Registered Agent in Wyoming, you may need to pay more. Most commercial registered agents in Wyoming charge between $100 and $300 every year.
You can also hire a company to process your DAO LLC documents for you. It may add at least $100 to your cost, but it will save you from too much paperwork and headaches.
Incorporating DAO companies in Wyoming can be tricky, especially if you don't know what to do. But don't worry, doola is here to help you understand and comply with DAO legislation. We have all the valuable information you need to set up your DAO as a legal entity in Wyoming or any type of business anywhere in the US.
Contact us today and let us know how we can assist you.
A member-managed DAO LLC is the same as a member-managed traditional LLC under the Wyoming LLC Act. If the DAO LLC is Member-managed, all members have responsibilities for the management of the DAO.
If you file your Articles of Organization through the mail, the approval can take 4 to 5 weeks. This includes the 10 to 15 business days processing time and when your documents are in the mail. But if you do it online, you can be approved immediately provided that you meet all the requirements.
Below are some examples of DAOs:
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