FWB DAO Legal Wrapper
Summary
Form an Unincorporated Nonprofit Association (“UNA”) around the FWB DAO for the purposes of gaining legal existence; payment of taxes; and limitation of liability for members (while maintaining member anonymity for members who do not receive compensation from the DAO).
This proposal will be live on June 13, 2023 available for voting June 13, 2023 and will be open for 5 days.
Abstract
Overview
Designed in conjunction with FWB’s existing C Corp utilized for its operations, this proposal would form an Unincorporated Nonprofit Association for the purposes of providing legal existence to the FWB DAO for the purpose of paying taxes and improving liability protections to members.
An UNA requires that the purpose of the DAO be nonprofit. We believe this aligns with the mission of FWB to unify artists and cultural thinkers with shared values and incentives.
Association Agreement
The Association Agreement (contained in the proposal below) establishes the governing principles of the DAO and is a combination of the Association Agreement itself, the on-chain Governance Protocol (e.g., smart contracts establishing quorum, voting, control of the treasury and control of the FWB Protocol), and any validly enacted Governance Proposals (whether on-chain or off-chain) in the future.
Specific Authorization of Administrative Authority and Compensation
The basic philosophy of this UNA is to utilize governance proposals for the membership to collectively make all operational decisions, while establishing the minimal amount of authority and authorization as necessary to enact those decisions by members (e.g., the administrators).
As outlined in the Association Agreement, administrators are the primary agents of the UNA and are empowered to perform specific tasks on behalf of the UNA as authorized by the DAO. Members have no authority to act on behalf of the DAO except for participation in governance decisions and the administrators do not possess the authority to act beyond what is authorized by the DAO or to utilize broad discretion in their decision-making. Accordingly, it is necessary that ongoing Governance Proposals be made and validly executed to allow administrators to be authorized to sign contracts, interact with 3rd party advisors (e.g., accounting, tax preparation and legal), sign tax returns, obtain a bank account and make necessary payments on behalf of the DAO.
Depending on circumstance, the performance of these tasks may justify compensation which would be authorized as part of the Governance Proposal.
Specific Authorization of Administrative Authority & Compensation
This proposal authorizes David Kerr and Kyler Wandler to act as administrators of the UNA to take the necessary steps for the formation and operation of the UNA, including to:
Attain an EIN;
Obtain legal and tax guidance for FWB DAO;
Elect corporate taxation and sign, file and pay taxes (including the collection of necessary informational reporting);
Attain a registered agent for service of mail forwarding and service of process (including signing a lease through the registered agent for attaining an address and filing the service of process documentation with the WY Secretary of State’s office); and
Attain a bank account.
As outlined in the Association Agreement, administrators are narrowly empowered to perform specific tasks and do not contain the authority to bind the DAO to contracts (absent specific authorization) or utilize broad discretion in their decision-making. In the event additional authorization is required beyond that granted in this Governance Proposal, an additional Governance Proposal must be made and validly executed.
FWB Membership Disclosure
The following Membership Disclosure will be displayed on FWB DAO’s website and any token agreements:
By using the $FWB token to participate in the governance and operations of FWB, the holder of this token agrees to be subject to the terms of FWB DAO’s governing principles, including as a member of its entity structure. FWB was organized as a WY UNA on June 17, 2023.
Participation in the governance and operations of FWB includes, but is not limited to, utilizing the $FWB token to: 1) vote or propose governance proposals (either directly or through delegation); 2) attend events; 3) or interact with the FWB protocol.
Except as otherwise provided in FWB’s governing protocol, the membership interests or rights thereunder of the $FWB token are freely transferable to another person through its conveyance.
Except as otherwise provided in FWB’s governing protocol, a member shall be deemed to have resigned from FWB DAO upon disposal of all $FWB tokens.
Proposal - Association Agreement
FWB is an Unincorporated Nonprofit Association under Wyo. State. Title 17, Ch. 22 of the laws of the State of Wyoming. This Association Agreement is referred to in this document as the “Agreement.” Capitalized terms used in the Agreement marked in bold text are defined in Exhibit A to the Agreement.
Article 1
Name
The name of this Association and the name by which it will be known is: FWB (referred to below as “the Association”).
Article 2
Purpose
The objectives and purposes of the Association shall be as follows:
The Association is established as an organizational framework for community engagement, collective decision-making, and innovation in order to pursue the common nonprofit purpose of unifying artists and cultural thinkers with shared values and incentives.
The Association has the power to do all things necessary or convenient to carry on its activities or affairs as an Unincorporated Nonprofit Association (“UNA”) under the laws of Wyoming that are in furtherance of its purposes as set forth in Paragraph 1 of this Article and as otherwise permitted by this Agreement.
