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Where to incorporate a DAO

An overview of a number of factors to consider when evaluating and determining the structure and legal domicile of a DAO, as well as its relevant regulatory, structuring and tax matters.

The emergence of Decentralized Autonomous Organizations (DAOs) has introduced a complex legal landscape, demanding consideration of new governance models and their implications. DAOs, essentially a set of smart contracts, enable the creation of organizations that may be both decentralized and autonomous, changing the conventional boundaries of organizational structures.

Unlike traditional entities controlled by shareholders and governed by a board of directors, DAOs operate on the principles of consent or consensus among members. These organizations can be either profit-driven or non-profit, with their governance rooted in the hands of their members. Membership in a DAO and the ability to vote on matters affecting the DAO is typically linked to the possession of a specific virtual asset (token).

In terms of operations, DAOs primarily function within blockchain networks, known as the “on-chain” world, and may not require legal representation in the “off-chain” world. However, those interacting with conventional legal systems need mechanisms for real-world representation.

DAOs are generally launched and predominantly attract funding through the issuance of virtual assets, diverging from traditional corporate finance methods. DAOs, by their nature, allow for fluid “live” participation, which stands in contrast to traditional shareholding models. The legal nature of fiduciary duties among DAO members and those executing non-programmatic decisions remains a contention.

Their global operation, without apparent substantial jurisdictional ties, presents various regulatory challenges. The lack of explicit recognition of DAOs in virtually all jurisdictions, with very few exceptions, complicates the legal landscape and the ambiguous legal status of DAO ownership raises legal questions. This uncertainty necessitates exploring both traditional legal structures and DAO-specific structures available in some jurisdictions.

“Sufficient Decentralization”

DAOs could, potentially, contribute to achieving the U.S. Securities and Exchange Commission’s (SEC) concept of “sufficient decentralization”. DAOs may represent a form of organization where control and decision-making are distributed across a network of participants rather than centralized in a single entity.

In the context of the SEC’s Howey test for determining whether a virtual asset constitutes an investment contract, it could be argued that DAO members’ expectation of profit is not primarily dependent on the efforts of a single party or a centralized group. By distributing governance and operational activities across a diverse and unaffiliated community, DAOs might be able to demonstrate that the value of a virtual asset is more reliant on the collective actions of a decentralized network, rather than the efforts of a centralized entity.

However, incorporating a legal entity for a DAO may diminish, rather actually than support such decentralization.

Therefore, incorporating an entity for a DAO shall involve careful assessment of the potential impact to the intended decentralized nature of the DAO. For instance, the legal entity can act as a nominal figurehead or a facilitative instrument, handling regulatory compliance and legal liabilities, while the decentralized governance structure of the DAO remains the primary decision-making body.



One primary concern for DAOs is the potential characterization as a general partnership, which could expose members to unlimited liability.

Opting for a structure in the form of a limited liability company (LLC) structure may provide legal personality to the DAO, and limited liability to the DAO members, safeguarding the DAO members’ assets from the organization’s liabilities.

Jurisdictions like the Marshall Islands and Wyoming have enacted legislation that provides corporate personhood of DAOs registered within their respective territories. 

DAO LLC legislation in the aforementioned jurisdictions provides that governance and membership in a DAO LLC can be managed on a blockchain, and membership interests can be represented through virtual assets.

Marshall Islands


DAO LLCs may be organized as a domestic “for profit” entity in the Marshall Islands (RMI) under the Decentralized Autonomous Organization Act 2022 (as amended in 2023), or as a domestic “not for profit” entity under the Non-Profit Entities Act 2020.

By establishing a DAO LLC, a DAO acquires distinct legal personality from its members, meaning that the DAO itself can do the things a natural person is generally able to do in law – such as enter into contracts, sue and be sued, own property, incur in indebtedness, engage in legal transactions, independently and so on, whereas the liability of its members is limited up to the amount contributed to the DAO LLC, and their personal property not exposed to the liabilities of the DAO.

To form a DAO LLC, at least one person (not necessarily a member of that LLC) shall sign the certificate of formation or LLC agreement for filing it with the local registrar of companies. DAO LLC shall have a registered agent in the RMI whose main role is to receive service of process and other legal documentation on behalf of the DAO LLC, such as subpoenas, regulatory and tax notices, and regular correspondence.

Structure and Governance

Constitutional Documents

The governance of DAOs (DAOs) is established through their constitutional documents. These documents are the Certificate of Formation, the LLC Agreement and the smart contracts “directly used to manage, facilitate or operate the decentralized autonomous organization,” (52MIRCCh.7§106) together here for convenience referred to as “Constitutional Documents.” 

The Certificate of Formation and the LLC Agreement hold primacy. When these documents intersect with the smart contracts, any discordance is resolved in favor of the provisions outlined in the Certificate of Formation or the LLC Agreement. The Certificate of Formation is basically the document constituting the DAO, whereas the LLC Agreement is the contract between the DAO members, and the LLC outlining how the DAO LLC shall be controlled, governed, administered and operated, including the rights and obligations of the members (and managers, if any) of the LLC.

Either the Certificate of Formation or the LLC Agreement must encompass a unique and publicly accessible identifier for any smart contracts that are instrumental in the governance, administration, or operational functions of the DAO. 

The Constitutional Documents shall address the following aspects of DAO governance:

  • The structure of relationships within the membership and between individual members and the DAO itself.
  • The specific rights and obligations of a person as a DAO member.
  • The range of activities that the DAO will engage in.
  • The protocols and prerequisites for amendments to the LLC agreement.
  • The entitlements, including voting rights, accorded to the members.
  • The transferability of membership interests.
  • The conditions under which members may choose to withdraw from the DAO.
  • The policies regarding the distribution of assets to members in anticipation of the DAO’s dissolution.
  • The formalities for modifying the DAO’s certificate of formation or the LLC agreement.
  • The established procedures for revising, refining, or substituting applicable smart contracts.
  • If relevant, the methods for resolving disputes within the DAO.
  • The operational and governance details pertaining to “all other aspects” of the DAO.

Membership and Governance

Acquiring a right of ownership of a membership interest or any assets conferring voting or economic rights bestows membership status within the DAO.

The membership interest is defined as a “member’s ownership or financial right” in a DAO LLC, which means a DAO LLC member does not necessarily own a part of the DAO LLC, having particular financial rights only.
As mentioned above, besides the membership interest, the Act prescribes that some “other property” may confer upon the person a voting or economic right within a DAO LLC.

In the case of a non-profit DAO LLC, a membership interest provides for a voting or governance right only, not an ownership or financial right.

An NFT is defined as a “digital asset that has been tokenized via a blockchain and assigned unique identification codes and metadata to distinguish them from other tokens.” Analysis of other provisions of the Act shows that NFTs are allowed to represent a membership interest in a DAO LLC.

The management of a DAO LLC is entrusted to its members. Conversely, the governance may be “algorithmically managed” (52MIRCCh.7§108).

The Decentralized Autonomous Organization Act 2022 does not explicitly allow the option of “manager-managed” DAO LLC.s

By default, members are not burdened by fiduciary duties owed to the DAO or fellow members, unless they are explicitly provided within the certificate of formation or the LLC agreement. However, members are bound by the implied contractual covenant of good faith and fair dealing.

The measurement of membership interests is determined by the ratio of governance tokens a member possesses relative to the total issued by the DAO at the time a vote is conducted, barring any alternate provisions outlined in the Constitutional Documents.

In instances where governance tokens are not a prerequisite for membership, each member is accorded a singular membership interest, conferring upon them an equivalent singular vote.

The establishment of a quorum for decision-making purposes mandates a majority of the membership interests (more than fifty percent (50%) of the membership interests in a vote) vested with voting rights, again, unless a different criterion is established within the Constitutional Documents.

A DAO LLC may indemnify its members, shielding them from claims and demands. This indemnification, as contemplated by the legislative framework, is predicated upon the conditions and limitations under the Constitutional Documents. The debts, obligations, and liabilities of an LLC are borne by an LLC itself and not by its members. The personal assets of the members remain insulated from the LLC’s liabilities. Nevertheless, a member, through express provisions in the Constitutional Documents, may consent to assume personal liability for the LLC’s obligations.

A DAO LLC may integrate additional governing bodies if deemed necessary to fulfill its objectives or to enhance its decision-making processes. Thus, the default arrangements can be tailored through stipulations within the Constitutional Documents. This allows for a configuration of management, adeptly adaptable to an individual DAO.

The Act allows a DAO LLC to create distinct series within a single structure, each with its own set of members and membership interests.

A DAO LLC can compartmentalize rights, powers, duties, and financial arrangements specific to certain assets or obligations. Such segmentation may be defined in the Constitutional Documents, allowing each series to pursue unique objectives.

The separation of liabilities allows debts or obligations of one series not to impact the assets of the DAO LLC as a whole or those of other series. Also, there shall be no additional reporting requirements for individual series within a DAO LLC beyond the requirements for the DAO LLC itself.

Record Keeping, Reporting and Right to Information

The Act exempts DAO LLCs from traditional bookkeeping requirements, provided their actions, transactions, votes, and decisions are recorded on a blockchain and accessible in human-readable format for five years post-dissolution.

Blockchain-based records satisfy written record requirements through cryptographic signatures. Company agreements can also be blockchain-based, ensuring durability and reference capability. Except for authorized government investigations, DAO LLCs are not obliged to disclose internal records if such information is publicly available on the blockchain.

Cryptographic signatures are allowed to replace traditional signatures recorded when a person, with the proper authority and rights, signs or approves a blockchain transaction.

Every DAO is to file a Beneficial Ownership Information Report with the Registrar at two junctures: initially, at the point of its establishment, and annually. This report mandates the disclosure of detailed personal information on every beneficial owner and the individual(s) initiating the formation of the DAO.

The required details encompass the full legal name, birth date, current residential or business address, a unique identifying number from an unexpired passport, and the addresses and blockchains of all associated wallets.

Withdrawal of Members and Dissolution of DAO LLC

A member’s exit is contingent upon the conditions laid out in the DAO’s certificate of formation, its foundational smart contracts, or the LLC agreement if such an agreement is in place.

A member’s inability to return their capital contribution does not precipitate the dissolution of the DAO LLC. Member’s withdrawal unless otherwise specified in the Constitutional Documents, results in the forfeiture of all vested interests.

