Decentralized Autonomous Association (DAA)

An Experiment on Ethereum

Many previous Decentralized Autonomous Organizations (DAOs) have been criticized for their uncertain legal status, liability and ability to manage real-world projects. From a legal perspective, several jurisdictions classify DAOs as single partnerships or similar entities, which leads to a personal liability of members from a legal, regulatory and tax perspective.

With the aim to overcome these legal uncertainties, MME - together with Validity Labs and various other friends within the Swiss FinTech industry - have elaborated a legal und technical framework enabling blockchain-governed Decentralized Autonomous Associations (DAAs). This initiative has started back in 2017 and the DAA structure specified as the result of the journey combines the benefits of a recognized legal entity structure with the efficiency, transparency and democracy of blockchain-based governance system.

The Swiss Association as a Trusted Legal Basis

The Swiss Association is a well-established legal entity for non-profit activities limiting the liability of its members. Under Swiss law, an association qualifies as a group of natural persons and/or legal entities constituted and organized based on a written agreement with the pursuit of a non-economic purpose.

The Swiss Civil Code (“CC”) is both liberal and flexible regarding the formation and governance of associations. Associations established for political, religious, scientific, artistic or other non-economic purposes acquire the legal personality as soon as such intention is expressed in an agreement of constitution. Only associations which run a commercial enterprise are required to register in the registry of commerce. For other associations, a registration in the registry of commerce is optional. In addition, associations with charitable or other public non-profit objectives may apply for an exemption from income and capital taxes under certain conditions.

Associations have the following main bodies:

  • the General Assembly;
  • the Board of Directors; and
  • the Auditor (only if certain thresholds regarding balance sheet, revenue and full-time employees are exceeded).

The general assembly is the governing body of the association. It appoints the board of directors, decides on the admission and expulsion of members and resolves all matters not assigned to other corporate bodies in the articles of association. In addition, the general meeting has the non-delegable and inalienable right to amend the articles of association, the right to decide on the dissolution of the association, and the right of supervision over the association’s other corporate bodies. In general, Swiss law requires physical meetings for General Assemblies, however, digital forms may be possible if clearly stated in the articles of association and if a proper democratic decision-making process is ensured.

The board of directors has the right and duty to manage the affairs of the association and to represent it in accordance with the powers conferred on it as set forth in the association’s articles of association.

From Associations to DAAs: The Best of Two Worlds

The major objective of a DAA is to establish a decentralized and democratic legal entity structure with flat hierarchies. Therefore, centralization points should be reduced as much as (legally) possible. In our example structure, the DAA's bodies are:

  • DAA Assembly („General Assembly / Mitgliederversammlung“);
  • DAA Delegates („Board / Vorstand“);
  • DAA Member Community;
  • DAA Whitelisters.

The powers of the DAA Assembly are limited to the elementary competences which are according to Swiss mandatory law to be assigned to the general assembly (such as the change of statutes, the liquidation of the association, and others). The DAA Delegates are only equipped with those competences which require the action of a “real” individual, i.e. a natural person, such as representation duties or the duty to keep the books.

The very "heart" of the DAA structure forms the decentralized, blockchain-governed Member Community. The DAA Member Community is responsible for and decides on all relevant business matters of the DAA. These may include the decision on proposals and support of new projects or the allocation of DAA funds to projects. Every member of the association is part of the DAA Member Community providing the blockchain-based technical infrastructure to efficiently, democratically and transparently propose and vote. All DAA Member Community members have equal rights to initiate proposals regarding membership management, future projects, operational decisions and organizational updates of the association. The voting and counting process is performed and recorded transparently on-chain. Contributions to projects can be made freely across digital associations, empowering knowledge and finance sharing across industries.

A boiler-plate template for articles of association for a Swiss based DAA can be accessed here:

MME-Model-Articles-DAA

Please keep in mind that the template is the result of a legal experiment and assure to seek legal advice prior to using it.

As an example for the experimental implementation of a DAA, Validity Labs published a respective Ethereum-based Smart Contract System (SCS) on GitHub.

Using a Swiss DAA for Your Project?

The DAA experiment has uniquely merged technology and law to create and run organizations which are both, decentralized and legally compliant, to leverage transparent and democratic governance.

The DAA is a basis particularly for non-profit projects with limited financial resources looking for a legal structure with a bottom-up decision-making process.

MME has set up a team of technology, banking, corporate law, distribution, tax and AML experts jointly providing solutions and expertise for blockchain and fintech projects. Do not hesitate to reach out to us. We shall be pleased to support you in setting up DAAs and other innovative legal structures.

 

May 2020 | Authors: Luka Müller, Andreas Glarner, Thomas Linder, Stephan Meyer

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