Article 3
Membership
A Person shall become a Member of the UNA by holding $FWB token and taking any of the following additional actions, including but not limited to:
Engaging in the governance process, including participating in discussions, proposals and/or votes;
Participating in events, or any other offering requiring connecting the $FWB tokens.
Members agree to abide by the established Governing Principles of the Association.
A Member shall be deemed to have resigned as a Member of the Association upon the disposal (voluntary or involuntary) of all Membership Interests (e.g., the $FWB token(s) conveying their voting rights within the Association).
The withdrawal of a member by transfer of all or any of its Membership Interests shall not dissolve the Association and the Association shall be continued.
A Member’s Membership Interest or any right thereunder is freely transferable to another person through conveyance of such Membership Interest unless other restrictions on the Membership Interests apply.
A Member is representing themselves to be the rightful owner of their Membership Interest when engaging with the Association as a Member.
Article 4
Rights and Duties of Members
Members have no ownership rights of the property of the Association via their Membership Interest.
A Member of the Association is not an agent or representative of the association solely by reason of being a Member and all fiduciary duties are waived.
A Member of the Association has no authority to bind the association to a contract, sign documents, or act in any representative capacity on behalf of the DAO absent specific authorization from a validly executed Governance Proposal as set forth in this Agreement.
To the extent permitted by applicable law, any debts, obligations and liabilities arising from the DAO’s operations, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Association and no Member or Administrator shall be obligated personally for any such debt, obligation or liability solely by reason of being a Member of the Association or participating in the governance of the DAO.
Article 5
Voting; Governing Principles
As defined in Appendix A, an UNA’s Governing Principles are a culmination of all the agreements (i.e., this Agreement, the FWB Protocol, or executed Governance Proposals). As Governance Proposals are enacted, elements of the existing FWB Protocol and this Agreement may be superseded by validly executed Governance Proposals.
As part of its Governing Principles, the Association will provide for its governance through Smart Contracts, referenced collectively as the FWB Protocol.
The Association will retain control of the Smart Contracts comprising the FWB Protocol via Governance Proposals of its Members.
Voting procedures through
Smart Contracts, referenced collectively as the
Governing Protocols, provide the following:
proposals from Members in the Association for upgrades, modification, or addition to software systems / protocols;
proposals from Member to appoint Administrators to perform designated functions on behalf of the Association;
proposed changes to the Association’s Governing Principles;
quorum requirements for validly executed Governance Proposals;
votes necessary for a Governance Proposal to be enacted;
distributions of the Association’s assets to facilitate transaction in furtherance of the Association’s common nonprofit purpose; and
any other matters of governance or activities within the purpose of the Association.
In the event this Agreement conflict with the Governance Proposals – the Governance Proposals control.
Article 6
Administrators; Agents
This Association is organized for decision-making to be performed through its Governing Proposals. The Association may grant authorization for specific delegated tasks through a validly executed Governance Proposal and any separate contract between the Association and Administrators.
An Administrator has no authority to act on behalf of the Association beyond the specific authorization granted through a validly executed Governance Proposal or otherwise in accordance with the Governing Principles.
A Member becomes an Administrator by assenting to perform the obligations established within a validly executed Governance Proposal or otherwise in accordance with the Governing Principles.
Depending on the duties and obligations contained within the grant of authority establishing Administrators, an Administrator may have fiduciary duties to the Association which should be explicit to the grant of authority when involving compensation.
Absent specific limitations within the validly executed Governance Proposal, an Administrator can resign by presenting notice to the Association membership.
Upon resignation or the completion of their period of authority, an Administrator is not required to dispose of any Membership Interests in the Association and can continue as a Member upon resignation as an Administrator.
Article 7
Compensation
Except as otherwise provided in subsection 2) of this Article, the Association may not pay dividends or make distribution to a Member or Administrator.
In accordance with the laws of Wyoming, this Association may:
pay reasonable compensation or reimburse reasonable expenses to its Administrators, agents and Persons outside the organization for services rendered, including with respect to the administration and operation of the Association;
confer benefits on its Members or Administrators in conformance with its common nonprofit purpose or purposes; and/or
make distributions as a cooperative established as an UNA.
Article 8
Dissolution; Wind-up
This Association has a perpetual duration and may only be dissolved by any of the following methods:
upon a validly executed Governance Proposal;
three years of inactivity, per Wyoming law; or
by court order.
After dissolution, the Association continues in existence until its activities have been wound up and it is terminated pursuant to Paragraph 3 and 4 of this Article.
The Association continues to exist beyond dissolution only for the purpose of winding up.
