Securing DAO Members and Assets Protection Under a Panama Foundation

What is a DAO and How Do You Ensure Protection?

A DAO is a decentralized autonomous organization that utilizes blockchain and other Web3 technologies to let its membership community run the business. In this form, a DAO doesn’t usually have the protections of traditional structures like LLCs, which can potentially lead to personal liability.

What is a DAO, and What are DAO Legal Wrappers?

DAOs operate on-chain globally, but so few jurisdictions have classified or protected the organization structure in the way that they have other more traditional structures, like corporations. As such, they can be subject to all manner of incursions from regulatory bodies and, without a recognized legal entity, all members and assets can be liable should legal issues arise. The definition of a DAO legal wrapper is a legal entity that a DAO can use to enable it to gain liability shielding, legal protections, and access to the wider world of business.

Ownership-Free Doesn’t Mean Risk-Free

It’s common for would-be members to ask, “Are DAO members at risk if there is no DAO legal wrapper in place?” The answer is, yes. DAO members can all be counted as owners and be equally liable. Where DAOs and the law collide, members can be subject to unlimited judicial liability, unlimited tax liability, and unlimited financial liability. Legal wrappers enable a DAO to be subject to similar, far more owner-friendly regulations that traditional legal entities enjoy.

Why Create a DAO Wrapper?

There are many DAO legal wrapper use cases, with the most general benefits of having a DAO legal wrapper being to gain financial, legal, and tax protection. This protection covers the DAO members and any third parties involved. In some cases, legal wrappers can even offer full privacy, zero taxation for the entity, and asset protection.

Panama Foundation: Top-Tier Jurisdiction for a DAO Legal Wrapper

Members looking for a DAO legal wrapper should be looking at Panama as a top-tier choice as Panama Private Foundation formation and benefits lend themselves very well to DAOs.

What is a Panama Offshore Foundation?

A Panama Offshore Foundation (PPIF) is a form of legal structure established to be independent from the organization’s beneficiaries and members. Primarily, these Panamanian legal wrappers protect assets, limit liability, and uphold member privacy.

Panama Foundation Law

Panamanian Foundation Law 25 of 1995 is the statute that enables DAOs and the law to realign, having established the Private Interest Foundations that allow DAOs to gain a recognized and viable legal entity.

Key Features of Foundations

A PPIF is a non-profit entity that’s primarily charged with keeping specific assets safe. They can be formed for any lawful purpose and will offer limited liability to all members. However, it isn’t strictly required to have members and can instead appoint a protector to ensure that the foundation stays true to its chartered intentions.

Uses of a Panamanian Foundation

There are many ways to use a Panamanian Foundation to protect your assets. You can also gain lawsuit protection, perpetual estate planning, and be able to avoid CFC reporting rules by transferring ownership of company shares to the foundation.

Why a Panama Foundation for a DAO Legal Wrapper?

A Panama Foundation is the ideal choice for any membership group that’s seeking a DAO legal wrapper. These are some of the key benefits of a Panama Foundation that particularly stand out as appealing to DAO members.

Zero Taxation

Not only does Panama’s income tax not apply to a foundation’s income or assets that are generated outside of the country, but Panama also doesn’t charge corporate, inheritance, gift, or estate taxes. Coupled with the opaqueness of a Panama Foundation to outside actors like the IRS, tax obligations elsewhere could also be reduced.

Asset Protection

Another of the headline benefits of a PPIF is that it’s independent from its organization – in this case, the DAO – and so, the assets held are legally distinct. This goes for being separate from the DAO and from the DAO’s members. As such, the assets are protected from foreign lawsuit judgment and outside creditors.

Full Privacy Total Control

As mentioned, the high levels of privacy offered make it tough for outside entities to gauge exactly what assets belong to whom. Beneficiaries and the assets held are strictly confidential, which means that the founder or an appointed protector won’t need to be named in any public records. Yet, members get full access.

Low Registration and Renewal Fee

Whenever you’re looking to register a business abroad, you generally want to pick a jurisdiction with low registration and renewal fees. Again, the PPIF ticks these boxes, with even the high end of fees arguably being offset by the tax benefits.

Fast Formation

If time is of the essence for your DAO, another of the benefits of a Panamanian Foundation is that formation is swift. After filing, the Registrar will take up to ten days to complete incorporation and stamp the documents without the need for an authority’s approval.

How Can InteliumLaw Help with a Panama Foundation for DAOs?

The aim of the game here is to get the best tailored legal wrapper for your DAO. You want to ensure protection for your members and assets in a way that’s perfectly legal and next to impenetrable. To achieve this, the experts here at InteliumLaw can assess your Web3 project, help you to figure out what you need, and then execute your needs in the best possible way. Among our services offered, your DAO can benefit from us keeping your operations KYC compliant, fulfilling any reporting requirements to authorities, granting full protection to members, and adapting the bylaws of the legal entity to suit your DAO’s governance.

Contact InteliumLaw today so you can get back to advancing your DAO knowing that your assets are safe in a Panama Foundation and that the liability of your members is now limited.