Governance and General Partnership Liability

Reviewing other discussions on this forum, it seems this topic has been addressed in a number of conversations. I know some CUs have taken to LLC incorporation as means of avoiding being classed and liable as general partnerships.

As I understand it, there is currently little to no legal merit in the US law system, to argue that a DAO itself does not constitute some form of unincorporated partnership. This means, there is a currently slim, but still real chance, that token holders can be held jointly and severally liable In the case of litigation, which may legally endanger not just on chain assets, but their off chain personal assets as well. I am concerned that this could become major problem down the road for many DAOs, especially their deanonymized members, if any sufficiently resourced and blockchain saavy organization takes the route of litigation.

I was wondering if there has been any conclusive settlement or discussion on a course of action around minimizing GPL risks for US MKR holders, especially as the MKR foundation, which previously held most of the attention for any legal attack, is set to dissolve soon. I get that there is little legal framework or case law around the topic, but that might be all the more reason to be proactive about engaging with legal organizations and policy makers (if this isn’t already happening around the topic).

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Yes,

I believe the Otoco project by Otonomos may help.

They have created onchain LLCs with zero paper filing.

It is a major concern.

That would be super cool, do you have a way to contact them?

That would be because they would take the tokens as shares in the company.

Doesn’t even have to be viewed as shares. A de facto general partnership is formed by law when two persons act together as part of a common business enterprise. No shares involved. I would put the risk level to CU members at well above “slim”, and the risk to MKR holders that are active on forums, governance, social media could be above “slim” as well.

This is something that should be funded and addressed soon, wither via a legal CU or engaging a firm.

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After looking them up, I’m not sure I quite understand how their service functions. I would love some details if you have any, as this may be something to look into.

Main questions I have:

1.Where (as in jurisdiction) are LLCs formed with Otoco registered

  1. Who is registered as LLC owners? As far as I’m aware, US law requires legal names and other KYC level info for incorporation. How do they resolve that?
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Delaware or Wyoming based on their website.

Generally the corporate services vendor will form the entity (as the sole incorporator for a corporation or the authorized person for an LLC) and promptly thereafter appoint an initial director of a corporation or an initial member for an LLC and then resign.

Here, it looks like they are using a relatively new LLC type called a ‘series LLC’.

To be totally frank, this is probably not the best solution for this situation. As far as I can tell, the initial member for each new series LLC under the ‘master LLC’ (which is owned by OtoCo as far as I can tell) is just an ethereum address. That’s not going to work for most reputable service providers, and it will certainly not work for opening opening bank accounts. It’s possible that you may be able to change the name of the member via off-chain, normal legal documents or perhaps add a new member, but at that point why not just use the normal process of going through a corporate services vendor?

Moreover, it’s just too new and unfamiliar. The current formulation of series LLCs (‘registered LLC’, vs the prior ‘protected LLC’) was approved for use in Delaware in 2019.

“As of November 13th, 2019, Delaware reported that 80 series LLCs had been registered.”
Source

Here’s a detailed look at the pros/cons/future of registered LLCs if you really want to get into it, but the long and short of it is banks, accountants, lawyers are unfamiliar with these. Only around a majority of states allow for their formation. This will increase costs at every step, and moreover, reduce legitimacy. Just take a look at the Wikipedia page below, which references an IRS law/regulation “that should become effective in 2012.” Not exactly a thrilling level of tax, legal and regulatory clarity for an entity already being viewed with suspicion from traditional partners.

https://github.com/otoco-io/otoco-wiki
Wiki on Series LLC

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@SES-Core-Unit had them in a call. The video might help:

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As far as I know, (I am not an American lawyer) Delaware does not require upfront KYC to incorporate an entity, but only at a later stage, for example in case you need a bank account in the US, That is why it is possible to “incorporate” digitally an entity with Otoco signing a transaction with a Metamask wallet, an entity “owned” by your Ethereum public address. There are a couple of “DAO limited liability wrappers” such as the Wyoming DAO LL.Cs ( https://www.wyoleg.gov/Legislation/2021/SF0038) or the Ricardian LL.C. from Open Law (What is Ricardian LLC? ❓ - Ricardian LLC), which are experimental but innovative approaches which we should consider to mitigate the personal liability risk of DAO contributors.

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Just one additional note – series LLCs are generally used to isolate investments from one another while operating under the same umbrella “master” LLC. So, if I have several real estate properties and I want to have split different ownership percentages among my children, I could have the Tosh 9.0 Master, with Series 1 LLC (for my house), Series 2 (for my igloo), and Series 3 (for my shack in the woods), and, in theory, isolate any liabilities that may arise among each individual series while protecting the upstream LLC from liability as well. In short, it’s a contagion strategy and convenient because you don’t have to keep filing new paperwork with DE when you create each subsequent series. But Gaucho is correct, it is a relatively young form and has not been tested much in the courts that I’m aware of.

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Some comments I made almost one year ago can be used as well:

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I think being proactive here is key.

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Why not a cayman foundation wrapper? Make it difficult for joint and several liability lawyers

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