How to choose a legal wrapper for your DAO

In this guide, we’ll discuss steps you can take to choose a legal wrapper for your DAO.

This is not legal advice, rather, it is written to help you get an overhead view of the regulatory options for DAOs so you can best protect yourself and your contributors.

Much of this guide is split between U.S. and non-U.S. entities. This is because of the unique regulatory environment in the U.S. It’s essential for DAOs to consider the nationality of their members when choosing a legal wrapper. If a DAO has a significant number of U.S. members and the organization is “wrapped” in an entity that the U.S. deems insufficient, unfriendly, or uncooperative, there could be government intervention.

What options for organization types are there?

DAOs can organize in these ways:

United States:

  1. A nonprofit formed without any paperwork or management organization formalities.
  2. No board or management group is necessary to interact with the law.
  3. Can still generate profits, even with the “nonprofit” status.
  4. Cannot distribute dividends. Pays members as long as it is considered “reasonable compensation.”
  5. Will likely limit liability of members, but the structure is relatively untested.
  6. Highly flexible operations are permitted, which means that you don’t need a clear management or operation structure when submitting your forms.
  7. Entity-level taxation (meaning, the business is taxed, and individuals do not need to take extra steps to be compliant with taxes other than income tax).
  8. Simple and easy to implement.
  • LCA: Limited Cooperative Association (U.S. based)
  1. Highly flexible operations are permitted.
  2. May require members to reveal identities on a “membership list,” depending on the statutes of the state you’re registering in.
  • LLC: Limited Liability Corporation (U.S. based)
  1. Highly flexible operations are permitted.
  2. May require members to reveal identities on a “membership list,” depending on the statutes of the state you’re registering in.
  3. Entity-level taxation (meaning, the business is taxed, and individuals do not need to take extra steps to be compliant with taxes other than income tax).
  4. Simple and easy to implement.

Outside the United States:

  • Foreign Foundation/Association
  1. Requires liaisons willing to exercise larger responsibility over the DAO, such as directors, trustees, or a board of managers.
  2. DAO members are not considered “members” or “owners” of the organization.
  3. According to a16z’, “the relationship between DAO and Foreign Foundation can never be trustless.”
  4. If the DAO has “significant U.S. membership,” any potential tax benefits of being a Foreign Association would be negated.
  • No legal wrapper
  1. Everything is "off the books."
  2. Easy to set up, but may not be sufficient to protect contributors from liability.
  3. Might be considered a General Partnership, in which all contributors share equal liability and don't have protection of personal assets.



A16z put together a checklist and flowchart showing the advantages and disadvantages of each organization type. See the chart below:

This guide was last updated in August 2022. Since the DAO space is continuously evolving, we're regularly updating the guides and adding new ones.
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