Wrappers for Delegates

Thanks for creating this section @joeycharlesworth!

As the project starts on its transition path it’s very important to have clarity around aspects of the governance.

My question is related to the legal wrapping of delegates. In light of recent legal developments around Ooki DAO and “legal” developments around Alex Pertsev it would be important for the individuals and teams that choose to step up and help guide the project to be protected from legal liability.

As far as I am aware there is a team that has spent considerable time exploring the legal options with respect to the DAO @joeycharlesworth @lion917 @ronald_k. In your opinion, what are the best options for future delegates to consider for wrapping themselves (i.e. jurisdiction, specific entity type, cost of set-up, potential mechanics - i.e. EOA vs Multisig)

Below is just my personal opinion. It’s not legal nor tax advice so please don’t take it as such as I’m neither a lawyer, nor tax advisor and I’d encourage anyone considering becoming a delegate to do their own research and get their own legal/tax advice from qualified professionals

This said, there are 3 options I foresee:

Option A: Let each wANT holder/delegate decide at their discretion whether or not they want to use a legal wrapper to try shield themselves from any liabilities from activities of Aragon DAO. They may choose to act as individuals (in which case they would likely be exposed to unlimited legal liabilities) or wrap their voting/delegation actions within an entity of their choosing. This approach affords the most flexibility to each wANT holder/delegate as they can pick the type of entity and the jurisdiction to best suit their individual circumstances. It would however mean that existing ANT holders that are holding ANT as individuals would need to subsequently move their ANT from being owned by an individual into a company or some other form of SPV that has limited liability protection. Depending on the entity type/jurisdiction, this could have tax and legal implications. Is corporate tax payable on the ANT received by the company? Can it instead be treated as a shareholder loan rather than income? Can you actually create a company that does not otherwise have any activity or trading business? Do the setup and administration costs of the company make it worthwhile? Answers to these will depend on a case by case basis depending on the specific circumstances of the individual, chosen entity and jurisdiction, tax residence etc.

Option B: wrap all wANT holders/delegates under a body of an entity that has limited liability by design. This could for example be a dedicated Swiss Association or Foundation. This approach may be the simplest to administer, the least costly to individual ANT holders and may offer limited liability protection to wANT holders/delegates by default.

Option C: A hybrid of both A and B. Agreement to be part of such a legal wrapper body could be opt-in at the point of wrapping ANT. This would not preclude wANT holders/delegates from also setting up their own legal wrappers in addition to the default body for double-shield limited liability protection. This way, some wANT holders/delegates may choose to vote/delegate as individuals (and therefore be exposed to unlimited legal liability), others may choose to set up their own limited entities and others may be part of a dedicated and default body of an entity with limited liability protection.

This last option however might be problematic as it may be viewed as half legal wrapper/half unregistered partnership and not sure of the feasibility or implications of that approach.

@ronald_k @lion917 thoughts?

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@joeycharlesworth +1 thread & glad to see it shaping up

required preface - while i was initially in favor of a delegated model and helped reference the tao voting code in the original thread… I’ve come full circle on this after reviewing the literature and speaking to a number of scholars in the liquid democracy space.
I am fairly certain we’re building a system more prone to corruption that will probably fail worse than optimistic governance. Whatever - build slow & break stuff?

Ok - that said one question i’ve got is whether it would or should be possible to delegate to a legally wrapped team through a multi-sig wallet vs to an individual.

I can imagine groups forming then that could run micro-governance structures that would allow us to test more modalities without constantly having to reshape the charter. If a team wanted to create a 1 member 1 vote governance structure inside the legal wrapper they could do that. If a team prefers to have a black box for liability reasons they can run things that way. I’d like to test deep democratic debates as a format and have uber-transparency-of-process as a method.

This is perhaps more of a technical issue than a legal concern, but would like to get feedback generally.

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Note: This reply is my personal opinion. Nothing in this reply should be relied upon for legal, tax or financial purposes. You should consult with your own legal, tax, or financial advisor.

In my opinion it is key that delegates can act through a legal wrapper. Otherwise they are likely subject to unlimited liability for all activities of the DAO where they participated in voting (see CFTC [CFTC vs Ooki DAO]( Complaint: Ooki, et al.https://www.cftc.gov › media › download). The decision on the type of legal wrapper depends on (A) the activity of the delegates next to the voting in the DAO and (B) the jurisdiction in which the delegate(s) reside.

(A) activity of delegates
In many jurisdictions some type of legal entities are limited for non-commercial/economic purposes. For example, a Swiss association or a Swiss foundation cannot follow a commercial/economic purpose (strive for profit). Thus a pecuniary advantage that accrues directly to the members would not be permitted. If the advantage indirectly accrues to the members and directly to others e.g. the Aragon ecosystem, a Swiss association or foundation would be suitable.

If delegates also provide services to the DAO against a remuneration, a stock corporation, llc or cooperative would be suitable, as the provision of services is deemed as striving for profit. To bring in the ANT to the legal wrapper it would be possible to make a contribution into the legal wrapper that in some jurisdictions can be made on a tax neutral basis.

(B) jurisdiction of residence
The jurisdiction of residence of a delegate is a relevant factor when deciding on how organize, no matter if the legal wrapper is set-up in the home jurisdiction of the delegate or somewhere else. In particular tax laws and financial market laws must be considered. Establishing in a tax-free off-shore jurisdiction does not always mean that you do not have to pay taxed in your home jurisdiction. Sometimes on-shore tax-authorities look-through off-shore structures and applies the tax regime as the off-shore entity would not exist.

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Thank you @joeycharlesworth and @ronald_k for your responses.

Assuming Option A outlined by Joey - delegates (teams or individuals) wrap themselves. And keeping in mind the residency and activity considerations elaborated by Ronald:

Is there a good starting point for exploring the options [(i.e. jurisdiction, specific entity type, cost of set-up, potential mechanics - i.e. EOA vs Multisig)] - like a public resource where one can review a comparison of the available options?..sure ultimately one has to consult a lawyer but going there completely unprepared or going there with specific options and questions in mind can be the difference between $100,000 and $1,000 in billable hours?

In my opinion, groups/teams/organizations as delegates are an interesting avenue to explore. Early examples of this include investment funds, research/consulting firms, DAO contributor groups, student clubs, and “metagovernance” (a la Index Coop).

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Hi,
This is a topic I had to explore for another DAO.

And I had come across Otonomos, a kind of legal shop to set up entities for people in web3.

  1. There is an option to quickly book a 30-min call with their team (incl lawyer in our case); I used it and that helped us refine our alternatives

  2. They created a service called Otoco to set up an onchain LLC entity wrapper within minutes. :exploding_head:
    It sounds great, but I haven’t used it so cannot really add comments. A lot to digest in their docs & FAQs

Keep up the great work at Aragon!

PS: yeah, it’s my first post, and I recommend a service, so it might seem suspicious like I’m affiliated with them. Really, just want to help out and contribute when I realize the same problems keep coming up…

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Thanks friend! We know you aren’t shilling because Otoco is one of our DAO Experts and we have a close relationship with them! Appreciate you popping in here and pointing us in this direction regardless.

I know a major concern for many contributors/delegates in the space is having a direct legal link to the USA. Which is where Otoco’s legal wrapper is formatted around.

I do know Otonomos offers their legal wrapping services in other countries. Some of the friendlier ones range from $880 - $6000 for those delegates wanting to wrap themselves.

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