[RFC] PTIP-89 PT Legal Entity Budget Approval

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Hey everyone, Lonser here!

A while ago @leighton did some research about the formation of a PT legal entity (see the Gov post here: Research on a Treasury Entity).

There he outlined the differences, Pros and Cons of the possible legal entities and the conclusion there was that from a cost/benefits point of view the “MiDao Marshall Islands Non-profit DAO LLC” legal entity is the best offer. After some own research, chat and talk with MiDao I would agree to that.

“Marshall Islands Non-profit DAO LLC
Description: The Marshall Islands has passed legislation encouraging DAOs to register (with a non-profit option that fits PoolTogether’s circumstances). Registration does require a few members to KYC, but otherwise treasury operation can remain largely on-chain and as it functions today.”

This structure has multiple benefits:

  • The non-profit model aligns with the protocols social good purpose and stated mission
  • The structure a flexible membership model allowing for anonymous members and the ability for people to seamlessly transition in and out (up to 25% of token ownership)
  • The protocol’s token holders and contributors are not predominantly located in the United States
  • While relatively new, we like that the Marshall Islands has created a registration process expressly for on-chain entities indicating a willingness to evolve with the industry.
  • People contributing to the protocol will benefit from structural and regulatory clarity
  • The LLC can enter into contracts and mitigate concerns around tax treatment for treasury funds.

Additionally:

  • Makes applying for incentives easier
  • Legal entity can hold IP, we could in theory transfer rights from PT Inc. to the new entity.

In the previous Gov Post the Community largely approved the formation in an informal poll vote but since then the discussion has mostly paused.

As outlined there the next steps would be:
"If there appears to be alignment, we would recommend the following next steps:

  1. A token holder vote to provisionally approve adopting the entity for the treasury subject to further research, delegation of the authority to certain community members to confirm tax analyses and interface with MIDAO to form the entity 3 and other independent lawyers to confirm the analysis.
  2. These delegates will continue to provide updates on research and the rapidly changing legal treatment of DAOs/protocol entities as we move towards a final structure.
  3. A final vote ratify the outcome of step 1."

In this proposal I request approval from PT Governance to proceed with the formation of the legal entity and request the needed budget for it.
As stated in the MiDao pricing, the formation costs are 9,500$ and the yearly costs are 5000$ with a first year discount of 50%, so 12,500$ in the first year (MIDAO LLC Package Pricing). In addition I would suggest budgeting 5,000$ for independent legal counsel.

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Great initiative, @Lonser! Full support :clap:

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I already signaled my support in July (Research on a Treasury Entity - #6 by cpoetter). but I want to stress that more seasoned members should decide and weigh in.

regarding costs: i don’t work in law and have no idea how much counseling with a lawyer is. my instinct tells me that $5,000 is not much. we’d need a more specialized lawyer (blockchain stuff, taxes, maybe international law,…). if you have to explain blockchain, DAO,… to a lawyer first, much of the funds go into educating them.
also I assume some funds have to be reserved for traveling costs (haven’t read the MIDAO stuff again, but some people have to show up on the Marshall Islands in person at least once, don’t they?).

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Interesting. The individuals who submit themselves for KYC, would that also expose themselves to liability in regard to the actions of the treasury and token votes?

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What does PT Inc. currently hold that would be transferring to this entity?

What’s the life cycle of this entity look like? From other discussions it seems like treasury will be wind down over time.

Has @tim / @poptones run into any issues where we’ve lost an opportunity in BD because we haven’t had a formalized legal body? I can recall a couple instances when I was on grants where having some legal body would have made things easier or more accessible.

As a small aside, broadly speaking, we really need to get more explicit on the subject matter of posts. Between this and PTBRs it seems like those leading the way are leading with sticks and carrots rather than providing information to review and provide commentary on.

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Here’s a good resource explaining the responsibilities and accountability measures for the Optimism Collective as a reference: What is the Optimism Foundation? | Optimism Docs

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Dear Lonser,

Thank you for your thorough presentation on the potential formation of a PT legal entity. I genuinely appreciate the proposal highlighting the benefits of the “MiDao Marshall Islands Non-profit DAO LLC” legal entity.

