[GIP-191] Establish DAO LLC in the Marshall Islands as an Additional Legal Wrapper for GEAR DAO

Author:

DAObox Inc.

Summary:

This proposal seeks to implement the Harmony Framework for the GEAR DAO and establish a Base-Layer legal wrapper in the form of a Marshall Islands DAO LLC (the “DAO LLC”). It is proposed to organise legal wrappers into two layers. The Base-Layer wrapper, in the form of a DAO LLC, wraps the DAO members and governance, while the Operational Layer wrappers, such as the Gearbox Foundation, are utilised to carry out specific activities, manage or isolate certain properties or transactions pertaining to the DAO.

The DAO LLC is designed to operate alongside the Gearbox Foundation, providing an additional layer of corporate protection for GEAR DAO. It will automatically recognise token holders as LLC members based solely on their token holdings, ensuring DAO members receive default limited liability protection under corporate law. The structure further integrates on-chain DAO governance with governance within the DAO LLC, essentially transitioning the GEAR DAO into the DAO LLC. Additionally, the DAO LLC can form dedicated Series to structure, isolate and manage specific DAO’s property, activities, or transactions, including multi-signature wallets, DAO committees, initiatives, and other components.

An illustration of a simplified sample structure:

Motivation

Background In December 2022, GEAR DAO decided to establish a DAO legal wrapper in the form of a Cayman Islands foundation. As per GIP-34, the GEAR DAO engaged DAObox to design and establish the Gearbox Foundation and to serve as its director and supervisor during the period of 2 years. The foundation was successfully established in January 2023.

While the Gearbox Foundation serves as an effective legal wrapper, providing strategic and long-term support for the protocol and DAO, it does not automatically grant limited liability protection to the GEAR token holders. The foundation shields DAO members only in transactions or operations where it acts as a counterparty, i.e., transactions executed through the foundation. The DAO LLC, on the other hand, offers limited protection to the DAO members by default, and has potentially broader on-chain applicability, allowing for the wrapping of specific isolated on-chain activities, committees, or multi-signature wallets.

The need for an enhanced DAO structure is underscored by recent legal cases, including those involving Ooki DAO, Lido DAO, and others. In these cases, plaintiffs argue that an unstructured or entityless DAO should be classified as a general partnership. This classification could potentially expose individual members and contributors – including major backers and funds, as seen in the Lido case – to personal liability for the DAO’s obligations.

Proposed Framework We propose implementing the Harmony Framework to establish a clear and functional legal structure for the GEAR DAO. The framework organises DAO wrappers into two layers: a single DAO-Specific Entity (DSE) at the Base Layer in the form of DAO LLC, and dedicated wrappers at the Operating Layer to manage specific assets, risks, or activities.

Deployment of a DAO LLC provides the DAO with legal recognition, extends limited liability protection to members, and ensures that the DAO’s governance functions within a legally secure perimeter. The Operational Layer consists of additional legal wrappers designed to manage specific assets, activities, or risks. Currently, the Gearbox Foundation is the sole Operating Layer wrapper of the GEAR DAO, however, we expect additional wrappers to emerge once the DAO LLC has been formed.

This modular wrapper structure allows for flexible deployment, enabling DAOs to address specific needs, such as forming committees or sub-DAOs, or segregating assets for targeted purposes.

As of now, the GEAR DAO structure will involve two major complementary entities:

• 1. Gearbox Foundation (Cayman Islands): Provides long-term strategic support, acts as the DAO’s facade, holds and manages IP and certain other assets, and can further engage in low-risk activities or transactions.
• 2. Gearbox DAO LLC (Marshall Islands): Grants corporate-based limited liability to GEAR token holders, wraps members and governance, and can be further used to structure specific property, operations or assets.

Each entity has a distinct focus, yet together they deliver dual layers of corporate protection and governance support. Importantly, both entities operate as non-profits, which addresses tax implications and reduces reporting/accounting requirements while maintaining compliance.

To see the proposed division of responsibilities between the wrappers and their anticipated specifications, please see the GIP Proposal topic on Discord here.

Visualisation of a Possible Structure We’ve put together a visualisation of how the roles in the proposed revised structure might be allocated. It’s just an example to give the GEAR DAO a general idea of how things could look once the structure is in place:

This scheme in a better resolution is available in Discord, in the GIP-191 topic.

Costs The cost of forming a DAO LLC in the Marshall Islands is $13,500. This is a fixed and all-inclusive fee, covering the design and formation fees, legal and government charges, and includes registered office and agent services for the first year after incorporation. The fees due upon the renewal of DAObox’s engagement (see GIP-190) are deemed to cover its position in the new legal wrapper.

Timeline We estimate that the wrapper design phase would take approximately 5-10 business days. The formation process itself takes around 30 days, which is the time required by the government registrar to complete the registration of the DAO LLC after the filings are made. We will proceed with the design and formation in January 2025.

DAO Resolution

We propose the GEAR DAO to establish an additional legal wrapper in the form of a Marshall Islands DAO LLC:

• Proposed Names (in the order of priority): Gearbox DAO LLC, GEAR DAO LLC, Gearbox Protocol DAO LLC.
  • Should these names be unavailable, DAObox is authorised to select an alternative name for the entity that is similar to the options provided, without requiring additional approval.
• Purposes:
  • Promote, support and facilitate the growth and development of the so-called Gearbox blockchain protocol (the “Protocol”), as well as solutions and applications associated with, built on, or interacting with the Protocol;
  • Facilitate the decentralisation and, as a result, sustainability of the Protocol and diversity of community around it;
  • Support and finance various research and development activities, venues, initiatives, and projects related to or involving the Protocol, associated software and solutions, and their underlying technology;
  • Finance costs and expenses related to the objectives of the DAO LLC; and
  • Take all and any such actions that are necessary, advisable, desirable or appropriate for the goals and purposes of the DAO LLC, and to do all such things as are or may be incidental or conducive to the above objects or any of them.
• Governance token: GEAR token, having the following Ethereum smart-contract address: 0xba3335588d9403515223f109edc4eb7269a9ab5d.
• Membership criterion: GEAR token holder.
• Status: non-profit.
• Management: a member-managed organisation. Gearbox Foundation will be appointed as the initial managing member with restricted administrative authority, with DAObox acting on the foundation’s behalf in its capacity as director.
• Costs: 13,500 USDC, payable upfront.

By adopting this resolution, the GEAR DAO ratifies the above proposal and approves the formation of a DAO LLC in the Marshall Islands, in substantial accordance with the proposed terms. In this case, DAObox Inc. will be engaged by the GEAR DAO to design and form the legal entity, and the relevant fees will be promptly settled upon the completion of the DAO vote.