The Decentralized Autonomous Organization Act 2022 outlines specific conditions under which a DAO may be dissolved. These include the lapse of the DAO’s predetermined duration, a consensus decision by the members, the realization of events pre-defined in the Foundational Documents, a directive from the Registrar under specified circumstances, or the collective resignation of all members.

Regulatory Environment for VASPs

Virtual Asset Services

In accordance with the Banking Act 1987, as amended, the term “virtual asset service provider” is defined to outline five key activities:

  • the exchange of virtual assets for fiat currencies;
  • the exchange among different forms of virtual assets;
  • the transfer of virtual assets, which entails conducting transactions that move a virtual asset from one address or account to another on behalf of another entity;
  • the safekeeping or administration of virtual assets, including managing instruments that enable control over these assets;
  • involvement in financial services related to the offering or sale of a virtual asset by an issuer.

In the Banking Act 1987 (17MIRC Ch.1§123(2)), it is also mentioned that no virtual asset service provider business shall be transacted by a corporation or entity incorporated or otherwise formed in the Republic except by a licensed financial services provider. Obtaining a financial services license for a DAO LLC may not be feasible due to the decentralized nature of the DAO LLC which poses substantial challenges to comply with regulatory requirements under the Banking Act and related regulations. 

Therefore, at this time, DAO LLCs formed in the Marshall Islands should ensure that their activities do not constitute virtual asset services.


DAO LLCs engaging in activities that do not involve issuing, selling, exchanging, or transferring digital securities to residents of the Republic of the Marshall Islands are exempt from the provisions of the local Securities and Investment Act. Governance tokens, which confer no economic benefits to the holders, are also explicitly excluded from being considered securities under local laws.

Digital assets, including NFTs, issued, sold, or transferred by non-profit DAO LLCs in pursuit of their non-profit objectives shall not be classified as digital securities under local laws.

However, the DAO LLC would likely engage in activities or offer its tokens outside of the Marshall Islands, and therefore, the regulatory framework of such other jurisdictions where the DAO LLC may operate and/or solicit investors from should be considered to understand the potential regulatory implications from such activities or token offerings.

Foreign Investment Business

The Foreign Investment Business License Act of 1990 (as amended) mandates that non-citizens must obtain a license to conduct business within the Marshall Islands.

DAO LLCs are subject to tailored provisions: certain sections of the act, specifically Section 207A related to the requirement for keeping records and portions of Section 205 outlining application requirements, do not apply to DAO LLCs. 

DAO LLCs are required only to disclose information about beneficial owners or members holding 25% or more in governance rights.


For-profit DAO LLC are subject to taxes on their gross revenues. Annually, a flat tax rate of $80 is imposed on the initial $10,000 of gross revenues earned. 

For gross revenues that surpass the $10,000 threshold within a given fiscal year, the tax rate is 3 percent of the amount exceeding this baseline. 

Gross revenue excludes dividends and capital gains.

However, foreign tax risks could arise if the DAO LLC’s control and management is deemed to be exercised in a foreign jurisdiction, or the DAO LLC constitutes a permanent establishment in a foreign jurisdiction, or the DAO LLC is majority controlled by tax residents of a specific jurisdiction.

Non-Profit DAOs

Under the Non-Profit Entities Act 2020, a DAO may be registered as a non-profit entity. This designation is accorded to entities whose sole mandate is to channel funds toward a spectrum of endeavors that encompasses charitable, religious, scientific, educational, social, and fraternal initiatives, as well as an array of activities classified under the term “good works.” Eligibility for this status is contingent upon three criteria:

  1. The entity must operate in a manner that ensures its net earnings do not profit any person or individual.
  2. The entity must abstain from primarily conducting activities that could be construed as lobbying, thereby eschewing any effort to influence legislative processes.
  3. The entity must remain neutral in political campaigns, refraining from participation or intervention. 

Entities that fulfill the criteria of a non-profit may seek to leverage the tax exemption provisions as detailed in the Income Tax Act. 

The process to initiate this exemption requires a formal application to the Secretary. This application process is a prerequisite to the granting of any tax exemption. Upon an evaluation of the application and contingent upon meeting the eligibility requirements, the non-profit entity will be granted a certificate. 

The non-profit entity can bestow benefits or make contributions that align with its established purposes, barring circumstances where insolvency is imminent or such actions compromise its capability to fulfill its obligations or continue its operations.

Other Notes

Firstly, the automatic implementation of decisions made by the DAO is not a feature explicitly provided for in the current legal framework.

Also, the Act defines an official online venue of the DAO LLC as “the official places where members convene to participate in activities of the DAO LLC, where the internet address or addresses of those official online places are publicly available.” Although the Act does not further detail the provisions concerning an official venue, the presence of the definition itself might help outline a legal status of a website or websites accompanying DAO operations.

Regarding mergers and consolidations, the existing LLC Act does not detail provisions specific to DAO LLCs. Furthermore, the Act remains silent on bankruptcy specifics for DAO LLCs.



Wyoming was the first U.S. state to legally recognize DAOs as a distinct form of LLCs. With the passage of Bill 38 during the Wyoming legislature’s 2021 session, the State allowed DAOs to be officially incorporated as DAO LLCs under Wyoming law.

DAO LLCs enjoy the limited liability protections afforded to traditional LLCs. The legal recognition of DAOs as LLCs confers them with a distinct legal personality from the DAO members, with the capability to enter into contracts, own assets, and so on, and ensure perpetual existence under the state’s jurisdiction.

Wyoming Decentralized Autonomous Organization Supplement (W.S.17-31-101 et seq.) does not extend to an exhaustive definition or impose specific technological requirements such as decentralization, blockchain integration, smart contract deployment, or operational autonomy typically associated with DAOs. 

Instead, the legislative provisions present a broad outline whereby mentioning DAOs in a company’s articles of organization is the central criterion for its recognition under the law. This absence of a detailed statutory definition mainly affords DAO members to interpret and implement the fundamental traits of a DAO.

DAO must be appropriately designated in its registered name, which include “DAO,” “LAO,” or “DAO LLC”.

Any individual may initiate the establishment of a DAO, provided that they submit the requisite articles of organization to the Secretary of State. The individual effecting this formation is not obligated to be a DAO member. 

A DAO LLC must also have a registered agent in Wyoming. DAOs may pursue any lawful endeavor, with or without the intent for profit generation. DAOs governing smart contracts should be capable of being updated or modified.

Structure and Governance

Constitutional Documents

The governance of a DAO LLC is established through the articles of organization, the LLC Agreement and the DAO’s smart contracts. 

The articles of organization of a DAO LLC, among other things inherent to such document, must disclose a publicly available identifier for any smart contract directly used to the DAO’s management, facilitation, or operational processes, which means that they might be publicly accessible. Alternatively, the articles of organization may provide that such publicly available identifiers for any smart contract shall be included in the LLC Agreement.

The articles of organization, the LLC Agreement (if any), and the smart contracts of DAO LLC shall govern member relations, delineate members’ statutory rights and obligations, and outline the DAO’s operational activities. 

They further detail the amendment mechanisms of the LLC Agreement, establish the voting rights and transferability of membership interests, and set forth protocols concerning member withdrawal and distribution of assets. The articles of organization, the LLC Agreement and the smart contracts of DAO LLC shall also prescribe the procedure for amendments to the articles of organization or updates to the smart contracts, dispute resolution and also shall govern “all other aspects of the decentralized autonomous organization” (W.S. 17-31-106 (xii)).

The articles of organization take precedence in a disagreement with the LLC Agreement. Smart contracts are given precedence over the articles of organization. There is an exemption whereby the articles of organization maintain supremacy in matters about (1) the fundamental criteria and process for a LLC to achieve DAO status, including the need for a statement in the articles of organization regarding the DAO’s status and the nature of its member’s rights and (b) the inclusion of a publicly available identifier for any smart contracts directly managing, facilitating, or operating the DAO.

Amendments to the articles of organization for a DAO LLC are legally required in three key situations:

  • a change in the DAO’s name;
  • correction of any false or erroneous statements in the articles;
  • updates to the DAO’s smart contracts.

The operational aspects not expressly provided for by the articles of organization or smart contracts are to be governed by the LLC Agreement (may be a smart contract). This agreement acts as a supplementary document, offering additional clarity and provisions regarding the workings of the DAO.


The articles of organization shall establish how a DAO is managed by its members and to what extent the algorithms apply to management. The articles of organization or the LLC Agreement may set forth alternative management provisions, which is good for DAO-specific purposes.

Unless otherwise mentioned in the articles of organization, smart contract, or LLC agreement:

  1. When considering membership interests and voting rights within a member-managed DAO, the valuation of a member’s interest is directly proportionate to their contribution of digital assets in relation to the total contributions at the time of voting;
  2. In the absence of such contributions, membership interest defaults to an equitable model where each member holds a single interest and, correspondingly, a singular vote. 
  3. The quorum for voting purposes requires a majority (more than fifty percent (50%) of participating membership interests eligible to participate in a vote) of these membership interests to vote.

In the absence of specific directives to the contrary within he DAO’s foundational documents, members are generally not beholden to fiduciary duties, save for enforcing the implied contractual covenant of good faith and fair dealing.

Right to Information

Members of a DAO are not entitled to the same rights as those granted under general LLCs’ regulations to inspect or duplicate organizational records independently. 

The DAO bears no duty to provide information “concerning the organization’s activities, financial condition or other circumstances” (W.S. 17-31-112) to members separately, given that it is readily available on the blockchain. Mentioning “other circumstances” makes this provision vague and opens the room for potential members’ demands to provide sensitive information not available on an open blockchain.

Withdrawal of Members and Dissolution of DAO LLC

A member’s withdrawal from a DAO is contingent upon conditions laid out within the constitutional documents. If not specified, members withdraw membership if they dispose of membership interests and retain no further right of ownership in a DAO LLC.

A member’s inability to recover their contribution to capital does not constitute grounds for the dissolution of the DAO. Upon withdrawal, unless alternative arrangements are delineated in the DAO’s foundational documents, a member relinquishes all membership interests in a DAO.

There are several circumstances under which dissolution of a DAO is mandated, such as a respective vote of the majority of the members, stopping to perform a lawful purpose, or when a DAO has all members withdrawn or is no longer under the control of at least one (1) natural person.