However, as we embark on this significant undertaking, a few concerns merit further exploration:

  1. Entity Protection and Liability: A pivotal aspect of establishing a legal entity is to delineate and manage liability. It would be pertinent to gain clarity on whom this entity is primarily designed to protect. Will it extend protection to the broader community, or is its focus narrowed to safeguard specific participants or distinct aspects of the protocol?
  2. New Legislation: While the proactive stance of the Marshall Islands in accommodating DAOs is commendable, the nascent nature of such legislation demands meticulous legal scrutiny. Newly minted laws often carry with them unforeseen legal nuances or potential for future adjustments.
  3. IP Transfer: The proposal to transfer IP rights from PT Inc. to this new entity holds complexities that warrant a detailed legal understanding of its ramifications and potential challenges.
  4. Budgeting for Legal Review: Before moving forward, a detailed insight into the chosen legal counsel, alongside a transparent breakdown of all associated costs, would be indispensable for the community’s informed judgment. Your initial budget allocation for independent legal counsel is a step in this direction, but enhanced clarity would be beneficial.

In light of these considerations, I’d propose the following sequence:

  1. Legal Consultation First: Before making any commitment or initiating entity formation, it’s imperative to engage with qualified legal professionals for review. This review should encompass implications arising from the new Marshall Islands legislation and nuances around IP transfers.
  2. Community Review: Subsequently, share the insights from this legal consultation within our community, ensuring an atmosphere of full transparency and comprehension.
  3. Token Holder Vote: After legal review and community discourse, a token holder vote for final approval should be sought. Only with this informed consensus should we contemplate actual entity formation.

By adopting an informed approach, we ensure that our actions prioritize legal prudence and reflect the best interests of our community.

I remain optimistic about further constructive dialogue on this proposal, with the community’s well-being remaining paramount.

Warm regards, FYH

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Thx for all the great comments on this proposal draft!
As mentioned before I am personally neutral regarding this proposal, I think it’s an important topic and discussion and so I brought it forward to further discuss it and see how the Community sentiment is.
I think we gathered quite a lot of useful and important information and opinions and totally agree that at this stage the formation of a legal entity needs further research and legal consultance. I think it could make sense to try to rephrase and repost this proposal on the gov forum to only include the first stage! I see there are still things to clarify and I don’t wanna force push anything forward that maybe isn’t rdy for it yet.
Especially thx to all people participating in the Discord Chat Discussion and the latest comment by @FYH !

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Hey team, I am a bit late but wanted to comment since I have recently gone through selecting a legal entity for Bankless Card. I consulted a bunch of legal experts in both the web3 and non-web3 space, and we currently have a Panama Foundation which wholly-owns a US-based LLC. You can see more about our legal structure here.

First: it’s really important to define the goals of a legal entity. There are lots of reasons to do it (i.e. protecting contributors for litigation, holding and defending IP, interaction with off-chain entities, etc). Depending on your priorities, the right legal structure could change. For example, at Bankless Card, our main priorities was to issue cards while keeping our DAO ethos (i.e. permissionless involvement). This ruled us out from using an LLC to wrap the DAO (which are effectively owned by the named people, not the DAO members and have tax liability pass-through).

Second: you have to decide on the scope of your legal entity. What does it “own”, what does it “control”, and how does it get changed? This is especially important as PT has a functioning DAO and corporation already. This scope will need to be included in your founding documents, and could affect the type of legal entity you choose. For instance, Bankless Card has a clear separation between the Foundation (which works towards our purpose and the benefit of our beneficiaries) and the LLC (which pursues profit and runs our card program).

Third: you need to define who will “represent” your legal entity. No matter which entity you choose (including MIDAO LLC), there will have to be SOMEONE who is named, and will have to dox themselves (i.e. give copies of passport, SSN, and more), and likely have some kind of power over the legal entity. It’s very important that this person is trusted an interested in this process. Going through the process of minting a legal entity takes time and attention (at least if you want to do it well). Yes, you will have a lawyer guiding you through the process, but the named person(s) should read and understand EVERY SINGLE WORD of the legal document they are signing onto. At Bankless Card, our multisigners are named on our Panama Foundation, and the bylaws of the Foundation describe their power and how they can be replaced. By doing this, we have created an expectation: anyone who is on the multisig must be doxed and named in our Foundation as a director.

I’ve written enough here, but suffice to say, while I am supportive of creating a legal entity for PT the protocol, what I have read so far does not show me that this organization is ready for it. I see @Lonser has decided to do more research (great!) so I’ll stop there, but I’m happy to answer any questions you might have.

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These are all fantastic points Links, I really appreciate you bringing them to the forefront. I believe some of these have been discussed in council calls at a very high level, but it would be helpful to have the results of those discussions more documented. It certainly seems like we will need to get something more detailed put together before we can start this process.

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