DAO in Switzerland

In comparison to the other European jurisdictions and the Wyoming LLC model, Switzerland provides a much more flexible and easy-to-foundation model with moderation taxation, making it the most used jurisdiction for DAO. There are three commonly used DAO legal structures in Singapore, namely, the Swiss Foundation Law, the Swiss Association, Decentralized Autonomous Association (DAA), and the Private International Act (PILA).

The Swiss Foundation Law

For long-term decentralization projects, the Swiss foundation is the ideal legal entity. This Swiss foundation setup requires registration in a public registry, an irrevocable foundation deed, and supervision by a federal authority. However, for decentralized projects wherein activities evolve and mature with time, this legal entity is not very appealing.

Swiss Association

The Swiss Association provides more flexibility than the Swiss foundation. Further, it is a separate legal entity wherein having a resident board member is not required. Its members can be individuals or legal entities having limited liability. The geographically dispersed blockchain projects having a common goal or charitable purposes use the Swiss Association as DAO legal framework. Furthermore, the Swiss Association offers tax exemption. Tax exemption is also granted to commercial enterprises having an association as DAO legal framework, provided that the business is a subsidiary having charitable objectives. For NPOs and NGOs, they have been the entity of choice. Some of these are incorporated as associations, like the World Wildlife Fund, FIFA, and the like. 

The governing body of the association is the general assembly that appoints the board of directors, decides on the admission of members, and resolves all matters concerning the association’s articles of association. A recent use case for the Swiss Association is Libra.

A Decentralized Autonomous Association (DAA)

DAA helps to achieve a DAO with limited liability. The general assembly is the governing body of the association that appoints the board of directors, decides on the admission and expulsion of members, and resolves all matters concerning other corporate bodies in the articles of association.

Private International Act (PILA)

This is a newly developed legal entity that provides a DAO, a legal structure recognized under Swiss law. It allows DAO to exist as an internet native and also to be recognized under the Swiss legal order. Based on the theory of equivalence, the code of DAO is considered a governing law, and digital space is an online jurisdiction. This is a new type of DAO legal structure wherein a DAO is not created as per the law of a state and is recognized in Switzerland as a foreign company with rights and obligations. 

DAO in the Cayman Islands

Cayman Island is one of the jurisdictions that has been chosen by a lot of Cryptocurrency projects to create a DAO legal wrapper. The Cayman Islands Foundation Companies Act, of 2017 introduced a new form of legal entity known as a “foundation company”. This foundation company acts as an ideal DAO legal structure that functions as a civil law foundation, providing incorporated trust and retaining a separate legal personality and limited liability of a company. Furthermore, a “foundation company” can be structured without centralized shareholders, wherein all the decisions are made by the members of the DAO community. 

Foundation company as a legal wrapper

Each DAO maintains a register of its members, which must be synchronized with the register of foundation beneficiaries. In the case of a Cayman Islands foundation, the register is maintained privately, which provides flexibility and scalability for the DAO itself. Further, the Virtual Asset Service Provider Act (VASP Act), which regulates the transfer, exchange, custody, and issuance of virtual assets to the public in exchange for some considerations, has changed how decentralized projects in Cayman Island can operate. Furthermore, the foundation company also grants rewards from its treasury. This is only possible with DAOs having a Cayman Island foundation company as the DAO legal framework. MakerDAO is one example that has used foundations in Cayman Island and Switzerland. 

Conclusion

Different legal structures have been created for DAO to give it a legal personality and to eliminate liability risk. Some of these are Delaware LLC, Wyoming LLC, Foundation Company in Cayman Island, and Swiss foundation. Wyoming LLC is the most flexible DAO structure. However, it requires a lot of paperwork and information. On the contrary, Delaware’s setup is quick and cheap with moderate taxation, but it requires every member to be updated, and each member of DAO needs to be a member of an LLC.

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