Regulatory Environment for VASPs

State Legislation

The 2019 Wyoming Digital Asset Statute (W.S. 34-29-101 et seq.) formally integrates digital assets into the recognized property rights within the state’s jurisdiction. It classifies digital assets into three distinct categories:

  • Digital Consumer Assets: these are digital assets primarily acquired for personal or household consumption. They encompass open blockchain tokens representing intangible personal property and any other digital assets that do not meet the criteria of digital securities or virtual currency.
  • Digital Securities: this category aligns with the conventional definition of security under Wyoming Statute 17-4-102(a)(xxviii) but is distinguished by its digital form. It excludes assets classified as digital consumer assets and virtual currency.
  • Virtual Currency: Recognized as a digital medium of exchange, unit of account, or store of value, virtual currency operates independently of legal tender status by any government entity.

The 2019 Wyoming Digital Asset Statute also incorporates a framework for banks to offer custodial services for digital assets (W.S. 34‑29‑104).

The Sixty-Fourth Legislature of the State of Wyoming, during the 2018 Budget Session, enacted Enrolled Act No. 1, amending the Wyoming Money Transmitter Act to incorporate an exemption specifically tailored for virtual currency. Under the newly introduced definition, “virtual currency” is recognized as a digital representation of value functioning as a medium of exchange, unit of account, or store of value, distinct from legal tender recognized by the United States government. Activities involving the buying, selling, issuing, or taking custody of payment instruments or stored value in the form of virtual currency and receiving virtual currency for transmission to any location by any means are exempt from the Act’s applicability. It means Wyoming’s money transmitter law exempts crypto-to-crypto transactions.

That being said, state securities laws and US federal laws apply to Wyoming DAO LLCs, and therefore, the same should be considered.

Registration of digital assets in Wyoming

The State of Wyoming enacted the “Wyoming Digital Asset Registration Act” (W.S. 34-29-209), outlining a legal framework for the registration of digital assets. Individuals (residents of the state of Wyoming) or entities (incorporated or organized in the state of Wyoming) can register digital assets existing on blockchain, with the Secretary of State, thereby establishing the assets’ legal domicile within Wyoming for all pertinent laws and regulations. This process requires applicants to provide detailed information about the digital asset and its ownership, along with cryptographic proof of control. The Act specifies the application, examination, amendment, and renewal procedures for digital asset registration. 

A registration, once approved, remains effective for five years, with provisions for renewal. The legislation also addresses public record maintenance, registration cancellation under specific conditions, and the legal liabilities associated with false or fraudulent asset registration. Moreover, the Act amends jurisdictional requirements, empowering the chancery court to adjudicate disputes involving registered digital assets.

The Wyoming Administrative Rules, effective on November 26, 2023, provide a detailed framework for the registration of digital assets. These rules, authorized under W.S. 34-29-209, cover various aspects of digital asset registration, from definitions to application requirements. Applications must be submitted electronically and adhere to specific requirements regarding the applicant’s residency or business entity status within Wyoming. The rules outline the necessary filing fees for initial registration ($500.00), renewal ($250.00), and cancellation ($30.00), setting clear financial expectations for registrants. Applicants must provide detailed information regarding the nature of the asset, including the underlying distributed ledger, the asset’s character, technical and elected standards, and any restrictions on transferability. When an application does not meet the registration requirements, the Secretary of State is empowered to reject the application, providing the applicant with a timeframe to respond with corrections or amendments.

Securities and Investment Company Laws


The landscape of federal regulation remains complex and uncertain. The Securities and Exchange Commission (SEC) employs the broad “investment contract” definition under the Securities Act 1933 to navigate the regulatory obligations of digital assets, which can create both challenges and considerations for DAOs registered and/or operating and/or soliciting customers or investors within the United States. 

The Howey Test remains the cornerstone of the SEC’s framework in determining whether a digital asset constitutes an “investment contract” and, thereby, a security.

  • Investment of Money.  The primary consideration under the Howey Test is the existence of an investment of money. In the context of digital assets, this element is often satisfied as assets are commonly exchanged for value, whether it be fiat currency, another digital asset, or different forms of consideration.
  • Common Enterprise. The presence of a common enterprise is essential in the analysis of an investment contract. The SEC has observed that a common enterprise is typically present with digital assets, a stance that is also supported by prevailing court interpretations.
  • Reasonable Expectation of Profits Derived from Efforts of Others. The issue often rests with the third prong of the Howey Test: whether the profits anticipated by the purchaser will be derived substantially from the efforts of a promoter or third-party – known as an Active Participant (AP). This element focuses on the objective economic reality of the transaction, considering how the asset is marketed, the plan of distribution, and the inducements offered to potential investors.

For DAOs, which are often architecturally decentralized, the Howey analysis can become particularly nuanced:

  • Reliance on the Efforts of Others: DAOs must assess whether the role of any AP within their ecosystem renders the asset a security. This is true if the AP is central to the network’s development, operation, or promotion or if the network and its digital assets are still in development stages.
  • Reasonable Expectation of Profits: If a digital asset’s value increase is linked to an AP’s managerial efforts, or if there is an emphasis on the asset’s investment potential, the Howey Test may classify the asset as a security.
  • Market Dynamics and Asset Functionality: The functional maturity of the asset and its network, the alignment of trading volume with the demand for the network’s service or product, and the actual usage of the asset for its intended purpose are all vital considerations. The less reliant the asset’s value and trading are on the efforts of an AP, the less likely it is to be deemed a security.

If the DAO tokens are deemed securities, any securities offering must be registered under the Securities Act with the SEC.

Exemptions from registration apply to securities offerings targeting US accredited investors under Rule 506(b) of Regulation D of the Securities Act. 

This is a private placement offering exempted from registration with the SEC without general solicitation or general advertisement, where securities must be purchased directly from the issuer and not from an underwriter. Resale is generally restricted without further registration under the Securities Act.

Otherwise, a DAO LLC might rely on Rule 506(c) of Reg D which allows for an exempt offering to accredited investors with general solicitation or advertisement.

For offshore offerings made to non-US investors, a DAO LLC may rely on an exemption from registration under Regulation S of the Securities Act.

If a DAO LLC is initially launched distributing its tokens, it is possible that the DAO LLC would not have achieved the level of decentralization for such tokens to not be deemed securities under the Securities Act. This may pose certain compliance challenges such as the need to identify and classify by investor status potential and actual token purchasers, and placing transfer restrictions, among many others.

Open blockchain tokens-exemptions

In 2018, the Sixty-Fourth Legislature of the State of Wyoming passed Enrolled Act No. 27 (W.S. 17‑4‑206), introducing amendments to the state’s securities and money transmission laws in the context of open blockchain tokens. Specifically, the Act establishes that developers, sellers, or facilitators of open blockchain tokens are not considered issuers of securities and, therefore, are exempt from the provisions typically applied under Wyoming Statutes Sections 17-4-301 to 17-4-412 and 17-4-504, provided they meet specific criteria. These criteria include filing a notice of intent with the Secretary of State, ensuring the token is for a consumptive purpose rather than a financial investment, and taking reasonable precautions to prevent the token’s purchase as a financial investment. 

The Act clarifies that facilitating the exchange of an open blockchain token does not classify a person as a broker-dealer under securities laws, contingent upon compliance with specific requirements, including the belief in the token’s adherence to the Act’s conditions and the active prevention of exchanges that fail to meet these criteria.

Investment Companies

The Investment Company Act defines an “investment company” as any issuer which—

  • is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting, or trading in securities;
  • is engaged or proposes to engage in the business of issuing face-amount certificates of the installment type, or has been engaged in such business and has any such certificate outstanding; or
  • is engaged or proposes to engage in the business of investing, reinvesting, owning, holding, or trading in securities, and owns or proposes to acquire investment securities having a value exceeding 40 per centum of the value of such issuer’s total assets (exclusive of Government securities and cash items) on an unconsolidated basis.

Given that most tokens are deemed securities in the USA, if the DAO LLC conducts an activity that resembles a collective investment (e.g. investment and trading in tokens), the DAO LLC may be considered an Investment Company, and therefore, require registration and licensing as such in the United States. 

Given the nature of a DAO, it may be challenging to obtain such registration and license as an investment company, and therefore, the DAO LLC may need to rely on exemptions.

Exemptions from Investment Company registration can be found in Section 3(c)(7) or Section 3(c)(1) of the Investment Company Act.

Section 3(c)(7) requires that the company’s securities (i.e. DAO LLC membership interests) are owned by ‘qualified purchasers’ – individuals who own not less than USD 5 million in investments or entities that own and invest on a discretionary basis not less than USD 25 million. For its part, Section 3(c)(1) requires the entity to have no more than 100 investors (i.e. members of the DAO LLC)

Both Section 3(c)(7) or Section 3(c)(1) prohibits general solicitation and advertisement. 

The above may provide for further limitations that can have an impact on the feasibility to operate the DAO LLC as desired by its promoters and members.

Investment Advisors

If the DAO LLC manages assets belonging to other persons, the DAO LLC may fall under the Advisers Act. Section 202(a)(11) of the Advisers Act generally defines an “investment adviser” as any person or firm that: (1) for compensation; (2) is engaged in the business of; (3) providing advice, making recommendations, issuing reports, or furnishing analyses on securities, either directly or through publications.

Investment advisers must register with the Securities and Exchange Commission (SEC) if their assets under management surpass USD 150 million. Advisers may be exempted from registration if they don’t have a place of business in the US, have less than 15 US clients and investors with a total amount of assets under management of less than USD 25 million, do not present themselves to the US public as an Investment Advisor and do not manage companies registered under the Investment Company Act.

Furthermore, companies entering into futures, options on futures and/or swaps may be considered ‘commodity pools’ under the US Commodity Exchange Act and other regulations supervised by the US Commodity Futures Trading Commission (CFTC). Bitcoin and other major virtual assets may be deemed commodities in the US.

Operators and investment advisors of commodity pools may need to register as commodity pool operators (CPOs) or commodity trading advisors (CTAs) with the CFTC. Several exemptions from registration exist based on the type of investors, commodity amount of trading and marketing, among others.


State Taxes

One of Wyoming’s features for LLCs is the absence of state income tax. Wyoming Decentralized Autonomous Organization Supplement (W.S.17-31-101 et seq.) does not extend into providing specific regulations concerning taxes for DAOs.

Federal Taxes

For federal tax purposes, LLCs are treated by default as either disregarded entities (single-member) or partnerships (multimember).

