As you know, DAO is a community of people united with one goal and a smart contract powering their cooperation. It is not a legal entity, thus, DAOs do not have access to banking accounts, certificates of good standings, excerpts from business registries, and other things relevant to real-world legal entities.
As you know, DAO is a community of people united with one goal and a smart contract powering their cooperation. It is not a legal entity, thus, DAOs do not have access to banking accounts, certificates of good standings, excerpts from business registries, and other things relevant to real-world legal entities. Although many DAOs cooperate with classic companies, engage in fiat turnover and can mimic real-world business activity. In every such case, they deal with various agreements regulating both parties rights and obligations. The question is - how do they do that?
One of the options is the creation of a legal wrapper for DAO, namely, incorporating a legal entity with classic management and other attributes of a legal entity and having its stake in DAO's treasury as a member. The idea is simple: legal entity signs and executes the agreement on behalf of a DAO and accumulates revenues from business activities which later can be converted to tokens and placed in a DAO treasury.
In some cases, similar structure can be beneficial for businesses, for example - an investment fund wanting to step with one leg in classic finances and with others in a Web3 world. Such interconnection of real-world and decentralized entities can work great if set up correctly. Also, it is possible to make a legal separation between a real-world entity with its business and DAO with its sandbox.
One of the options is the creation of a legal wrapper for DAO, namely, incorporating a legal entity with classic management and other attributes of a legal entity and having its stake in DAO's treasury as a member. The idea is simple: legal entity signs and executes the agreement on behalf of a DAO and accumulates revenues from business activities which later can be converted to tokens and placed in a DAO treasury.
In some cases, similar structure can be beneficial for businesses, for example - an investment fund wanting to step with one leg in classic finances and with others in a Web3 world. Such interconnection of real-world and decentralized entities can work great if set up correctly. Also, it is possible to make a legal separation between a real-world entity with its business and DAO with its sandbox.
Still, you should know the underlying risks associated with such structuring. The most common is defining a legal entity as a director or owner of DAO. This is a common approach for regulators to define a liable person within the Web3 area of business. It can be avoided but requires significant planning and work of the project's legal, finance and technical teams.
But there is another approach to this situation. If DAO wants/needs to cooperate with a real-world third party and DAO does not wish to create any legal wrappers, they can establish legally binding contractual obligations with the help of specialized technical tools. Those include various instruments: from community management systems, and voting processes to the creation of agreements executable via smart contracts. Having all the aspects set up and covered by respective technologies can allow any DAO "to live a full business life".
As to the contracts, there are several resources on the internet that can bridge a legal text with your smart contract, allowing interaction with any legal entity. The general process of agreement execution in such cases can be described as follows:
1. DAO creates an agreement (better if in cooperation with professional lawyers) in an online contract creator tool and applies a smart-contract code to the agreement text ;
2. DAO and counterparty sign an agreement in the form of a transaction (signing with wallets);
3. Agreement is executed (services starting to be provided/goods being transported, etc.);
4. After execution of contractual obligations, smart-contract makes final touches as to funds transfer (or other coded activity) and stores respective metadata on a distributed storage platform (there are some on the internet, as well).
5. Done, the agreement has been executed, everyone is happy and data related to contractual execution is stored on a blockchain as a hash.
As to the contracts, there are several resources on the internet that can bridge a legal text with your smart contract, allowing interaction with any legal entity. The general process of agreement execution in such cases can be described as follows:
1. DAO creates an agreement (better if in cooperation with professional lawyers) in an online contract creator tool and applies a smart-contract code to the agreement text ;
2. DAO and counterparty sign an agreement in the form of a transaction (signing with wallets);
3. Agreement is executed (services starting to be provided/goods being transported, etc.);
4. After execution of contractual obligations, smart-contract makes final touches as to funds transfer (or other coded activity) and stores respective metadata on a distributed storage platform (there are some on the internet, as well).
5. Done, the agreement has been executed, everyone is happy and data related to contractual execution is stored on a blockchain as a hash.
The only limitation to this process is that a third-party legal entity must have a crypto wallet to receive/send respective virtual assets, which will be a monetary asset to such an agreement. In other aspects, such a process works excellently and allows DAOs to focus on the implementation of technical elements into their infrastructure instead of spreading their attention to frequently complicated incorporation procedures with the necessity of the company's maintenance and handling risks associated with connections between DAO and its legal entity.
Author: Danyil Voloshchuk, associate of the Technology and Investmens at the Juscutum