In winding up the Association, the members:
Shall discharge the Association’s debts, obligation and other liabilities, settle and close the Association’s business, and marshal and distribute any remaining property to another entity or persons with similar nonprofit purposes, as determined by a validly executed Governance Proposal;
May, as a result of a validly executed
Governance Proposal, appoint an
Administrator or
Administrators to wind up the Association and:
preserve the Association’s operations and property as a going concern for a reasonable time;
prosecute and defend actions and proceedings, whether civil, criminal, or administrative;
transfer the association’s property;
settle disputes by mediation or arbitration;
receive reasonable compensation for services rendered in winding up the association; and
perform other acts necessary or appropriate in winding up.
Article 9
Rights of Members and Administrators to Information
Wyo. Stat. Title 17, Ch. 22 does not require UNAs to maintain specific Records regarding its activities, financial condition or other situations. As such, Members have no rights to any Records or information of the Association. The Members may, through a validly executed Governance Proposal, direct the Association to obtain or prepare information to present to the Members. Further, Members may collect and present any information that is publicly available on the blockchain.
Article 10
Service of Process
The Association may file in the WY office of the Secretary of State, a statement appointing an agent authorized to receive service of process.
In the event a statement to appoint an agent authorized to receive service of process is executed, it must be reauthorized and refiled every five years.
Article 11
Advancement of Expenses
The Association may reimburse a Member or Administrator for authorized expenses reasonably incurred on behalf of the Association through a validly executed Governance Proposal to the extent allowable by the laws of Wyoming.
The Association may allocate and disburse funds to the Administrators through a validly executed Governance Proposal to be used to fund activities that have been authorized by a validly executed Governance Proposal.
Article 12
Agreement to Arbitrate
Any dispute, claim or controversy arising out of, or relating to, the activities of the Association and its Members, Administrators, and/or agents for the breach, termination, enforcement, interpretation, or validity of the Governing Principles, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by arbitration in Wyoming before one arbitrator.
The arbitration shall be administered by AAA pursuant to its Commercial Arbitration Rules and Procedures – Expedited Procedures. Judgment on the Award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.
Although final costs would be subject to the results of arbitration, any advance costs associated with the arbitration proceedings would be shared equally by both parties.
Article 13
Miscellaneous
Separability of Provisions. Each provision of this Agreement shall be considered separable and, if for any reason, any provision or provisions herein are determined to be invalid, unenforceable, or illegal under any existing or future law, such invalidity, unenforceability, or illegality shall not impair the operation of, or affect those portions of, this Agreement which are valid, enforceable and legal.
Governing Law. This Agreement shall be governed by, and construed under, the laws of the State of Wyoming (without regard to conflict of laws principles), all rights and remedies being governed by said laws.
Amendment. This Agreement may not be modified, altered, supplemented, or amended except by a validly executed Governance Proposal.
A claim for relief against the Association does not abate merely because of a change in its Members or Persons authorized to administer the affairs of the Association.
Notwithstanding any other provision of this Agreement, to the extent that, at law or in equity, the Administrators, Members or any other persons having duties (including fiduciary duties) to the Association or to any Member, all such duties (including fiduciary duties) are hereby eliminated to the fullest extent permitted by the law and replaced with the duties expressly set forth herein or as expressly established by a validly executed Governance Proposal.
Appendix A
Definitions
“Administrator” means a person authorized by the members of the Association to fulfill administrative or operational tasks at the direction of the Members.
An Administrator is distinguished from a manager filling a traditional management function because Administrators only possess the power to administer those affairs specifically authorized through a vote of the membership per its Governing Principles.
Absent specific authorization from a validly elected Governance Proposal, an Administrator has no authority to bind the Association to legal agreements or to act on its behalf.
“Distributed Ledger Technology” means a distributed ledger protocol (e.g., designated regulatory model of software that governs the rules, operation, and communications between intersection and connection points in a telecommunication network) and supporting infrastructure (e.g., computer software, hardware, or collections of computer software or hardware, or both, that utilize or enable a distributed ledger), including blockchain, that uses a distributed, shared, and replicated ledger, whether it be public or private, permissioned or permissionless, and that may include the use of digital assets as a medium of electronic exchange.
“FWB Protocol” means the collection of Smart Contracts with which users interact to participate in the Association. The existing FWB Protocol includes Smart Contracts for minting tokens, maintaining the Treasury, and governance of the Association.
“Governing Principles” means all the agreement (e.g., Association Agreement, Governance Protocol, or validly executed Governance Proposals), whether in a record, implied from its established practices, or in any combination thereof, that govern the purpose or operation of the Association and the rights and obligation of its Members and Administrators.
“Governance Proposal” is the mechanism in which Members bring forth an issue for the vote (1) as established in the Smart Contracts, specifically the Governance Protocol or (2) through a process initiated by an Administrator through Snapshot or a similar off-chain voting platform.