However, an LLC may change its tax classification and elect one of the following tax classification under the Internal Revenue Code –

  • disregarded, if a single-member (by default as explained above, or subsequently after a prior change of tax classification by filing form 8832 entity classification election)
  • partnership, if multi-member (by default as explained above, or subsequently after a prior change of tax classification by filing form 8832 entity classification election)
  • C-Corp, by filing form 8832 entity classification election, or subsequently to revoke S-Corp tax classification by filing form 2553 election by small business corporation)
  • S-Corp, if owned by US individual taxpayers (by filing form 8832 entity classification election, and thereafter by filing form 2553 small business corporation)

A DAO LLC is unlikely to have a single member, and it is unlikely that all members will be US individual taxpayers.

Therefore, a DAO LLC would generally be treated as a partnership for tax purposes, or elect C-Corp tax treatment.


In a partnership LLC, income is passed through the members and attributed to the members’ income tax for US tax purposes. 

If the members are US tax residents – the members pay income tax on their share of profits of the LLC, regardless of whether income is distributed or not.

If the members are not US tax residents, each member will pay taxes on US-sourced income proportionally to the interest held in the DAO LLC.

US-sourced income may be effectively connected income to a US trade or business. 

The IRS uses two tests to determine whether income is effectively connected to a US trade or business

  • asset test use – income or gain is derived from assets in, or held for use, in the conduct of the trade or business in the US (e.g. inventory is held for sale in the US); and/or
  • business activities test – whether the activities of the trade or business were conducted in the US and were a material factor in the realization of the income 

Then, whether the DAO LLC engages in a US trade or business depends upon whether the activity taking place in the US reaches the level of a trade or business, and/or whether it has relevant connections to the US, and whether the activities carried out in the US for the LLC are sufficient to attribute those activities to the foreign corporation.

Such income is taxed at the relevant rates applicable to the member of the LLC (e.g. depending on whether it is a company or individual). Foreign companies and individuals may need to register for tax purposes in the US and submit tax reports as nonresidents (e.g.Form 1040-NR, Form 1120F, etc, as applicable).

Regardless of  the above, a partnership return of Income (Form 1065 and Schedule K for each member) shall be submitted to the IRS as an information return on the income of the LLC annually.

If the DAO LLC generates US–sourced income that is not effectively connected to a US trade or business meaning income that is fixed, determinable, periodical or annual (FDAP), 30% withholding tax (unless reduced or exempted under a double tax treaty available to a specific member of the LLC) would apply. FDAP encompasses different types of income, including but not limited to dividends, royalties, interests, sales commissions, and other US-sourced income that is not effectively connected to a US trade or business.


LLC that elect to be taxed as a C-Corp by filing Form 8832 Entity Classification Election are subject to 21% corporate tax, and dividends distributed to nonresident members (e.g. profit distributions to DAO members), subject to 30% withholding tax unless reduced by a double tax treaty. In such case For C-Corps, a full federal income tax return (Form 1120) must be submitted in April, unless the Corporation has a financial year other than the calendar year (then the 4th month after the financial year end), including subsidiary forms (e.g. Form 5472 disclosing reportable transactions between related parties), among others.

Other Issues

Further tax issues must be considered, for instance, if the DAO LLC owns real estate property in the USA, or otherwise, the DAO LLC is controlled by US persons and holds controlled foreign companies (GILTI, Subpart F, etc).

In any case, due to the nature of a DAO, for DAO LLCs with certain US members, or otherwise generating US-sourced income, tax compliance in the USA may be substantially complex and challenging.

Additional Notes

For those thinking about incorporating a DAO in Wyoming, it might be noticeable to think about hypothetical conditions that could compromise members’ limited liability—particularly during asset distributions. If distributions reduce the DAO’s assets to a point where debts outweigh capital, members could be held personally liable for the deficit. Wyoming’s Decentralized Autonomous Organization Supplement treats DAOs similarly to LLCs, while under the Limited Liability Company Act (§17-29-406), members who receive distributions that harm the entity’s financial health may need to return those funds to settle creditor claims.



The concept of a foundation frequently surfaces as a ‘legal wrapper’ for DAOs, providing them with a bridge to the legal world. A foundation is a legal entity without owners (and sometimes with no beneficiaries), primarily utilized for non-profit purposes. It differs from a corporation that has shareholders and a trust that is an arrangement concerning property management. 

Foundations are hybrid in nature, containing features of the corporation (legal personality) and the trust (created for a purpose or benefit). Unlike a company, foundations have no shareholders, though they have legal personality and have a board (council members). Unlike a Trust, a Foundation has a legal personality on its own.

A foundation may hold assets in its own name for the purposes set out in its constitutive documents, and its administration and operation are carried out by the Council Members in accordance with the Foundation charter or regulations of association rather than fiduciary principles.

To summarize, is an orphan entity with the following characteristics 

  • No owners/shareholders
  • It has legal personality
  • It can be solely established to carry out a purpose and not for the benefit of persons.
  • Provides for a perpetuity of purpose.

A foundation mainly orchestrates DAO operations, bringing an ownerless structure that may mitigate risk for the core team. A Foundation is an entity that  can carry out acts on its own, it can also be set up for the purpose of following mandates of a DAO and/or for the benefit of the DAO token holders. A Foundation may support the activities of a DAO, its objects may be for the benefit of the DAO and may even designate token holders as a class of beneficiaries if desired. 

Operating with central management, a foundation introduces a degree of centralization of a DAO: a foundation may generally possess the ability to impact decisions regarding alterations in the operational guidelines of the smart contract, the administration of treasury assets, the development of blockchain products, or the strategy for protocol development. 

Therefore, while the process of voting by DAO members, vote calculation, and execution of decisions by DAO are mainly delineated within the DAO constitution, such rules must be synchronized with the foundation’s bylaws.

A foundation may hold the DAO’s treasury and intellectual property rights, acting as the custodian/manager of assets. However, the same may trigger regulatory implications under investment business laws as investment manager or otherwise custodian (either virtual asset custody service or securities custody service) of the relevant jurisdiction.

This entity may potentially facilitate real-world interactions on behalf of the DAO, such as forging partnerships or engaging with centralized exchanges for DAO token listings.

However, and for the avoidance of doubt, a foundation is not ‘embodying’ the DAO. The foundation and the DAO are two distinct organizations. In this context there is no legal certainty regarding creditor rights—specifically, if a creditor can claim DAO assets when the contract is concluded with the foundation.

There is another relevant matter which is the fiduciary duties of the directors owed to a foundation. Such fiduciary duties are prescribed by law. As directors have such fiduciary duties, they should be able to act independently without following instructions of any other party.

If the articles of the foundation provide that the directors shall follow instructions and mandates of the DAO, the directors may be able to act independently and legally ignore such instructions as they (and not the DAO) owe such fiduciary duties to the foundation.

Synchronizing DAO membership with foundation membership may be challenging as well, given that the Foundation must maintain a register of members who must be identified, among other issues.

However, one may provide in the articles of the foundation that the foundation shall achieve a specific purpose. Such a purpose may be tied to the DAO. The directors and supervisors should always act in accordance with the purpose of the foundation. A board of supervisors may oversee that the directors take relevant actions to fulfill such foundation purposes. However, there could be legal uncertainty as to whether any DAO member itself would be able to legally enforce this.

Although the operational structure of a foundation may be predominantly non-profit (not for the benefit of shareholders), it is permissible to extend reasonable fees to its managers, service providers and counterparties. For DAOs, a foundation is mostly crafted with a specific purpose in mind, and this predefined objective constrains its activities.

A foundation’s legal ‘shield’ primarily covers activities and transactions that it directly facilitates or endorses only. DAO members acting independently, outside the purview of a foundation, do not benefit from this legal protection. When these individuals or sub-groups engage in activities not represented or managed by a foundation, they may inadvertently assume risks similar to those inherent in a general partnership, as their conduct falls outside the scope of the foundation’s legal framework.

In the context of decision-making, DAO smart contracts primarily organize and record consensus, with a foundation acting as the executor. However, the current legal frameworks do not offer robust mechanisms to enforce DAO decisions via a foundation. For instance, there is no clear legal pathway to enforce the discharge of a board of directors if needed. In this regard, the role of a protector/supervisor, either an individual or a legal entity, having the right to ban the foundation’s actions emerges as a figure representing the DAO safeguard mechanism against a foundation, while a DAO remains purely an on-chain governing algorithm.

Cayman Islands


The Cayman Islands Foundation Company has emerged as one of the most popular solutions to serve DAOs and provide a bridge between the on-chain and physical legal worlds. It is formed under the Companies Act and the Foundation Companies Act, and may be incorporated with or without share capital and may serve as a legal vehicle.

The Cayman Islands Foundation Company, limited by guarantee, is distinctive in that it may include members who have agreed to guarantee the Foundation’s obligations up to a specified nominal amount in the event of liquidation, and have a vote in the general meeting of the foundation.

Structure and Governance

Directors. A foundation is managed by the directors, whose responsibility is to oversee the daily operations and strategic direction of a Foundation. The composition of the board may include both individuals and corporate entities. Their appointment is a matter of public record, their details are available in the public register. 

Supervisors. Supervisors act as an oversight mechanism, endowed with voting rights during general meetings. While the Directors handle the administrative and operational aspects, the Supervisors provide checks and balances, holding the Directors accountable. The particulars of the Supervisors do not appear in the public register. Supervisors are generally entitled to vote in a general meeting. A member or supervisor may also be a director, and there is no requirement that a foundation company have supervisors who are not directors. Each foundation company shall keep at its registered office a register with details of its supervisors. A foundation shall have at least 1 supervisor or 1 member.

Founder. The role of the Founder, while optional, is to establish the Foundation. This entity, whether individual or corporate, may or may not retain certain rights or obligations post-establishment, as delineated in the Foundation’s Articles. The discretion regarding the Founder’s involvement allows for flexibility in the Foundation’s inception and ongoing connection with its originator, which may be of high importance for a DAO and is in complete harmony with the decentralized principles.

Members. Initially established by at least one member, the Foundation can choose to maintain or dissolve its membership base post-incorporation. Members have voting authority in general meetings, influencing critical decisions such as the appointment of Directors and potential dissolution scenarios. They also bear the nominal guarantee on the Foundation’s debts. The foundation must have at least one supervisor or one member. In the event that a DAO opts to incorporate members within its foundation structure, such members must be identified and their details maintained in a register of members. 

However, the identity of these members is not disclosed on any public register. The rights and privileges assigned to members are limited; while they hold the power to cast their votes in general meetings, they are restricted from claiming any dividends or direct profits generated by the foundation. 

