Why Would a DAO Adopt a Legal Entity?

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Sporos DAO

2 min readNov 18, 2022

Adopting a separate legal entity allows a DAO to manage risk for its members and conduct business with non-crypto entities.

Preliminary Considerations

These are some of the initial questions a team should answer when considering whether they should adopt a legal entity.

What is the purpose of the DAO?
Will the DAO generate and distribute profits?
Where are DAO members located?
How many DAO members are involved?

Benefits of a Legal Entity

Benefits of adopting a legal entity can be split into risk management benefits and operational effectiveness.

Risk Management

Limits liability of members — keeping shareholder assets away from company creditors
Entity shielding — keeping company assets away from shareholder creditors.
Pay taxes

Operational Effectiveness

Enter in contracts. Hire contractors
Own Intellectual Property
Get a bank account. Managing payments to non-web3 entities
Own real world assets. E.G Property
Participate in future on-chain protocols that require legal identity. For example sourcing uncollateralized venture debt terms from on-chain financial pools.
Aid fundraising efforts off chain and on-chain. Investors want to sign streamlined agreements with legal entities with clean data rooms and ownership structures.

Examples

K.group DAO aims to solve the affordable housing crisis. The DAO is raising funds to acquire large-scale properties which they then convert into multi room units. K.group is registered as a DAO LLC in the state of Wyoming. The KDAO token is used for governance in the K.Group DAO ecosystem and will ultimately act as a tool for distributing revenue generated from the properties owned by the DAO.

Krause House aims to buy and manage basketball teams through a DAO structure. Their thesis is that fans are indispensable to a team’s success but they currently do not have power to influence the direction of their favourite team. Web3 tech changes that by allowing fans to own and coordinate at scale. They are exploring multiple regulatory strategies for achieving their goal.

Products

Kali DAO has pioneered the deployment of DAOs with a legal entity. Using their product, founders can deploy a DAO on any of the most used EVM chains and adopt a legal entity of their choosing. Current supported entities are Delaware registered series Limited Liability Company (LLC) or Delaware Unincorporated Nonprofit Association (UNA).

Sporos has built a sweat equity management system on top of the kali framework, to allow early stage projects to distribute ownership of their on-chain LLC in a meritocratic and transparent way. Using Sporos, projects can maintain a dynamic cap table which accurately reflects who has contributed the most value.