Marshall Islands LLC as a DAO Legal Wrapper

May 27, 2022
TABLE OF CONTENTS

Marshall Islands LLC as a DAO Legal Wrapper

May 27, 2022

If you're reading this, you're probably considering creating a DAO Legal Wrapper for your project, and you already understand why it is needed. If you want to learn more about why DAOs need legal structure and what are the most common form of legal wrappers for DAO, check out this article

We have already covered a Cayman Islands foundation as an option for DAO legal wrapper, and in this article, we dive into how the Marshall Islands LLC works for the same purpose. 

What makes Marshall Islands a good option for DAO incorporation

What makes it a popular territory for DAO establishment is that Marshall Islands have enacted a special regulation system for DAO. Here are the main benefits of incorporating a DAO in the Marshall Islands: 

  • As on the Cayman Islands, you can enjoy the mixed legal system of the U.S. and English common law, including some customary laws and local statutes; 
  • Easy to set up: you will need only three founding members for your DAO (either legal entities or individuals); 
  • Quite a quick process: it takes up to 3 weeks to set up a company and up to 2 weeks to obtain a special license;
  • The affordable price of the entity setup compared to other options (e.g. Swiss foundation); 
  • The Marshall Islands has a tight cooperation with the U.S. (the countries are in a free association).

The legal form of a DAO on the Marshall Islands

Marshall Islands propose a non-profit corporation (limited liability company) as a legal entity form for DAO, which stands out from the general practice to establish DAO as a foundation. Such a company is established in compliance with general corporate law of the Marshall Islands with specific features that:

  • No part of the income or profit of the corporation is distributable to its members, directors, or officers; and 
  • Members' ownership of such a company may be defined in such a plain document as the register of members AND in the company's smart contract. 
  • You must clearly state the company's purpose and connect it to the non-profit activity. The purpose will be furtherly indicated in the Certificate of Incorporation.

How does this work?

Generally speaking, such a company works as a limited liability company, managed by its members. It has three essential constitutional documents: Certificate of Incorporation, Operating Agreement and Charter of the Company. 

The Operating Agreement should include the most crucial matters of your DAO management: 

  • additional governing bodies;
  • voting and counting of votes of such governing bodies;
  • amendment of a smart contract;
  • creation and management of treasury.

You can amend any of these matters by the members' decision in compliance with the procedure prescribed in the previous version of the Operating Agreement. 

Registering a Marshall Islands LLC for DAO

Here's what the process of establishing a legal wrapper for DAO on the Marshall Islands looks like: 

  • You start by clearly defining the name and purpose of your DAO. Once again, the purpose of your DAO should indicate the non-profit element
  • At least three founding members draft the Operating Agreement (you may amend the Operating Agreement at any time upon establishment of the company; therefore, it is a common practice to use the template at the first stage to speed up the process);
  • The founding members should pass the KYC process with the local regulator. Apart from the founders, anyone who holds 10% or more governance rights over the company must pass the KYC process; 
  • The founding members sign the drafted Operating Agreement, Certificate of Incorporation and Foreign Business Investment License form and file these documents with the regulator;
  • If everything is alright with the documents, the regulator sends the Charter of the limited liability company to the founders.

Read more: Cayman Islands Foundation as a DAO Legal Wrapper, Wyoming LLC as a DAO Legal Wrapper

Getting started with your DAO Legal Wrapper

If you need the Legal Wrapper for DAO and are not planning to accumulate profits or distribute them among DAO members, the Marshall Islands will be a good choice. The main benefits of this jurisdiction are simplicity, speed and flexibility. 

To learn more about this option and compare it with other possibilities of DAO Legal Wrappers, book a Jurisdiction Discovery Session with one of Legal Nodes experts. During the session, you will get:

  • An intro to crypto-friendly countries–specifically which ones may be the best jurisdictions for your DAO;
  • An intro to token legal design to better understand all the implications of issuing a token; and 
  • A checklist of all to-do's to launch your own DAO Legal Wrapper.

Disclaimer: the information in this article is provided for informational purposes only. You should not construe any such information as legal, tax, investment, trading, financial, or other advice.

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Taras is a Web3-focused Virtual Legal Officer at Legal Nodes. Since 2018, he has had various projects under his belt, ranging from M&A transactions and ICO management to handling matters concerning Ukrainian laws on virtual assets. Taras loves writing helpful guides on Web3 legal topics and draws his inspiration from doing sports and reading books (his passion is the history of the 20th century).

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