A member of a foundation company is not considered to receive a dividend or distribution solely by virtue of being a beneficiary receiving benefits, receiving reasonable remuneration, being indemnified or reimbursed for expenses, benefiting from arm’s length transactions, or potentially receiving surplus assets upon winding-up.

Beneficiaries. A Foundation may designate beneficiaries, individuals, legal entities, or a class eligible for economic benefits from the Foundation’s activities. The scope of these benefits and the rights of the beneficiaries are articulated within the Articles of the Foundation.

Secretary. A foundation company must always have a qualified person under the Companies Management Act as its secretary, who remains in office until replaced by another qualified person and the Registrar is notified. An unqualified person may be appointed as an assistant secretary.

In general, a foundation company’s articles of association provide for substantial flexibility for the organization and governance of the foundation. The articles may allocate rights, powers, and duties to members, directors, officers, supervisors, founders, or others, alongside provisions for its management by directors or their delegates. Therefore, Foundation Companies Act, 2017 might be seen as comparatively flexible for the purposes of DAO governance structuring.

Regulatory Environment for VASPs


Under the Virtual Asset (Service Providers) Act, 2020 of the Cayman Islands as amended (the VASP Act), a “virtual asset service”  includes issuing virtual assets and providing specific services on behalf of individuals or entities. 

A “virtual asset service” is defined as – the issuance of virtual assets or the business of providing one or more of the following services or operations for or on behalf of a natural or legal person or legal arrangement — 

  • exchange between virtual assets and fiat currencies; 
  • exchange between one or more other forms of convertible virtual assets; 
  • transfer of virtual assets; 
  • virtual asset custody service; or 
  • participation in, and provision of, financial services related to a virtual asset issuance or the sale of a virtual asset (e.g. market making).

If the foundation considers issuing tokens to the public in or from the Cayman Islands, it should be a registered person under the VASP Act. The term “issuance of virtual assets” or “virtual asset issuance” means the sale of newly created virtual assets to the public in or from within the Islands, in exchange for fiat currency, other virtual assets, or other forms of consideration.  Issuing virtual assets necessitates prior approval from CIMA. Private sales are exempt from registration. A “private sale” means a sale, or offer for sale, which is not advertised and is made available to a limited number of persons or entities who are selected prior to the sale by way of a private agreement.

Collective Investment Schemes

Additional regulatory considerations arise under the Mutual Funds Act (MFA) and the Private Funds Act (PFA) for collective investment schemes.

The MFA defines a “mutual fund” as a company, unit trust or partnership that issues equity interests, the purpose or effect of which is the pooling of investor funds with the aim of spreading investment risks and enabling investors in the mutual fund to receive profits or gains from the acquisition, holding, management or disposal of investments but does not include a person licensed under the Banks and Trust Companies Act (2021 Revision) or the Insurance Act, 2010 [Law 32 of 2010], or a person registered under the Building Societies Act (2020 Revision) or the Friendly Societies Act (1998 Revision).

“equity interests” are defined as a share, trust unit, partnership interest or any other representation of an interest that — 

  • carries an entitlement to participate in the profits or gains of the company, unit trust or partnership; and 
  • is redeemable or repurchasable at the option of the investor and, in respect of a company incorporated in accordance with the Companies Act (2021 Revision) (including an existing company as defined in that Act), in accordance with but subject to section 37 of the Companies Act (2021 Revision) before the commencement of winding-up or the dissolution of the company, unit trust or partnership, but does not include debt, or alternative financial instruments as prescribed under the Banks and Trust Companies Act (2021 Revision).

Given that the definition of equity interest encompasses “any other representation of an interest” – a foundation issuing a token representing a redeemable interest in a collective investment scheme (collective investment DAO whose interests are issued or offered by the foundation) may fall under the MFA.

The PFA defines as a “private fund” a company, unit trust or partnership that offers or issues or has issued investment interests, the purpose or effect of which is the pooling of investor funds with the aim of enabling investors to receive profits or gains from such entity’s acquisition, holding, management or disposal of investments, where :

  • the holders of investment interests do not have day-to-day control over the acquisition, holding, management or disposal of the investments; and
  • the investments are managed as a whole by or on behalf of the operator of the private fund, directly or indirectly.

“investment interest” means a share, LLC interest, trust unit or partnership interest that — (a) carries an entitlement to participate in the profits or gains of the company, unit trust or partnership; and (b) is not redeemable or repurchasable at the option of the investor,

Securities Businesses

In the Cayman Islands, entities engaging in securities investment business, including operations with cryptocurrencies deemed securities, are governed by the Securities Investment Business Act (SIBA). A virtual asset service provider shall not engage in securities investment business unless the person is registered or is a licensee under SIBA. 

Cryptocurrencies are classified as securities under SIBA if they align with assets, rights, or interests outlined in this Act, particularly those virtual assets capable of immediate or future sale, trade, or exchange, which either represent specific securities or derivatives thereof. 

The broad categories encompass shares, debt instruments, entitlements to securities, certificates representing securities, options, futures, and contracts for differences. 

Furthermore, regulatory implications under SIBA may arise if the foundation manages assets belonging to other persons (e.g. DAO members).

SIBA may lead CIMA to categorize issued tokens as stock or debt if their attached rights, as detailed in the white paper, resemble traditional equity or debt rights, triggering potential SIBA registration or licensing requirements. 


The Cayman Islands does not levy corporate income taxes or any other form of direct taxes. In addition, a foundation company may apply for an undertaking from the Governor that no law enacted in Cayman imposing any tax to be levied on profits or income or gains or appreciations shall apply to the company. The undertaking will be for a maximum of 20 years.

Economic Substance 

Under the International Tax Co-operation (Economic Substance) Act, 2018 – companies, including foundation companies, conducting relevant activities must meet substance requirements.

‘Relevant activities’ include:

  • banking i.e. banking business
  • insurance i.e. insurer
  • finance and leasing i.e. business of providing financing or leasing of assets
  • fund management i.e. management of collective investment schemes
  • distribution and service center business i.e. reselling goods to affiliated companies or providing services to affiliated companies. Affiliated company is defined as a company which is part of the same group (e.g. parent-subsidiary, sister entity with common parent company, etc).
  • headquartering i.e. providing management services to affiliated companies
  • intellectual-property business i.e. holding and exploiting IP assets, generating identifiable revenue from such assets. Please note that the provision of services for developing IP assets or holding or using IP assets for ordinary commercial or service business is not considered an intellectual property business. IP businesses are those that generate separate and identifiable revenue from IP assets (e.g. patent licensing)
  • shipping i.e. transportation by sea of persons, animals, goods or mail, the renting or chartering of ships for such transportation, management of ship crew, sale of travel tickets, the use, maintenance or rental of containers, including trailers and other vehicles or equipment for the transport of containers, used for the transport of anything by sea
  • holding company i.e. pure equity holding company, companies that only own equity interests in other companies, and only earn dividends and capital gains.

Note that investment fund vehicles are explicitly excluded from this legislation.

Companies that carry out relevant activities must satisfy the economic substance test – they must:

  • conduct its core income-generating activities in Cayman (which are defined in the law).
  • be directed and managed from within Cayman.
  • have an adequate amount of operating expenditures incurred in or from within the Islands.
  • have an adequate physical presence (including maintaining a place of business or plant, property, and equipment) in the Islands.
  • have an adequate number of full-time employees or other personnel with appropriate qualifications in the Islands.

Holding companies which only hold equity participations in other entities and only earn dividends and capital gains will be subject to a reduced economic substance test – it must have complied with all applicable filing requirements and must have adequate human resources and adequate premises in the Islands for holding and managing equity participations.



In Panama, a Private Interest Foundation presents itself as a vehicle capable of catering to various functions within the DAO sphere such as furthering the objectives of token protocols and their respective communities, and acting as an autonomous body that executes DAO directives.

Foundations are established under Law No. 25 of June 12, 1995 On Private Foundations (as amended), and operate as a legal entity, combining attributes of both corporations and trusts. 

Like a corporation, a foundation is endowed with legal personality; however, it diverges by having no shareholders. The trust shares the characteristic of being established for a specific purpose or benefit, yet a foundation differs by possessing legal personality in its own right, enabling it to hold assets independently. 

Panama Private Interest Foundation shall not be commercially-oriented; the economic result or proceeds from commercial activities may be used exclusively towards the foundation’s objectives.

Structure and Governance

Panama’s legal framework exhibits flexibility regarding the Charter and Regulations of a Private Interest Foundation, a feature that is particularly advantageous for various DAOs (DAOs). The law allows for tailoring these documents to fit specific purposes, commonly tied to enhancing protocol or ecosystem development. The Foundation’s Regulations are not required to be filed with the governmental authorities.

Private Interest Foundation is managed by Council Members, whose responsibilities are dictated by the foundational charter or the regulations. The main roles are the following:

Founder. It initiates the foundation by executing the foundational deed. While the Founder may choose to remain distanced from the control mechanisms of the foundation, it is permissible to assign specific rights to this individual, should the circumstances require.

Council. The Foundation Council, comprising a President, Secretary, and Treasurer, bears the responsibility of executing the foundation’s purposes as delineated in its Charter or regulations. Eligible as either individuals (at least three council members) or legal entities—with the latter permissible to stand as a singular council member—the identities of these council members are officially recorded in the public registry. Charged with upholding the foundation’s confidentiality and secrecy, the Council operates under the scope of authority granted within the foundational documents. Additionally, a founder may choose to actively engage in the Council’s activities.

Protector. Protector, appointed by the Foundation Council, holds an overseeing power over the foundation and its assets. Optionally, the foundation may elect not to designate a Protector. The name of the Protector is not listed in the public registry records.

Beneficiaries. Persons selected to benefit from the foundation’s assets or income. They are not publicly disclosed. The Protector, vested with the authority to outline the scope and nature of benefits, may be designated as the initial beneficiary.

Regulatory Environment for VASPs

The Supreme Court of Panama has invalidated a legislative proposal that sought to grant cryptocurrencies legal status, deeming the entire proposed law unconstitutional (the court’s order as of July 14, 2023). This decision came after the country’s President raised objections, citing constitutional and enforcement concerns, particularly regarding anti-money laundering standards.

When it comes to existing legislation that could apply to virtual asset service providers, investment businesses are regulated under the Decree Law 1 of 1999 and laws amending it, and Title II of Law 67 of 2011, (modified by Law No. 12 of the 3rd of April of 2012, and Law No. 56 of 2nd of October of 2012) Of the securities market in the Republic of Panama and the Superintendence of the Securities Market. 