“Governance Protocol” is the collection of Smart Contracts through which Members of the Association are able to put forth proposals, vote on active proposals, establish the rules regarding voting and ultimately, govern the FWB Protocol.
“Member” means a person who may participate in the selection of persons authorized to administer or manage the affairs of the association or in the development of policy of the Association.
A Member may not be admitted to the Association without their consent, however – the assumption of the Membership Interest can be a clear demonstration that a person intends to be a member of the Association and abide by its Governing Principles (i.e., the purchasing of a Membership Interest, solicitation of Member Interest, acceptable of a delivered Membership Interest, etc.). As such, it is not a requirement that a person actually participate in voting or the actual administration of the affairs of the Association to be a Member.
“Membership Interest” means a right of a person to participate as a Member of the Association, make Governance Proposals and vote in the affairs and policies of the Association.
“Person” means an individual, corporation, business trust, estate, trust, partnership, association, agency, joint venture, governmental subdivision or instrumentality, or any other legal or commercial entity.
“Record” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in a perceivable form, including information inscribed on Distributed Ledger Technology.
“Smart Contract” means an even-driven computer program used to track and tabulate votes made on Distributed Ledger Technology that is used to automate transactions, including, but not limited to, transactions that:
Take custody over and instruct transfer of assets on that ledger;
Create and transmit digital assets;
Synchronize information; or
Authenticate user rights and convey access to software application.
“Unincorporated Nonprofit Association” means an unincorporated organization consisting of two (2) or more members joined by mutual consent for a common, nonprofit purpose. However, a joint tenancy, tenancy in common, or tenancy by the entireties does not, by itself, establish a nonprofit association, even if the co-owners share the use of the property for a nonprofit purpose.
Frequently Asked Questions
This list of questions was prepared to provide further information related to the adoption of the UNA as contained in this governance proposal.
Although certain type of activity is prohibited to maintain the status as an UNA, avoidance of that activity would be consistent with any analysis that the governance tokens of membership NFTs were not securities. Accordingly, the limitations on activities resulting from the UNA would be complimentary to those that already exist under US securities law.
Furthermore, many of the proposals for FWB involve activity that would qualify for tax exemption. Although the UNA is a nonprofit structure, it is not tax optimized as a tax-exempt organization. While the structure of a DAO makes attaining the formalization necessary for tax-exempt status for the DAO exceedingly difficult, the formation of the UNA would be an essential step in creating a tax-exempt entity designed to effectuate a qualifying activity.
If the DAO were organized as an UNA and participated in activity that was violative of the requirements established by state law for a nonprofit entity, the tax would still be owed, but the members would also need to assess the likelihood of losing liability protection, as well as the DAO’s elected federal filing status as a C Corp going forward. Additionally, the disqualifying activity would have to be evaluated as a potential violation of US securities law.
It should be noted that the utilization of a US tax entity structure only impact the taxes for the DAO itself, not the taxes of individual token holders (the governance token holders owe taxes related to citizenship and geographic location, not the entity structure of the DAO – for US citizens, it is the exercise of dominion and control over the governance tokens). By making the DAO itself a US entity, there would be greater certainty in operational planning, protection for the members’ participation in the DAO overall and clarity in how to meet any tax obligations. Additionally, distributions and compensation would need to meet reporting obligations.
Beyond that, additional consideration would need to be made for future governance proposals to ensure they were compliant with the requirements of the UNA – however, these considerations largely exist currently and the UNA presents significant advantages to most US entity structures as it was designed for informal membership and a member not receiving compensation from the DAO would be able to retain their anonymity.
The UNA does not require directors to be elected and is fully capable of reflecting the governing principles of FWB DAO.
UNA’s are capable of opening a bank account but the complication of also being a DAO currently presents some obstacles in that regard. However, there is progress being made on that front and it is expected that a DAO UNA will be able to attain a bank account so long as an individual from the DAO is authorized as necessary to interact with the bank and complies with the US Customer Due Diligence rules.
Reserving a business name, refiling the service of process upon change of agent or every 5 years, and the filing of taxes will require maintenance of recurring obligations.
The primary cost associated with the UNA will be the payment of any US taxes related to FWB DAO (particularly in regard to the treasury). Beyond that, the costs will be limited to utilizing a CPA to file the tax returns, paying the registered agent for receipt of process and minimal filing costs.
Merely holding $FWB tokens does not make automatically confer membership in the UNA – it requires an affirmative action which could include, but is not limited to the following:
Engaging in the governance process, including participating in discussions, proposals and/or votes;
Receiving services from or through FWB;
Performing any act providing services to, for, or on behalf of FWB; and/or
Participating in events, audits, contests, or any other services.
However, membership in the UNA flows through $FWB tokens and is separate from the application process.