There’s a lot of uncertainty in the legal structuring of Decentralized Autonomous Organizations (DAOs) inside and outside the US. Globally, regulators have taken an aggressive approach to DAOs and their activities. Developers must be cautious when choosing an entity structure to avoid class action lawsuits, penalizing taxes, and overbearing censorship against themselves and their organizations. There are countless areas to consider when choosing a legal structure, so this article will only cover the basics.
Whether you are considering launching a DAO, in the process of launching a DAO, or have already established one and are exploring legal entity structure options, questions regarding the most suitable framework inevitably arise. What are the advantages and disadvantages associated with each available option? Which entity structure is the most aligned with your DAO's objectives? And even after selecting a structure, what potential risks still need to be considered?
In this article, we dig into these crucial questions, providing insights and analysis to help guide DAOs through the decision-making process and set them on a path towards success. Drawing from Miles Jennings and David Kerr's comprehensive analysis, 'A Legal Framework for Decentralized Autonomous Organizations,' we raise key considerations when evaluating entity structures. A simple breakdown is shown in the chart below.