The Decree Law regulates the following activities –

  • Registration of securities and authorization of public offers of securities. 
  • Investment advisory services. 
  • Acting as intermediaries in respect of securities and financial instruments. 
  • Opening and managing investment and custody accounts. 
  • Administration of investment companies. 
  • Custody and deposit of securities. 
  • Administration of systems of trading securities and financial instruments. 
  • Compensation and settlement of securities and financial instruments. 
  • Credit rating. 
  • The service of providing information about securities prices. 
  • Self‐regulation as referred in the Securities Market Law. 
  • Providing information to the securities market, including gathering and processing of such information. 
  • Other activities contemplated in the Securities Market Law or determined by other laws, provided that they always represent the activities of handling, utilizing and investing resources obtained from the public in securities or financial instruments.

The Decree Law defines as financial assets any security, cash money and any other movable property, which a regulated intermediary may keep in a custody account in favor of a given person, if the intermediary and said person have agreed to recognize said movable property as a financial asset.

The abovementioned Decree Law 1 of 1999 and its reformatory laws and Title II of Law 67 of 2011 on the securities market in the Republic of Panama and the Superintendence of the Securities Market – defines as “activos financieros” (in English, financial assets) as-

Incluyen todo valor, dinero en efectivo y cualquier otro bien mueble que un intermediario mantenga en una cuenta de custodia a favor de una persona, si el intermediario y dicha persona han acordado reconocer dicho bien como un activo financiero sujeto al Título X de este Decreto Ley, siempre que dicho bien no haya sido excluido de este término por la Superintendencia.

in English –

Including any security, cash money and any other movable property, which an intermediary may keep in a custody account in favor of a given person, if the intermediary and said person have agreed to recognize said movable property as a financial asset subject to the Title X of this Decree law, as long as such asset has not been excluded from this definition by the Superintendence.

“Valor” (in English, Security) is defined as –

Todo bono, valor comercial negociable u otro título de deuda, acción (incluyendo acciones en tesorería), derecho bursátil reconocido en una cuenta de custodia, cuota de participación, certificado de participación, certificado de titularización, certificado fiduciario, certificado de depósito, cédula hipotecaria, opción y cualquier otro título, instrumento o derecho comúnmente reconocido como un valor o que la Superintendencia determine que constituye un valor. Dicha expresión no incluye los siguientes instrumentos: 

  1. Certificados o títulos no negociables representativos de obligaciones, emitidos por bancos a sus clientes como parte de sus servicios bancarios usuales ofrecidos por dichos bancos, como certificados de depósito no negociables. Esta excepción no incluye las aceptaciones bancarias negociables ni los valores comerciales negociables emitidos por instituciones bancarias. 2. Pólizas de seguro, certificados de capitalización y obligaciones similares emitidas por compañías de seguros. 3. Cualesquier otros instrumentos, títulos o derechos que la Superintendencia haya determinado que no constituyen un valor

in English –

Any bond, negotiable commercial security or other debt instrument, share (including treasury shares), stock market right recognized in a custody account, participation fee, participation certificate, securitization certificate, trust certificate, certificate of deposit, mortgage certificate , option and any other title, instrument or right commonly recognized as a security or that the Superintendency determines to constitute a security. Said expression does not include the following instruments:

  1. Non-negotiable certificates or titles representing obligations, issued by banks to their clients as part of their usual banking services offered by said banks, such as non-negotiable certificates of deposit. This exception does not include negotiable bankers’ acceptances or negotiable commercial securities issued by banking institutions. 2. Insurance policies, certificates of capitalization and similar obligations issued by insurance companies. 30 3. Any other instruments, titles or rights that the Superintendence has determined do not constitute a security

Collective investment schemes in Panama are regulated under the “Decreto Ley 1 de 1999 y sus leyes reformatorias y el Título II de la Ley 67 de 2011 Sobre el mercado de valores en la República de Panamá y la Superintendencia del Mercado de Valores” (in English – Decree Law 1 of 1999 and its reformatory laws and Title II of Law 67 of 2011 on the securities market in the Republic of Panama and the Superintendence of the Securities Market “.

A “Sociedad de Inversion” (in English, “investment company”) is defined as 

Persona jurídica, fideicomiso o arreglo contractual que, mediante la expedición y la venta de sus propias cuotas de participación, se dedica al negocio de obtener dinero del público inversionista a través de pagos únicos o periódicos, con el objeto de invertir y negociar, directamente o a través de administradores de inversión, en valores, divisas, metales e insumos, bienes inmuebles o cualesquier otros bienes que determine la Superintendencia.

in English – 

Legal entity, trust or contractual arrangement that, through the issuance and sale of its own participation quotas, engages in the business of obtaining money from the public through single or periodic payments, in order to invest and trade, directly or through through investment managers, in securities, currencies, metals and supplies, real estate or any other property determined by the Superintendency..

Generally, virtual assets and virtual asset service activities would fall outside of securities and investment business laws in Panama with very few exceptions.


A Panama Private Interest Foundation is exempt from taxes, provided that no residents of Panama benefit from the Foundation and no physical assets held in the Foundation are located in Panama.



Nevis foundations are formed under the Multiform Foundation Ordinance.

At the time of registering the Multiform foundation one can elect how the foundation shall be treated from a legal perspective – as a company, as an LLC, as a trust, or as an ordinary foundation. The status of the Foundation can be changed during its lifetime. Generally, most foundations are established as ordinary foundations, although it may be important for a DAO to adapt its structure to particular needs.

Structure and Governance

The management is executed through a Board and a mandatory Secretary, with an optional Supervisory Board. The Management Board has powers akin to a common law trust. This necessitates careful drafting of the constitutions to exclude an unacceptable level of DAO centralization. Summarizing, a Nevis Foundation has the following roles:

Subscriber – This is the person that subscribes to the Memorandum of Establishment and forms the Foundation. We take this role.

Management Board Members – The business and affairs of a Multiform Foundation must be managed by the management board which must administer the entity’s assets in accordance with its bylaws. This role is akin to the directors of a corporation or the managers of an LLC or to the trustee (if the multiform foundation is formed as a trust foundation)

Supervisory Board – The Supervisory Board oversees the actions of the management board, and has the power to appoint or dismiss a management board member, and to vet certain decisions of the board if provided by the bylaws of the Foundation.

Secretary – The management board is assisted in its administration of the foundation by a secretary. The secretary may be a natural or legal person but shall not be the sole member of the management board.

Beneficiaries – A Multiform Foundation may be formed to benefit persons, or for a purpose (which may be charitable or non-charitable), or for both. Therefore, there is no requirement to name a beneficiary, and it can be named at any time.

Members of the Management Board, Supervisory Board, and Secretary are bound by fiduciary duties towards a foundation.

Regulatory Environment for VASPs

Virtual Assets

Although the Nevis Assembly passed the Virtual Assets Act in 2020, such Act is not yet in force and the licensing scheme has not yet been implemented.

At this time, all members of the Eastern Caribbean Currency Union are jointly working to harmonize the regulations emanating from the relevant virtual asset regulatory framework of the member states. It is expected that the virtual asset legal frameworks across the Eastern Caribbean Currency Union will commence and enter into force at some point this year, and that existing operators will be granted 6 months to apply for a license to maintain operations.

Virtual Asset Business will be regulated by the Financial Services Regulatory Commission. A virtual asset business is considered the business of providing intermediary services related to –

  • exchange between a virtual asset and fiat currency;
  • exchange between one or more forms of virtual assets;
  • transfer of a virtual asset whether or not for value;
  • safekeeping or administration of a virtual asset or instruments enabling control over a virtual asset; 
  • participation in and provision of financial services related to an issue or sale of a virtual asset.

Issuers of virtual assets will also be required to file a prospectus with the Financial Services Regulatory Commission. The prospectus must include detailed information about the virtual asset, including its functionality, risks, financial projections, and measures for data protection and cyber threat mitigation.


When it comes to securities and investment business legislation, the same would not generally be relevant to virtual asset service providers operating offshore through Nevis structures.

In Nevis, Securities businesses are regulated by the Eastern Caribbean Securities Regulatory Commission (ECSRC) under the Securities Act.

Licenses are required from the ECSRC where the applicant conducts business or holds himself out as conducting business in a member territory. Member territory being Anguilla, Antigua and Barbuda, Dominica, Grenada, Montserrat, St. Kitts and Nevis, St. Lucia, and St. Vincent and the Grenadines

The term “conducts business, or holds himself out as conducting business” … shall include but not limited to –

  • use of the telephone, telegraph, mail, internet, e-mail or any other means to communicate with investors or potential investors located in a member territory, whether on a regular or sporadic basis:
  • investors located in a member territory, whether on a regular or sporadic basis:
  • visiting investors or potential advisors in a member territory, whether singly or in groups, to communicate with them about an investment in securities, whether on a regular or sporadic basis; registration as a principal or representative with a securities exchange in connection with a foreign broker dealer or limited service broker’s membership in a securities exchange; or 
  • engaging in any other activity or combination of activities described in –
  • section 47 in the case of foreign broker dealers or limited service brokers, or
  • section 53 in the case of foreign investment advisers

Generally, securities businesses that do not operate or do not offer their services to residents in a member territory do not fall under the Securities Act.


Nevis foundations are exempt from taxes in Nevis as long as they do not transact with Nevis residents.

Nevis Foundations can also elect to be tax resident in Nevis. If the foundation elects to be tax resident in Nevis, income and gains of the foundation shall be taxed at 1%. The main purpose of having a foundation that is tax resident in Nevis is to access treaty benefits available under the CARICOM double tax treaty.

Article 93 of the Multiform Foundation Ordinance provides –

(1) Subject to subsection (2), notwithstanding any provision to the contrary in any law of Nevis, a multiform foundation shall not be subject to assessment or liable for any tax in Nevis, and the beneficiaries of a multiform foundation shall similarly be exempt from all income, capital gains and withholding taxes which may arise out of their beneficial entitlement in or to the multiform foundation or any of its assets or property.

