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Forming and Operating a Wyoming DAO LLC – 5 Things You Must Consider

Experienced DAO Team

Are you considering forming a DAO but are unsure on where to incorporate, how operating a DAO will affect your liability exposure, and how to maintain compliance? Are you considering a Wyoming DAO?

If so, then do not wait any longer to get in touch with an experienced team of DAO attorneys to advise you DAO operation, processes, and compliance obligations.

DAOs are not like traditional corporations when it comes to limited liability. If incorporated in a state that does not recognize a DAO, you could potentially expose yourself to unlimited liability.

As a result, many individuals are turning to Wyoming for DAO incorporation since Wyoming specifically recognizes a DAO as a legal entity.

At Oberheiden, P.C., we have a dedicated team of attorneys who are experienced and knowledgeable about DAO incorporation, formation, and operation in Wyoming.

Are you considering operating a DAO in Wyoming? Then get in contact with us today. Put Oberheiden, P.C. on your side today to resolve your concerns and boost compliance.

What is a Wyoming DAO?

In April 2021, the Wyoming Governor signed into law Senate Bill 38. Effective July 2021, the state of Wyoming officially started to recognize a DAO LLC as a legal entity, thus allowing them to be formed and operate in the state.

DAOs are decentralized entities that use blockchain technology for their governance and operation. DAOs are not dependent on nor rely on centralized parties in any sense.

The rules of the DAO are enforced on computer program by a set of rules controlled by the member-owned and member-managed community of users. These users can be located anywhere in the world.

Wyoming´s new law is a significant positive step for the blockchain technology and cryptocurrency industry because Wyoming became the first state to clarify the legal status of DAOs.

Forming a Wyoming DAO

An individual can form a DAO LLC in Wyoming. The process is relatively straightforward. The individual must sign and deliver the original articles of incorporation and one copy of the articles to the secretary of state so that it can be filed. The person who files for the DAO incorporation does not have to be a member of the DAO.

The DAO must have and maintain a registered agent in Wyoming. Also, just like other LLCs and business entities, the DAO must be formed for any lawful purpose.

Examples of items that need to be includes and addressed in the Articles when forming your DAO include a statement that the entity is a DAO LLC, the registered name of the DAO, the smart contract identifier, and a notice of restrictions on duties and transfers (unless included in the operating agreement).

Operating a Wyoming DAO

The main document that sets forth the terms and management of the DAO is the operating agreement. This agreement may supplement the articles as well.

There are a few important points that the operating agreement should include. For instance, the DAO members and managers have the right to receive certain information and generally to be a part of decision-making.

With DAOs, there is a lot of information that is publicly viewable on the blockchain, by which all members can easily locate and inspect.

Another important point of consideration is liability of members and managers. The liabilities and debts of the Wyoming DAO LLC are solely the liabilities and debts of the DAO and do not become the liabilities and debts of the members or managers.

5 Things to Consider for Wyoming DAOs

Before forming and operating a Wyoming DAO, do not forget to consider the following five points:

1. DAOs offer many advantages both over traditional corporate entities both in general and due to their reliance on blockchain technology.

DAOs are something completely different than traditional entities. Unlike traditional corporations, DAOs do not have a board of directors, officers, and management—or any hierarchical structure.

Because DAOs are decentralized, there is no centralized authority controlling operations or management. DAOs are formed with a shared vision by multiple people from anywhere in the world.

The framework offered by the DAO is completely visible, public, and transparent because it runs on smart contracts and blockchain technology.

Also, unlike many traditional entities, every member in the DAO can vote on major decisions using DAO governance tokens.

2. DAOs allow for any individual around the world to join and facilitate new business formations.

DAOs have the ability to reach investors in any country. Small businesses can therefore raise capital faster and with greater ease.

New businesses can therefore be formed in ways never imagined before. Businesses in the arts, for example, can collect, offer, own, and sell NFTs on a platform that reaches users across the globe.

Small real estate investment companies can pool their funds from DAO members to support various investment projects.

If formed properly and if compliance is continuously assessed, DAOs can reimagine business formation, purpose, and goals.

3. The use of blockchain technology and smart contracts make the decisions of the DAO transparent to its members and managers.

The blockchain is the public distributed ledger where all transactions of the DAO are stored. DAOs are enforced by a set of computer program rules on smart contracts.

All DAO members have access to transactions, contracts, decisions, and all other key information that will be made on behalf of the DAO.

Smart contracts on the blockchain enforce these decisions. This creates an environment of transparency for the DAO´s entire operation.

A DAO operates like a democracy. Through the use of governance tokens, DAO members can participate in decision-making—which is typically accomplished by voting.

4. DAOs solve the trust problem that was traditionally an issue with normal LLCs and corporations.

With traditional corporations, the structure, operation, and management are all centralized. This means there is one authority that is controlling the decision-making of the corporation.

Traditional corporations need to rely on trust in order to bring investors together to fund its operations and facilitate day to day activities. This is critical for the successful operation of corporations.

However, trust easily breaks down. DAOs solve this problem by taking away this trust element. With DAOs, there is no third party, centralized authority, or intermediary.

DAOs are completely decentralized. The code embedded in the smart contract controls the operation of the DAO.

All individuals need to do is trust that the code will automatically execute the terms of the DAO and ensure that it is functioning appropriately.

5. DAOs are riddled with legal uncertainty and inconsistent federal regulation, thus increasing liability exposure.

A significant drawback of DAOs is that there is significant regulatory uncertainty surrounding their entire operation—from initial formation through the entire management. These risks are lessened in Wyoming because the state recognizes DAOs are legal entities.

That said, there is currently no comprehensive federal legislation regulating DAOs or blockchain technology. Federal agencies are relying upon already-existing statutes for their investigations and enforcement actions.

If the DAO is formed incorrectly, the liability of the individual members could be exposed and be potentially unlimited.

Even more, because DAOs could include individuals from all over the world, KYC policies and procedures are often very weak or non-existent, which makes compliance with AML laws virtually impossible.

Need Advice Forming and Operating a Wyoming DAO?

If you need advice on forming and operating a Wyoming DAO, do not wait to contact an attorney experienced in DAOs—especially regarding Wyoming DAOs.

DAOS are still novel entities. Many individuals as well as federal agencies do not fully understand how they operate—much less how to regulate them.

Individuals seeking to form DAOs will likely want to incorporate in Wyoming for its DAO-friendly laws. That said, it is critical to have an attorney review your plans for forming and operating a DAO.

At Oberheiden, P.C., our team of attorneys can give your DAO project a comprehensive evaluation for potential federal compliance obligations in addition to advising you on general DAO formation and operation issues.

Contact us today for a free and confidential consultation.

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