This article is the first among a series that aims to walk founders through the process of building a DAO and the different steps that they must follow in order to set solid foundations for their project.
Some DAOs start as online communities, and evolve from there — This might work for some builders, but if your aim is building a DAO that will scale, incorporation and the benefits it comes with should be at the top of your priorities.
Why Do You Need To Incorporate?
- Scalable DAOs do not operate in the dark: Any official entity needs to be invoiced and needs an address as well as a legal framework.
- Incorporation guarantees legal protection for founders and contributors: A non-incorporated DAO can legally be considered s a General Partnership. This can expose all the individuals that ever contributed to the DAO (even by voting or purchasing tokens) to be liable for all their assets.
- Investor Relations: Raising funds through token sales and getting listed on exchanges are examples of procedures that require verified legal documentation and not being incorporated can slow down the process or scale to a financial crime.
Under Which Format Can You Incorporate?
At the moment, this topic is still in its infancy and there is no standard framework for all the DAOs yet. Here are some of the most common options founders go for:
- LLCs: DAO LLCs are the most common in the space today. Founders usually incorporate their LLCs in Wyoming to enjoy the tax advantages and get access to U.S. Banking. MakerDAO — one of the most successful DAOs in the space, is Incorporated as an LLC. Wyoming is a particularly interesting jurisdiction when you are planning on doing a public token sale or building a for-profit DAO.
- C-corps: This option works best for tech startups who aim to raise money from U.S. investors. Delaware offers great incentives for this format of incorporation.
- GmbH/Foundation: This option is great for founders who want to evolve in the crypto valley — Switzerland. This is where you will find most of the web3 foundations such as Near, and non-profit DAOs. However, one must keep in mind that Switzerland has tough KYC requirements.
How Can You Raise Funds?
Incorporating your DAO comes with a lot of benefits: These advantages include the ability to attract funds from investors and sign with contractors. With token issuance being the primary fundraising method, founders have a lot of options.
Here are some of the most considered fundraising methods in the space:
- IDOs: The Initial Dex Offering is the process of launching a token through a decentralized liquidity exchange.
- DAICOs: Decentralized Autonomous Initial Coin Offerings bring accountability to decentralized fundraising: Throughout a consensus mechanism, backers can vote on the amount of funds to be raised and on getting them back if violations occur. The Abyss is an example of DAOs that went for a DAICO.
Get Backup For Your Incorporation Process
- DYOR: DAOs are completely new entities, that's why regulations are changing and it's hard to define a single framework. Once you have defined your project and your desired outcomes, you will be able to choose the most relevant options for you. In the meantime, we recommend that you spare a lot of time to reading and researching the different alternatives and learning for similar projects.
- Get A Lawyer: Raising funds is a very delicate process and the stakes could be high. A web3-acquainted lawyer can walk you through the process and help you understand the risks and how to protect yourself in each step.
- Go Faster With Kali DAO: KALI allows founders to automate the process of DAO incorporation and offers a variety of features such as launching governance tokens and managing LLC operations entirely on-chain with proposals and voting.
🤩Coming up in our series:
- DAO Treasury Management
- DAO Bookkeeping
- Hiring in DAOs
- Team Structure in DAOs
- KPIs for DAOs