OpenLaw, the commercial operating system for blockchain, will be unveiling the first for-profit limited liability DAO (Decentralized Autonomous Organization), referred to as the LAO, to let members invest in the upcoming Ethereum ventures and make a profit. The official announcement was made by OpenLaw through their Twitter handle on 3rd September 2019, followed by a detailed Medium blog post on the next day.
The DAO blew 🧠's but ran into legal issues. Today, we're resurrecting The DAO with a soon to launch for-profit DAO. @TheLAOOfficial will be organized as a limited liability entity under US law and will fund blockchain startups. Learn more below! 👾https://t.co/nPKA0egSdn pic.twitter.com/cadRwNNEkg
— OpenLaw (@OpenLawOfficial) September 3, 2019
According to the announcement, the LAO will be organized as a limited liability firm under the United States law. Also, the entity will help fund start-ups in the blockchain space.
Understanding The LAO:
The OpenLaw team has found out the limitations associated with the current DAO models. Under the existing laws, the smart contract-governed DAOs face restrictions in pooling assets from members as well as generating a profit. On the other hand, if the DAOs are structured for revenues, they come under the scrutiny of security laws which restricts their application and capability of funding the development of the ecosystem and deploying capital efficiently. Moreover, the DAOs that are structured for social or charitable purposes fall into legal grey spots where members might be thought of as partners. Hence, it may consider each member liable for the organization’s activities.
However, it becomes possible to solve these problems with OpenLaw’s tooling as OpenLaw is the 1st Ricardian contracting system that is completely expressive. It is the link between the world of Ethereum and the conventional legal regimes, as per the blog post. OpenLaw could be utilized for creating and binding legal contracts which can be tied to single or multiple smart contracts’ executions, including the ones that develop, as well as manage, tokens. Thanks to this approach, it is possible to imbue any smart contract or any token on Ethereum with legal enforcement.
The blog post also highlights that it is viable to set up DAOs as conventional legal entities utilizing OpenLaw. Furthermore, DAOs can utilize binding legal documents to bring about asset transfers or carry out other tasks. This concept is being extended with the LAO launch.
The LAO Structure For Members:
As per the blog post, the LAO is going to offer a legal structure to let members give grants and invest in projects based on blockchain in change for utility tokens or tokenized stock. Once these projects are submitted to the LAO, they will obtain funding in certain days.
It is vital to note that, the LAO would be formed in Delaware as a limited liability firm using OpenLaw’s tooling. Its curated smart contracts will help in handling mechanics concerning funding, voting, and allotment of the collected funds. The organization will also limit LAO members’ liability. It will also offer tax flow to LAO members through the IRS treatment.
How It Will Work?
Members can buy interests in the entity, the takings of which would be pooled and allotted to projects and start-ups that require funding by members through voting and tools much like the Moloch DAO.
The LAO’s membership interests will be restricted and available only to the qualifying parties that fit into the criteria of the accredited investor for complying with the US law. It is also revealed that ten founding members (to be announced soon) will anchor the LAO. Other interested bodies would be capable of buying the interests potentially via public sale.
What’s interesting is the option to opt-out and ask for the retrieval of funds for the LAO members. Moreover, they can also claim their revenue share continually from projects receiving LAO funding. It incentivizes membership stability, voting participation, as well as collective LAO dedication.
OpenLaw will be acting as an administrator when it comes to LAO creation and maintenance. However, it won’t have any control of the entity unless the members’ nod.