(2) Unless the multiform foundation is a tax resident foundation, the provisions of subsection (1) shall only apply to a multiform foundation which effects transactions exclusively with persons who are not resident in Nevis, provided that a multiform foundation and its beneficiaries shall not lose their exemption under subsection (1) by reason only that the multiform foundation

  • effects transactions with, or buys or sells or otherwise deals in any securities issued or created by, any person resident in Nevis who is exempt from all income, capital gains and under any law of Nevis;
  • effects or concludes in Nevis any contract or arrangement, including contracts or arrangements with any person resident in Nevis for employment with, or of the supply of goods and services to, the multiform foundation, and exercises in Nevis all other powers, so far as may be necessary for their proper performance;
  • carries on any part of its administration within Nevis, and holds meetings in Nevis;
  • owns or leases property in Nevis for the carrying on of any part of its administration or as a residence for its management board, supervisory board or beneficiaries; or
  • transacts banking business with any person resident in Nevis who is authorized to carry on banking business under any law of Nevis.

(3) A multiform foundation may apply to the Minister for a tax resident certificate and elect to pay such tax or taxes as the Minister may by regulations made under this Ordinance prescribe at a rate of not greater than one percent, and upon issue of such a certificate the provisions of subsection (1) shall apply, except with respect to any of the prescribed taxes payable, and the multiform foundation shall be tax resident in Nevis for all purposes.



Foundations are established through a written charter, specifying the foundation’s name, founders, objectives, initial assets, registered agent and office in Seychelles, and the appointment of beneficiaries​​. The foundation requires a registered agent in Seychelles and must maintain a registered office. 

The agent handles legal compliance and record preservation​​. The foundation has the capacity to enter contracts, appoint attorneys, sign documents, and maintain a foundation seal​​. Foundations are required to maintain accounts, preserve records, and keep a register. Compliance inspections are also mandated​​.

Structure and Governance

Founders have specific powers and obligations, with the ability to assign their rights and reserve certain rights, like approving amendments to the charter or regulations, appointing or removing councils or supervisory persons, and managing Foundations’ activities​​.

Council must be established, consisting of one or more persons. The council’s duties include carrying out the foundation’s objectives, managing assets, and administering operations. Councilors are appointed per the charter or regulations and must act in good faith and with diligence​​.

Protectors can be appointed under the charter or regulations to supervise the foundation’s operations​​.

Beneficiaries may be appointed by councilors, and they may have specific rights to information about the foundation. They are not owed a fiduciary duty​​.

Given the flexibility in the structure and governance of Seychelles Foundations, DAOs can adapt these frameworks to their specific needs:

  • Define roles within the council, tailoring it to the DAO’s decentralized governance model.
  • Utilize the concept of a protector for additional oversight or to integrate off-chain governance elements.
  • Structure the charter and regulations to align with the DAO’s objectives.
  • Appoint beneficiaries in a way that reflects the DAO’s community-oriented goals, possibly including token holders or contributors as beneficiaries.

Regulatory Environment for VASPs


Virtual asset service providers are currently not regulated in Seychelles and do not currently require a regulatory license or permit. 

The procedure for enacting a virtual asset service legal framework in Seychelles has been initiated. Initial proposed draft bill can be found at

It is expected that the bill and amendments to AML legislation will be finalized and tabled in the Assembly shortly and submitted for review to the Eastern and Southern African AML/CTF task force for re-rating. It is said that the re-rating will be finalized by September.

Once the above-mentioned virtual asset service legal framework enters into force, the company may have a grace period of 6 months to apply for a license.

Other relevant legislation may include the Securities Act and the Mutual Fund and Hedge Fund Act.


Securities businesses (securities exchanges, clearing agencies, securities facilities, securities dealers, and investment advisors, as well as public issuers of securities) are regulated under the Securities Act. Securities can be the following:

  • shares and stock of any kind in the share capital of a company in Seychelles or elsewhere
  • shares or other units of participation in a mutual fund as defined in the Mutual Fund and Hedge FundAct.
  • debentures, debenture stock, loan stock, bonds, certificates of deposit and any other instruments creating or acknowledging indebtedness
  • warrants and other instruments entitling the holder to subscribe above mentioned securities
  • certificates or other instruments which confer contractual or proprietary rights on any of the above mentioned securities
  • options to acquire or dispose of a security (any of those mentioned in this list), any currency; or any precious metal; or an option to acquire an option as defined in this sentence.
  • rights under a contract for the disposal of a commodity or property of any other description under which delivery is to be made at a future date and at a price agreed upon when the contract is made other than a contract made for commercial and not investment purpose.
  • rights under a contract for differences; or any other contract the purpose or pretended purpose of which is to secure a profit or avoid a loss by reference to fluctuations in – the value or price of property of any description; or an index or other factor designated for that purpose

Mutual Funds

“mutual fund” — means a company, unit trust or partnership that collects and pools investor funds for collective investment purposes including hedge fund purposes or with the aim of spreading investment risks, and issues equity interests enabling investors in the mutual fund to receive or have the right to receive a portion of profits or gains derived from the investments, and includes —

  • an umbrella fund whose equity interests are split or segregated into different funds or sub-funds;
  • a hedge fund;

“equity interest” means a share, trust unit or partnership interest that —

  • carries an entitlement to participate in the profits or gains of the company, unit trust or partnership; and
  • is redeemable or re-purchasable at the option of the investor before commencement of the winding up, termination or dissolution of the company, unit trust or partnership, but does not include a debt


Income and gains arising outside of Seychelles, and distributions to beneficiaries are completely exempt from taxation in Seychelles even if “managed and controlled” by a Foundation Council from Seychelles.

The following laws do not apply to a Foundation: Business Tax Act (except the provisions relating to exchanging information on tax matters),  ​Income and Non-Monetary Benefits Tax Act, Stamp Duty Act (except several provisions regarding real estate transfer), and Goods and Services Act and Value added Tax Act (concerning the services provided by a foundation or by councilor, supervisory person, registered agent or founder). Also, the Act states that no estate, inheritance, succession, or gift tax shall be assessed on or be payable by a person concerning any properties, shares, securities, or other assets transferred to, held by, or relating to a Foundation. 

These exemptions and concessions are granted for a substantial period of 20 years from the date of registration of a Foundation under this Act. In general, it means there is no taxation for foundations in Seychelles.

Cook Islands


The Cook Islands Foundation, a legal entity without shareholders and with optional beneficiaries, is established and governed by the following the Foundation Instrument and the Foundation Rules

  • Foundation Instrument: This is the principal public document of the foundation. It delineates the foundation’s core identity and purpose. The foundation’s objectives are explicitly stated, outlining the scope and direction of its activities. Additionally, the instrument specifies the foundation’s registered agent – a mandatory appointment.
  • Foundation Rules: These are internal governing documents; they are not publicly accessible. The rules encompass a structure for the foundation’s council, defining its composition, roles, and responsibilities. They lay down the operational procedures, delineating the procedural aspects of foundation governance. The powers and obligations of various stakeholders within the foundation are also detailed. These rules may include other regulations deemed necessary for the foundation’s functioning. The Foundation’s Rules must explicitly contain provisions for its voluntary dissolution. A foundation will automatically dissolve if it no longer has any assets.

Structure and Governance

  • Founder: Responsible for establishing the foundation and dedicating assets with specific rights and obligations under the foundation rules.
  • Beneficiary (Optional): May receive benefits under foundation rules but holds no interest in the foundation’s assets.
  • Dedicator (Optional): Can transfer assets to the foundation without being a founder.
  • Enforcer (Optional): Oversees the council’s activities and ensures adherence to foundation rules.
  • Council: Obligatory body managing the foundation’s objectives and property, with legal responsibilities and potential liabilities.
  • Registered Agent: A Cook Islands registered trustee company providing a registered office for the foundation and potentially being a member of the council.

The flexible nature of roles like the founder, council, and enforcer can align with a DAO’s decentralized governance model. The foundation rules can be tailored to reflect the DAO’s specific objectives and operational procedures. 

A Cook Islands Foundation is restricted in engaging directly in commercial trading activities. Such activities are permissible only if they are incidental to achieving the foundation’s objectives. Non-charitable foundation objectives allowed.

Regulatory Environment for VASPs

Currently, in the Cook Islands, specific legislative frameworks for VASPs are yet to be formally established. However, companies engaging in virtual currency business must comply with the Cook Islands Financial Transactions Reporting Act, which consists of:

  • appointing a Money Laundering Reporting Officer who is responsible for the compliance program. Currently the requirement is that this must be a natural person who is resident in the Cook Islands and has the appropriate expertise and experience.
  • having a full compliance program to the satisfaction of the Financial Intelligence Unit. 

Virtual currency business means a business that provides 1 or more of the following services in the case of a virtual currency: issuing; transmitting, transferring; providing safe custody; providing storage; administering; managing; lending; buying; selling; exchanging; trading in any other way.

The Financial Regulatory Supervision of the Cook Islands regulates and supervises the following activities which are unlikely to affect most virtual asset service providers.

  • Banking business (under the Banking Act), 
  • Insurance Business (under the Insurance Act), 
  • Captive Insurance Business (under the Captive Insurance Act), 
  • Trust Business (under the Trustee Companies Act), and 
  • Money-changing & Remittance Business (under the Money-Changing & Remittance Business Act)


Cook Islands Foundations are exempt from any form of taxes and duties. Section 87 of the Foundations Act provides that:

87. No enactment of the Cook Islands, or any regulation, by-law or rule made thereunder shall impose –

  • any liability, duty, responsibility, obligation or restriction; 
  • any fee, impost, tax, levy, dues, duty or excise; or 
  • any fine or penalty on a foundation.

Companies Limited by Guarantee



A company limited by guarantee in the BVI could be another option for a DAO. 

Under the BVI Business Companies Act, as amended (the Act), it can be structured as limited by guarantee, with or without the authority to issue shares. Its memorandum and articles of association determine the governance structure of such a company. 

These documents are binding between the company and its members and set out the rights, powers, duties, and obligations of the company, the board, directors, and members​​.

A company incorporated under the Act has a distinct legal personality. 

They have the capacity, rights, powers, and privileges of a legal person, essential for contractual and legal actions necessary for DAO operations. 

For DAOs, which typically operate on principles of distributed authority and automated decision-making, adapting the governance structure of a BVI company limited by guarantee could be challenging but possible. The key would be ensuring that the memorandum and articles of association are crafted to reflect the unique governance model of the DAO.

Structure and Governance

Company Types

  • A company limited by guarantee that is not authorized to issue shares: In this structure, the company does not have share capital or shareholders. Instead, it operates with members who act as guarantors. These members agree to contribute a predetermined nominal amount towards the company’s liabilities.
  • A company limited by guarantee that is authorized to issue shares: Unlike the first category, this type of company combines aspects of both share capital and guarantee. It has members who act as guarantors with a limited liability similar to the first type, but it is also authorized to issue shares. Therefore, it can have shareholders alongside the guarantors.


