LLC type DAO employee rights token
In Japan, with the development of the decentralized Internet, commonly known as Web3, the legal framework for DAOs (decentralized autonomous organizations) is being developed. This is an effort to clarify the legal nature, operational rules, responsibilities and ownership of members, tax relationships, etc. of the DAO, which is made up of members participating in specific projects, and to create an environment where the DAO can be used with peace of mind as an option. It is.
Another step forward in the formation of rules for LLC-type DAOs.#web3PT
Financial Services Agency: This issue aims to make the necessary amendments to make regulations on the rights of members of tokenized limited liability companies, etc., equivalent to the rights of members of ordinary limited liability companies, etc. in certain cases. https://t.co/uF5gFtZazw
— Taira Masaaki (@TAIRAMASAAKI) February 2, 2024
The forerunner of this movement is the “Cabinet Office Ordinance (Draft) Amending Part of the Cabinet Office Ordinance Concerning the Definitions Provided in Article 2 of the Financial Instruments and Exchange Act,” which was announced by the Financial Services Agency on February 1. This proposed amendment aims to give a specific token called “Limited Company Type DAO Employee Rights Token” the same treatment as regular LLC member rights. This measure is expected to ease regulations on employee rights in tokenized limited liability companies and streamline DAO operations.
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What are the membership rights of a limited liability company?
A limited liability company is precisely the Japanese version of an LLC that assumes business operation by a small number of investors. It is used for real estate investment and family-run corporations due to its easy procedures, such as easy establishment costs and omissible financial statements and articles of incorporation certification. These employee rights are referred to as binomial securities or “deemed securities,” and are an important element in determining management rights and profit distribution within an organization, and influence within the organization and profit distribution vary depending on the amount held.
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The Financial Services Agency is soliciting public comments on this proposed amendment until 17:00 on Monday, March 4th (must arrive). Once the process is complete and the necessary procedures have been completed, the proposed amendment will be promulgated and implemented.
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Create legal status for DAOs
DAOs are enabled by blockchain technology and communication tools, and are gaining citizenship as a means of community management. However, the lack of clear legal status creates the risk that current legal regulations will be applied in unexpected ways, and is a factor that impedes the smooth formation and operation of DAOs. Furthermore, in external activities, some argue that DAOs with a clear legal status are easier to gain trust and allow transactions to proceed more smoothly.
It is important to clarify the legal status of DAOs by enacting and implementing new laws specific to DAOs, but creating new laws takes time. Therefore, a realistic approach is to utilize existing legal forms to clarify the legal position of DAOs and promote their use.
By establishing and operating a DAO as a limited liability company, it is possible to give the DAO legal personality, clarify the limited liability of its members, realize flexible organizational management through self-governance in the articles of incorporation, and clarify tax treatment. Become.
In this context, the Liberal Democratic Party’s Digital Society Promotion Headquarters and the web3 project team held the “DAO Rulemaking Hackathon” at the end of last year, and received issues and requests from multiple companies, organizations, and investors (21 companies and organizations in total). On January 29th of this year, we submitted our recommendations to the Minister of Finance. More than 100 issues were raised from the hackathon, categorized into legal issues, tax/accounting issues, and other issues.
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Various themes for continued consideration
There are a wide variety of topics that will continue to be considered in future discussions toward the development of a legal framework for limited liability company-type DAOs.
The main themes for continued consideration include clarification of the conditions regarding the eligibility of employee rights tokens as securities, and discussions on securing employee rights and anonymity in limited liability company-type DAOs with revenue sharing.
Furthermore, discussions are underway regarding the possibility of utilizing legal forms other than limited liability companies and the clarification of accounting and tax treatment. It also includes operational considerations such as business execution using smart contracts, fund management using treasury, changing DAO members, and ensuring anonymity.
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