Updated: Dec 22, 2021
The Cayman Islands Foundation Companies Act, 2017, introduced a new form of legal entity known as a "foundation company", a vehicle that operates like a trust, allowing it to function like a civil-law foundation or common-law trust while retaining the separate legal personality and limited liability of a company. It has proved incredibly popular for decentralised autonomous organisations (or DAOs), most of which utilise blockchain technology.
Why does a DAO require legal personality at all?
Legal structures in many jurisdictions require a person or group to act as the owner of the DAO and DAOs without legal personality run into problems such as:
(a) unable to interact with third parties outside the DAO
(b) unable to enter into contracts, open accounts with digital exchanges or other counterparts
(c) unable to hold assets
(d) unable to protect valuable intellectual property that may be imitated by other projects or DAOs, and
(e) unable to carry out the wishes of the DAO or formally recognize community votes
(f) hire developers or other employees to grow the ecoystem
As a result, Developers can sometimes find themselves carrying out actions on behalf of the DAO and, consequently, be personally exposed to potential liability.
Creating a Foundation Company is the Solution
The solution to the problems above is for the DAO to establish a foundation company. The foundation company has legal personality to enter into contracts and undertake actions with third parties.
It is also managed by directors who carry on the business of the DAO. Unlike a company, the foundation company can be structured without shareholders. It can be ownerless – just like the DAO it represents. The foundation company can be supervised by a supervisor (or even multiple supervisors if desired). A supervisor has no ownership or economic entitlement in the foundation company but simply acts as a steward, ensuring that the directors of the foundation company observe their obligations to the DAO pursuant to the foundation company's governing documents.
With no shareholders, all of the officers of a foundation company simply have the objectives of the DAO as their priority, similar to trustees and enforcers carrying out the objectives of a trust.
A foundation company could include almost any form of governance structure so long as the foundation company is managed by at least one director, is supervised by at least one supervisor and has a secretary.
A foundation company incorporated in the Cayman Islands is the ideal structure for DAO's. for further information on incorporating your foundation company, DAO development or the appointment of professional services (such as directors or to an existing project then feel free to contact us: firstname.lastname@example.org