Directors: Directors are responsible for the company’s administration. They may exercise the powers of the company that are not required by the Act or the company’s memorandum or articles to be exercised by the members. The board of directors may establish committees, delegate powers to them, and revoke such delegations. This allows for flexible management and specialization in certain areas. Directors are appointed and removed per the procedures outlined in the company’s articles. They have duties to act honestly, in good faith, and in the company’s best interests. The Act allows the company to appoint agents, indemnify its directors, and take out insurance for them.

Members: Companies limited by guarantee without share capital primarily rely on their members rather than shareholders. The Act defines different types of members, including shareholders and guarantee members. Companies are required to have one or more members. The liability of a guarantee member to the company is limited to the amount that the guarantee member is liable to contribute as specified in the memorandum and any other liability provided for in the memorandum or articles of the company.

Regulatory Environment for VASPs


Virtual asset services are regulated by the Financial Services Commission (FSC) under the Virtual Assets Service Providers Act of 2022 (VASP Act), effective February 1, 2023. 

Under the VASP Act, VASP means a virtual asset service provider who provides, as a business, one or more of the following activities or operations for or on behalf of another person (i.e. it provides one or more of the following services to other parties): 

  • exchange between virtual assets and fiat currencies; 
  • exchange between one or more forms of virtual assets;
  • transfer of virtual assets, where the transfer relates to conducting a transaction on behalf of another person that moves a virtual asset from one virtual asset address or account to another; 
  • safekeeping or administration of virtual assets or instruments enabling control over virtual assets; 
  • participation in, and provision of, financial services related to an issuer’s offer or sale of a virtual asset.

A company engaged in any of the following activities or operations, for or on behalf of another person, will also be deemed to be carrying on a virtual assets service:

  • hosting wallets or maintaining custody or control over another person’s virtual asset, wallet or private key;
  • providing financial services relating to the issuance, offer or sale of a virtual asset;
  • providing kiosks (such as automatic teller machines, bitcoin teller machines or vending machines) for the purpose of facilitating virtual assets activities through electronic terminals to enable the owner or operator of the kiosk to actively facilitate the exchange of virtual assets for fiat currency or other virtual assets; or
  • engaging in any other activity that, under the Guidelines, constitutes the carrying on of the business of providing virtual asset service or issuing virtual assets or being involved in virtual asset activity.

Entities that do not qualify as VASPs include those providing ancillary infrastructure services such as cloud data storage, software development, or unhosted wallets, as well as those solely creating or selling software applications or virtual asset platforms without engaging in or facilitating any of these services for others​​.


Certain virtual asset related activities that are not specifically regulated under the VASP Act may fall under the Securities and Investment Business Act, 2010 (SIBA).

Under SIBA, certain financial instruments are considered investments, and intermediaries or companies carrying on investments activities need to obtain a license or otherwise be authorized by the FSC.

Schedule 1 of SIBA sets out an exhaustive list of financial instruments that constitute ‘investments’, being:

  • shares in, and stock in the share capital of, a company, interests in partnership and a fund interest in a mutual fund;
  • debentures, debenture stock, loan stock, bonds, certificates of deposit and any other instruments creating or acknowledging indebtedness (subject to certain listed exceptions);
  • instruments giving entitlements to shares, interests or debentures;
  • certificates representing investments;
  • options;
  • futures;
  • contracts for differences;
  • long-term insurance contracts;
  • rights and interests in investments; and
  • any other instrument specified as an investment in any Investment Business regulations issued by the cabinet office in the BVI.

No further instruments have yet to be specified in any Investment Business regulations issued by the cabinet office in the BVI.

Once an instrument has been established to be an ‘investment’ under SIBA, it must be established whether the company is carrying on an ‘investment activity’, by way of business –

The following ‘Investment activities’ are set out in Schedule 2 of SIBA:

  • dealing in investments;
  • arranging deals in investments;
  • managing investments;
  • providing investment advice;
  • providing custodial services with respect to investments;
  • providing administration services with respect to investments; and
  • operating an investment exchange.

Whether the company is carrying on an ‘investment activity’ ultimately turns on whether the crypto assets are an ‘investment’ under Schedule 1 of SIBA. If the virtual assets qualify as ‘investments’, and the company operates any of the above activities, the company could be carrying on a regulated activity. 

Collective Investment Schemes

Under BVI’s Securities and Investment Business Act, a fund or a mutual fund (open-ended fund) is defined a company or any other body, a partnership or a unit trust that is incorporated, formed or organised, whether under the laws of the Virgin Islands or the laws of any other country, which (a) collects and pools investor funds for the purpose of collective investment, and (b) issues fund interests that entitle the holder to receive on demand or within a specified period after demand an amount computed by reference to the value of a proportionate interest in the whole or in a part of the net assets of the company or other body, partnership or unit trust, as the case may be.

SIBA defines as private investment fund (closed-ended fund) as a company, partnership or unit trust which collects and pools investor funds for the purposes of collective investment and diversification of portfolio risk, and which issues fund interests that entitle the holder to receive an amount computed by reference to the value of a proportionate interest in the net assets of the fund.


All BVI Business Companies are exempt from the Income Tax Ordinance, regardless of whether they are owned, controlled, and/or managed by residents or nonresidents, and whether they conduct business in the BVI or outside of the BVI. This exemption also extends to all dividends, interest, rents, royalties, compensations, and other amounts paid by a company, with the exception of salaries paid to BVI resident employees. Additionally, capital gains realized with respect to any shares, debt obligations, or other securities of a company are not subject to income tax.



A potential solution to DAO legal challenges is the use of Trusts. Trusts, while often mistaken for legal organizations, are in fact distinct legal arrangements characterized by unique structure and purpose. Trusts are not standalone legal entities like corporations or partnerships. Instead, they represent a legal framework where a trustee holds and manages assets on behalf of beneficiaries or for specified purposes. Several key characteristics may define this arrangement:

  1. Fiduciary Responsibility: a trustee manages the Trust’s assets and is bound by a set of fiduciary obligations towards the beneficiaries or the Trust’s specified purposes. These duties include acting in good faith, avoiding conflicts of interest, and managing the Trust’s assets with care and prudence.
  2. Segregated Patrimonies at Law: Assets placed in a Trust are segregated from the personal assets of a trustee. 
  3. Legal Personality of a Trustee: While a Trust itself does not have a legal personality, a Trustee, as the legal holder of the Trust’s assets, does. This legal personality of a Trustee allows them to undertake transactions, enter into contracts, and hold property in their name for the benefit of a Trust.

Guernsey Trust Example


Under Guernsey law, forming a Purpose Trust allows assets from a DAO to be transferred to a Trust, managed by appointed trustees and an enforcer, under a trust agreement. This agreement specifies the Trust’s objectives and the fiduciary responsibilities of trustees and an enforcer.

By employing a Trust structure, DAO participants can mitigate personal liability risks. The Trustees’ liability is limited to Trust’s assets, and they are protected so long as they act within a Trust’s framework and fulfill their fiduciary duties.

Trusts enable DAOs to engage in off-chain activities more effectively. Trustees can open bank accounts, sign contracts, and undertake other legal actions in the name of a Trust, thus bridging the gap between on-chain and off-chain worlds. It is particularly suitable for DAOs that have segregated their intellectual property assets, providing a governance structure that allows token holders to guide assets utilization. Trusts may serve as an effective instrument for the management of DAO community treasuries, particularly in allocating resources towards specific growth and developmental objectives of a DAO, such as the provision of grants.

Structure and Governance

Trustees and an Enforcer enter into a written agreement, bringing a Purpose Trust into existence. It does not require any governmental filings. The Trust Agreement governs the relationship between the Trustees and the Enforcer concerning Trust’s assets. It specifies Trust’s purposes and trustees’ obligation to fulfill them.

Trustees. They are mandated to administer a Purpose Trust according to the Trust Agreement and are subject to general fiduciary duties. These duties include acting honestly, in the best interests of Trust’s purposes, and with reasonable skill and care. Trustees may engage in transactions that further the Trust’s purpose and are entitled to compensation approved by DAO token holders. Trustees may be subject to removal by other trustees directed, for example, by DAO vote.

Enforcer. Monitors Trustees’ activities to ensure they fulfill a Trust’s purpose. The enforcer has rights to information disclosure from trustees, including distributions and spending, and must exercise their powers consistent with a Trust Agreement.

DAO members may retain formal control over the Trust’s governance, including the right to direct Trustees in matters such as amending a Trust Agreement, changing the Trust’s jurisdiction, terminating a Trust and transferring the assets to a different entity.

DAO token holders can direct the Trustees to terminate the Purpose Trust and transfer assets elsewhere, except for the DAO or DAO token holders.

Regulatory Environment for VASPs

The Lending, Credit, and Finance (Bailiwick of Guernsey) Law, 2022 (LCF Law), establishes a legal framework for the regulation of Virtual Asset Service Providers (VASPs) in Guernsey. This law is enforced by the Guernsey Financial Services Commission (GFSC). 

Virtual assets encompass digital representations of value, including cryptocurrencies and other crypto assets, excluding digital records of ownership like share registers or digital bank accounts. VASPs are entities or individuals offering services such as exchanges between virtual assets and fiat currencies, transfers, safe-keeping and administration of virtual assets.

From 1 July 2023, VASPs operating in or from within the Bailiwick will require a Part III license under the LCF Law unless exempt. Exemptions apply to individuals trading virtual assets for personal benefit, licensees under regulatory laws providing services to exempt VASPs, and certain collective investment schemes.

Licensed VASPs must adhere to ongoing obligations. These include ensuring adequate resources and knowledge within the Bailiwick, prohibiting outsourcing without the Commission’s consent, and publishing annual declarations about the environmental impact of the virtual assets they handle.


A Purpose Trust is not subject to taxes under Guernsey law.

The content herein is not intended as, and shall not be understood or construed as, legal, tax, investment, or accounting advice. The information is provided solely for the purpose of discussion and does not serve as professional guidance in any capacity. Individuals are advised to consult their own legal counsel and professional advisors for advice on specific matters. The opinions and views expressed are solely those of the author and do not represent the views of any other individual or organization. The author disclaims any responsibility for the accuracy or completeness of this material, and no warranties or guarantees are implied or expressed regarding its content.