Decentralized Autonomous Organization (DAO): Frequently Asked Questions

Decentralized Autonomous Organizations (DAOs) are a relatively new concept, developed in 2016, inspired by the decentralization of currencies brought about by cryptocurrencies. DAOs are a new type of business structure that is beginning to gain recognition in states across the US, and in other areas of the world. 

Understandably, a lot of people have questions about how DAOs are formed. In this article, we’re going to cover all the most frequently asked questions about forming DAOs. 

What is a DAO?

A DAO is a business that is governed by smart contracts instead of people, which allow the business to operate autonomously. 

What is a smart contract? 

A smart contract is code that runs “on top” of a blockchain that executes when particular conditions are met. They can make decisions, distribute profits, and carry out other tasks. 

How is a DAO different from a normal LLC? 

A normal LLC is managed by one or more human owners, called “members”. These members will make all of the decisions for the business and have the final say on all business matters. A DAO is usually managed by an algorithm, though it can also have human members. 

Where can I register a DAO? 

Currently, the only state officially registering DAOs is Wyoming. 

Do I have to live in Wyoming to register a DAO there? 

No, fortunately, you can register a DAO in Wyoming no matter where you live. However, you will need a Wyoming registered agent who can receive legal mail on your behalf. (To learn more about registered agents, click here.) 

How do you form a DAO? 

You can form a DAO online or through the mail. It’s a relatively simple process of going to this link, following the instructions, then select Limited Liability Company and then DAO as the “Additional Designation” from a drop-down list. If you want to mail in your registration, you need to send in the DAO form with a check or money order. You can find the form here and the online registration here. For more details on how to fill this out, click here. 

How much does it cost to form a DAO? 

It costs $100 for the initial filing fee, and then you’ll need to file an annual report each year, which will cost $60 (or more). The fee is calculated based on your assets located and employed in Wyoming. (For more information, click here.) 

How do you name a DAO? 

Like many other types of business, you must include what the company is within the registered name. Your name must include either DAO or LAO as well as LLC, LLC, Limited Company, LC, LC, Ltd. Liability Company, Ltd. Liability Co., or Limited Liability Co within the name. 

For example, if your business name was Lightning, you may decide to call your DAO: “Lighting DAO LLC.” You can choose any of the other names, though you may find it a little too wordy. 

If I already have an LLC, can I convert it to a DAO? 

Yes, if you already have a US-based LLC you can convert it into a DAO. To do this, you need to file an amendment to your business’s articles. Your articles must include: 

·     A statement that your business is a DAO 

·     Whether it is member-managed or managed by an algorithm 

·     A change of your business name (see question above for advice) 

·     You must have a registered agent in Wyoming and have written consent of appointment by that agent 

·     A “Notice of Restrictions on Duties and Transfers,” which states that the DAO Supplement, smart contracts, articles, and operating agreement (where applicable) of a DAO may reduce, define, or eliminate fiduciary duties and restrict the transfer of ownership, withdrawal, resignation, return of capital contributions, and dissolution. 

·     An identifier of any smart contract used to manage, facilitate, or operate the DAO must be made publicly available. 

Fortunately, forming a DAO is straightforward and relatively inexpensive to form and run. If you want to find out more about any of the questions above, you can find the government’s explanatory document here. 

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