HIP 40: Forming A Company, Articles Of Association, DAO Charter

Hello Hectorians,

Hector Network introduces the community to a proposal for establishing a legal structure for the DAO through this HIP. Currently the DAO is not set in any specific jurisdiction and does not have a set corporate form. In order to cooperate with other companies/projects in the future, a legal entity setup is strongly recommended.

Hector Network has engaged legal consultation from our legal partner Sparring, to provide us with advice in regards to setting up a legal structure. The objective of implementing this legal structure is to create an optimal framework for the future direction of the DAO and its governance, while also prioritising risk mitigation measures.

Sparring advised that:

“To avoid future legal, regulatory and tax uncertainty, the DAO should be anchored (legally wrapped) in a specific jurisdiction as soon as possible. Since the DAO currently is not formally set up anywhere, we can choose the ideal jurisdiction to be used from now on.”

There are two parts of establishing a proper structure for Hector Network:

A. SETTING UP A CORPORATE STRUCTURE

Our legal counsels have prepared a corporate structure that is truly suited for Hector Network’s operations. Sparring considers it important to consider the following factors when choosing a jurisdiction:

“Local regulation and licensing requirements - the DAO will have to comply with all local regulation of crypto, tokens, investments, etc. Therefore, choosing an EU jurisdiction will be extremely complicated from a regulatory perspective and a crypto-friendly jurisdiction is desirable (e.g. Caymans, Switzerland), while taking into account the following:

• Tax consequences
• Corporate law - some countries allow for a very flexible setup while others require rigid structures with fixed owners and managers (most of the EU)
• Possibility of a bank account opening
• Costs related to DAO legal entity management”

The team spoke with several local counsels in different jurisdictions and cooperated with an extra international tax lawyer and considered most of the traditional crypto friendly jurisdictions, including, among others, Marshall Islands and Switzerland.

On the Marshall Islands (MI) we were in the process of forming a temporary holding company for the Hector Network DAO, however Marshall Islands do not offer a sufficiently flexible ownerless legal form which would fit our purposes.

In Switzerland, it can take up to 6 months for the local regulator (FINMA) to determine the status of the HEC token with a high probability that this would be considered a security token. Additionally, stablecoins are under heavy regulation in Switzerland and licensing would be needed.

Therefore, the team came up with the following solution, which nowadays represents the highest market standard:

1. Cayman Foundation Company

This is the parent entity of the structure holding all of Hector Network intellectual property and off-chain assets. It is set up as an ownerless foundation, which means that it has no shareholders or owners but exists to fulfil its purpose which is to serve as the DAO legal wrapper of the Hector Network.

In addition, the Foundation Company’s role will be, among other things, to:

• Administer the treasury
• Administer grants
• Administer on-chain governance process
• Facilitate proposals
• Facilitate voting

There will be two professional directors appointed to act for the company on behalf of Hector Network, namely:

• https://www.conyers.com/ (Conyers)
• https://marfire.co/ (Marfire)

Hector Network will have three supervisors appointed to oversee the actions of the directors and communicate the decisions of the Hector Network community to the directors. The initial supervisors will be:

• Farooq - TG: @qboy29
• Leonida - TG: @thisisleonidahec
• Zeus - TG: @Zeus_HEC

The company will be governed by its Articles of Association (click here to read) and the DAO Charter (click here to read), as further explained under point B. of this HIP below, which will constitute companies bylaws, the internal binding governance document of the company.

2. British Virgin Islands Operating Company

The existing Hector Network company in the BVI will remain and its ownership will be fully transferred to the Cayman Foundation Company. Its purpose will be to execute contracts for Hector Network and be responsible for the issuance of any tokens.

In addition to the above, the Operating Company’s role will be, among other things to:

• Enter into services agreements with service providers
• Enter into agreements with other projects/companies
• Hire or dismiss contractors
• Pay invoices

The director Conyers of the Cayman Foundation Company will also serve as the director of the BVI company. Having the BVI company also helps split risk since it will enter into most contracts and partnerships and thus protect the assets held by the Cayman Foundation Company.

3. Why was this structure chosen?

DAOs without legal personality, among other things, face regulatory and legal problems. These include in particular:

• broad liability of DAO members for the organization's actions and other activities,
• inability to enter into contracts with potential business partners,
• inability to employ staff,
• difficulties in opening bank accounts,
• uncertain tax position,
• insufficient protection of intellectual property rights, or
• inability to hold property and assets.

The types of legal entities and the chosen jurisdictions (Cayman Islands Foundation and BVI LLC) are the best fit for the overall operations of the Hector Network DAO from the organisational, regulatory and legal point of view.

4. Timeline

The structure can be formed within approximately 14 days from the resolution of the HIP.

B. ADOPTING OUR FIRST EVER DAO CHARTER

Since the creation of Hector Network over a year ago we have been dealing with constant changes in our operations, setup and governance. Now the time has come to vote on binding rules for the operation of Hector Network which will ensure our continued operation under a proper set of rules. The DAO Charter will work as a constitution of Hector Network, setting out our principles, member rights, as well as the rights and obligations of each body within our organisation.

Among other things, the DAO Charter will:

1. Define the DAO and its membership.
2. Establish the DAO bodies.
3. Set up DAO governance rules and other processes.

The adoption of the DAO Charter includes appointing the members of the initial bodies. These initial appointments are:

Steering Committee:

• Seat 1: Bart - TG: @Bart_R
• Seat 2: Leonida - TG: @thisisleonidahec
• Seat 3: Farooq - TG: @qboy29
• Seat 4: H V - TG: @aka_quizman
• Seat 5: Helen - TG: @Manifesting_Generator
• Seat 6: Ina - TG: @Ina178
• Seat 7: MayoMyke: TG: @MAYOMyke
• Seat 8: Sonoro: TG: @Sonorooo
• Seat 9: Zeus - TG: @Zeus_HEC
• Seat 10: Alessio - TG: @Alessiomiz
• Seat 11: Frizey - TG: @Frizey_HEC

Multisig Holders:

• Multisig holder 1: Bart - TG @Bart_R
• Multisig holder 2: Farooq - TG:@Qboy29
• Multisig holder 3: Gaikotsu - TG: @Gaikotsu_HEC
• Multisig holder 4: Helen - TG: @Manifesting_Generator
• Multisig holder 5: Ina - TG: @Ina178
• MultiSig holder 6: Leonida - TG: @thisisleonidahec
• Multisig holder 7: Michael - TG: @michaelnguyen102
• Multisig holder 8: Myke - TG: @MAYOMyke
• Multisig holder 9: Zeus - TG: @Zeus_HEC

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***VOTING OPTIONS: ***

1. YES, I agree with the adoption of the new Hector Network DAO corporate structure, incorporation documents and bylaws (the DAO Charter). This includes approval of the appointments of the initial Steering Committee members and Multisig Holders of the DAO, directors and supervisors of the Cayman Foundation Company, and the director of the BVI company.

2. NO, I do not agree with the above proposal.