A decentralized autonomous organization is one where there’s no human element leading the company. In normal LLCs, members (can be one person or many) make the business decisions, but in a DAO, “smart contracts” do this for them. Smart contracts operate a little like an ITTT (if-this-then-that) program, making decisions based on a set of predetermined rules.
These smart contracts run the business autonomously, with humans only doing what is absolutely necessary legally.
DAOs are used in a wide range of businesses and organizations, from fintech to social groups, to science organizations and media. Most DAOs raise funds by allowing members to buy into the organization for a minimum investment fee or raise funds through crowdfunding. Due to the newness of DAOs and the fact that the majority of people still don’t understand what blockchain is or how it works, the majority of decentralized organizations are in the investment space.
DAOs offer unparalleled levels of safety, transparency, and efficiency for all involved. The rules of the business are laid out on the blockchain for all to see. Unlike so many other business structures, when a DAO makes a decision, all members must vote for the change, no one can overrule the others to make something happen.
The LLC element of a DAO LLC gives the members of a DAO the same benefits as the members of a normal LLC. In other words, no member of the DAO LLC can be held legally liable for the DAO itself.
When you’re dealing in business as new and unfamiliar to the masses as blockchain, failing to register your DAO as an LLC will leave the business open to legal problems that could lead to stakeholders being held accountable.
The other benefits of a DAO LLC include:
Creating a DAO LLC from the incorporation point of view is really no different than registering any other kind of business. You simply need to fill in the right forms with the right information and file them with the secretary of state in the state you want to register in.
At the time of writing (early May 2022), you can only register a DAO LLC in Wyoming or Tennessee.
Technically speaking, your DAO will need a way to handle proposals and votes (either on-chain or off), a share system or governance token (this is the way people prove their “shares”), and a fund management system, which is usually a wallet that needs multiple signatures.
DAOs avoid many of the issues businesses face due to their structure, but they’re certainly not immune from problems of their own. Here are some of the disadvantages of DAOs:
Tennessee’s new DAO legislation allows DAO LLCs to register in their state.
This legislation specifies:
Not really - the Tennessee legislature is almost identical in most ways, with a few minor differences. The differences are as follows:
No - registering in either state will give you the same result. The only criticisms of DAO LLCs affect both states and come because the language is still vague and will take some time to iron out as we move forward and see DAOs operate in the real world.
Forming an LLC of any form in your home state is easiest, so if you live in either state, register there. Since this will not apply to the majority of people reading this article, then there’s really little difference between the two. If you’re looking to move to set up your business, Nashville is becoming a technology hub, so you may find it more beneficial to live there.
Tennessee’s legislation is still very new, so it’s worth seeking expert advice about which DAO structure will be right for you. If you’re looking to register your DAO in the US, we’re here to help. We can help you decide which state to register in, act as your registered agent if you don’t reside in either state and ensure all your legal administrative tasks stay on track.
Reach out to us via our live chat now or schedule a time to talk that suits you.
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