UAE’s RAK DAO Introduces DARe: The DAO Associations Regime

RAK DAO Association Regime (DARe), Ras Al-Khaimah, UAE

Introduction

The recent introduction of the DAO Association Regime (DARe) by Ras Al Khaimah Digital Assets Oasis (RAK DAO) marks a pioneering step in the UAE’s commitment to Web3 innovation. As DAOs struggle globally to gain formal recognition, DARe provides a distinct solution by offering DAOs legal status within a clear regulatory framework allowing these organizations to engage in activities such as asset ownership, contractual agreements, and complex governance structures, all while protecting member and token holders. This legal model fills a significant gap by enabling DAOs to operate within a regulated framework without compromising their decentralized values.

Overview

Corporate Structure DARe allows DAOs to register as a Company Limited by Guarantee (CLG) which is a type of corporate structure often used by non-profit organizations, charities, clubs, and community projects. Unlike traditional companies, it does not have shareholders or distribute profits to individuals. Instead, members of a CLG agree to contribute a nominal amount toward the company’s debts if it is wound up, which is their “guarantee.”

Guarantee Requirement Rather than requiring minimum capital, DARe mandates that each founding member provide a “guarantee” in the form of a financial pledge. This guarantee, which may be paid in fiat currency or cryptocurrency, serves as a security for the DAO’s obligations and limits member exposure to the value of their guarantee.

The size of the guarantee isn’t fixed. Instead, the amount is set at the discretion of the founding members. However, the Registrar has the authority to establish a minimum guarantee amount during incorporation or any time thereafter. This guarantee can also be implemented through a smart contract.

Non-profit Status DARe restricts DAO associations to non-profit activities. This framework prevents any distribution of profits to members or token holders. Instead, all earnings must be reinvested into the organization’s objectives, aligning with the regime’s focus on purpose-driven, collaborative structures.

Members vs. Token Holders DARe introduces different roles for Members and Token Holders. Members are individuals directly involved in the DAO’s founding, governance, or management, often with designated responsibilities and guaranteed obligations. Token Holders, on the other hand, are individuals or entities who hold governance or miscellaneous tokens issued by the DAO. Token holders have rights based on the type of token they possess, such as voting on proposals or accessing DAO resources, but may not be directly involved in operational responsibilities.

Council The council serves as the central governing body of a DAO, responsible for strategic oversight, compliance, and asset management. Comprising at least two individuals, council members represent the DAO in off-chain activities, handle regulatory interactions, and make high-level governance decisions on behalf of the organization. The council ensures that the DAO operates ethically and in accordance with DARe’s guidelines, providing transparency and accountability to members and token holders through regular meetings, disclosures, and compliance with governance practices.

DARe Key Advantages

Legal Recognition: DARe grants DAOs a formal legal status, enhancing their credibility and allowing them to own assets, enter binding agreements, and take on obligations under their own name.

Protection for Members and Token Holders: Limited liability through a Company Limited by Guarantee structure reduces personal risk for members and token holders.

Multiple Classes of Tokens: DARe allows DAOs to issue multiple token classes, each conferring distinct rights or responsibilities. This flexibility is essential for tailoring token distribution to various roles within the DAO, whether for voting rights, access to resources, or other utilities aligned with governance objectives.

Sub-DAOs with Segregated Assets and Liabilities: For larger DAOs, DARe enables the formation of Sub-DAOs to separate assets, liabilities, projects, or investment objectives. A DAO can establish up to 10 Sub-DAOs, each with its own governance structure and purpose. Sub-DAOs are particularly advantageous for complex organizations, allowing for tailored governance and asset management without merging resources or responsibilities across projects.

Custom Membership Classes: DARe allows DAOs to create custom membership classes, enabling specific roles and responsibilities for members with unique skill sets or contributions. For example, DAOs may create classes for advisory members, technical contributors, or legal representatives, with each class granted specific rights or obligations that align with their roles.

Corporate Governance: DARe implements some best practices from the corporate governance world to ensure management integrity. Specifically, it mandates council members to disclose potential conflicts of interest, preventing any personal gain from DAO transactions. DARe also restricts the provision of financial assistance (e.g., loans) to council members, safeguarding the DAO’s resources for its intended non-profit objectives.

DAO Packages

RAK DAO has tailored two packages under DARe to accommodate DAOs at varying stages of development and scale:

Startup DAO Package: Aimed at smaller, emerging projects, this package has a registration fee of $4,500 and suits DAOs with fewer than 100 members and a treasury below $1 million. This package offers foundational regulatory coverage while minimizing initial costs.

Alpha DAO Package: Designed for more established DAOs, this package requires a $9,500 registration fee and is tailored to DAOs with more than 100 members, a treasury exceeding $1 million, and that may have conducted a public token sale. Alpha DAOs benefit from advanced governance capabilities, such as creating Sub-DAOs for managing specific projects.

Core Requirements

Setting up a DAO under DARe involves preparing necessary documentation, such as a governance-focused Constitution and Memorandum of Association. Once established, DAOs are eligible to open bank accounts in the UAE, subject to compliance with local banking policies on digital assets.

The DARe framework includes a set of core requirements designed to ensure that DAOs are structured effectively and operate transparently:

Founders: To incorporate, a DAO must have at least two founding members (up to ten are allowed), including foreign individuals or legal entities.

Local Manager or Registered Agent: Each DAO must appoint a Manager who is a UAE resident or a UAE-based registered agent responsible for representing the DAO in off-chain dealings, such as regulatory interactions, and serving as the primary point of contact for official correspondence, ensuring regulatory compliance.

Public Register: Information about the DAO’s founding members, council members, and officers is available to the public through the register maintained by RAK DAO.

Major Token Holder Disclosures: To prevent centralization and provide transparency, DARe requires any token holder with more than 25% of a DAO’s voting power to disclose this to the Registrar.

Compliance with UAE Federal Regulations: DAOs registered under DARe must comply with federal regulations, including anti-money laundering (AML) laws, data protection standards, and beneficial ownership disclosures.

VASP and Token Issuance: For DAOs involved in Virtual Asset Services (VASPs), a Virtual Asset Service Provider (VASP) license is required from UAE federal regulators. Additionally, DAOs issuing tokens must meet specific requirements, including a legal review of the token’s regulatory status and a cybersecurity audit.

Accounting Records and Reporting Every DAO must keep accounting records, prepare and file with the Registrar audited annual accounts and annual return. RAK DAO Authority retains the right to inspect the records of a DAO to ensure compliance with the DARe framework.

Conclusion

DARe’s groundbreaking framework aligns traditional legal standards with the innovative, decentralized nature of Web3. By providing DAOs with a compliant structure for secure, sustainable operations, DARe has positioned the UAE as a global frontrunner in blockchain regulation. For DAOs considering legal incorporation, DARe offers a supportive path to expand with legitimacy and security. With future opportunities for partnerships, project funding, and enhanced governance models, DAOs operating under DARe are well-positioned to lead in the evolving digital economy.

Disclaimer: This article is for informational purposes only and does not constitute legal advice. For legal advice regarding your specific situation, please consult a qualified attorney.

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