Register a DAO in the Cayman Islands

To register a DAO in the Cayman Islands is the goal of the founders and investors of web3 projects creating scalable development or investment ecosystems. The jurisdiction attracts international business with the combination of full tax neutrality, a predictable regime of foundation companies and developed specialised legislation in the sphere of digital finance.

This analytical material represents a step-by-step guide describing in detail how to register a DAO in the Cayman Islands taking into account the current regulatory changes. The text discloses the legal particularities of a structure without shareholders, the requirements of the supervisory body CIMA for obtaining VASP licences, as well as the new rules of tax transparency CARF and the disclosure of beneficiaries under BOTA. 

To Register a DAO in the Cayman Islands: Which Legal Form to Choose for the Project

Before registering a DAO in the Cayman Islands, the founders need to study in detail the specifics of the local corporate law. The legislation of the jurisdiction does not contain a separate organisational and legal form for decentralised autonomous organisations. Blockchain protocols and distributed communities are not endowed with automatic legal personality. In order to hire developers, own the rights to the code, accumulate treasury funds and sign commercial agreements, the project requires a legal shell.

The most in-demand instrument for solving these tasks has become the foundation company. This legal form of a DAO in the Cayman Islands makes it possible to fully move away from the classic shareholder logic distributing the shares of ownership. The constituent document of a foundation company may define the goals of the project as broadly as possible — from the support of a specific ecosystem to the distribution of grants. At the same time, the absence of shares or stock does not mean that the structure becomes fully anonymous. The controlling persons and the ultimate owners are subject to mandatory identification for the prevention of the risks of illegal activity.

Alternative corporate structures have a different target orientation. The choice in favour of a limited liability company is expedient if the project is planned to be developed as a closed investment club with rigidly fixed contractual rights of the participants. Non-commercial associations are suitable for fully charitable or socially significant initiatives, but they impose strict restrictions on any commercial turnover. The use of a standard exempted company is inconvenient because of the necessity of distributing shares, which directly contradicts the decentralised concept.

A comparison of the corporate structures of the Cayman Islands for the integration of a DAO.

When initiating the arrangement of a DAO in the Cayman Islands, the founders must exclude the mixing of various legal and regulatory statuses. There exists a critical difference between the creation of an ordinary corporate shell for the coordination of participants and the launch of a full-fledged tokenised investment fund. An attempt to attract third-party capital or to launch an investment pool within the framework of a standard foundation company without a specialised licence will inevitably lead to regulatory sanctions.

The renunciation of traditional shares makes it possible to create a DAO in the Cayman Islands with a maximally flexible architecture. Smart contracts and the results of the voting of token holders are integrated into the internal documents of the legal entity through special regulations. This ensures the legitimacy of decentralised decisions in a real legal field. All the operational activity, including the engagement of external service providers and the protection of the rights to intellectual property, obtains reliable protection within the framework of the Anglo-Saxon legal system. 

The Registration of a DAO in the Cayman Islands through a Foundation Company: the Regulatory Base and the Management Bodies

The comprehensive registration of a DAO in the Cayman Islands through a foundation company is based on the law on foundation companies and the general law on companies. The special regime makes it possible to exclude the presence of shareholders. The founders are also obliged to observe the law on the transparency of beneficial ownership (BOTA), the rules of economic presence, the regulations of AML and the requirements of CARF. The internal technical regulations and the rules of the distribution of tokens are recorded in private rules (Bylaws), which are not subject to publication in the state register. The full-fledged regulatory base of a DAO in the Cayman Islands clearly delineates the roles: the Founder initiates the creation of the foundation, while a minimum of one Director is responsible for the legal implementation of the decisions and bears fiduciary duties, which excludes the blind execution of illegal on-chain votes.

A mandatory element of the structure is the secretary — a local qualified person with a licence for the management of companies. For the control over the directors, supervisors are appointed. The role of the supervisor has a strict legal definition: it is endowed upon a specific entity, and so it cannot be reduced to an impersonal address of a multisig wallet. 

Effective corporate governance of a DAO in the Cayman Islands is built on a hybrid model: on-chain voting gives the mandate, but the final verification of transactions is carried out by the board of directors. Such an approach protects the management from legal risks, and well-thought-out management bodies of the DAO make it possible to lawfully work with the fiat system. 

How to Register a DAO in the Cayman Islands: the Documents, the Stages and the Procedure

An understanding of how to register a DAO in the Cayman Islands requires of the founders the simultaneous conduct of two parallel processes: corporate incorporation and a regulatory audit. The official state bodies do not give universal guarantees on the timeframes, since each project possesses a unique tokenomics and specifics of management. The duration of the procedures is directly influenced by the depth of the check of the beneficiaries and the necessity of interaction with financial regulators. 

The full procedure of opening a DAO in the Cayman Islands includes the consecutive performance of several critical stages:

The mandatory documents for the incorporation and compliance of a DAO in the Cayman Islands.

The Requirements of CIMA and Regulatory Compliance upon the Registration of a DAO in the Cayman Islands

The fact of the use of a distributed ledger or smart-contract mechanisms in itself does not turn a project into a supervised financial intermediary. However, if the legal shell of a DAO begins to provide commercial services connected with the turnover of digital currency, an obligation arises to observe rigid regulatory rules. The specialised law on virtual assets clearly delineates the circle of types of activity requiring mandatory approval on the part of the Cayman Islands Monetary Authority.

A key factor for the supervisory body is the economic nature and functionality of the digital instrument being issued. Special virtual service tokens, which provide exclusively access to the functionality of a decentralised application or the right of participation in local voting without financial preferences, may be taken out from under rigid supervision. If, however, the token presupposes the accrual of passive income, participation in the distribution of the profit of the treasury or buyback mechanisms, the project automatically falls under the requirements for investment funds. 

What needs to be taken into account:

• the mandatory appointment of a certified compliance officer (AMLCO);

• constant monitoring of transactions and the check of counterparties against sanctions lists;

• the observance of the rules of the Travel Rule upon the carrying out of any transfers of digital currency;

• the provision of reporting and documents at the request of the competent authorities within 48 hours.

The licensing of a DAO in the Cayman Islands provides for the passing of a comprehensive check of the professional suitability of all the managers of the structure. The founders are obliged to prove to the regulator the presence of sufficient technical and administrative resources for the minimisation of cyber risks. The arrangement of a DAO in the Cayman Islands presupposes the implementation of end-to-end procedures of the verification of users directly into the decentralised interface of the project. 

The regulatory regimes of CIMA depending on the functionality of the tokens of the DAO.

To Open a DAO in the Cayman Islands: the Timeframes, the Costs, the Taxes and the Reporting

When planning to open a DAO in the Cayman Islands, the founders must build into the budget the fixed state duties established by the official tariff schedule of the general registry. The basic registry fees cover exclusively the technical actions of the state authority. 

The official duties of the registry are fixed in the local currency, but may be paid in the dollar equivalent at the established rate. The submission of the initial declaration on the assignment of the status of a foundation company requires the payment of 500 local dollars, which constitutes 609.76 US dollars. A change of the corporate secretary or the introduction of any changes to the registered memorandum will cost 75 local dollars, or 91.46 US dollars. A breach of the timeframes for the provision of the updated documents entails the accrual of a daily fine in the amount of 10 local dollars (12.20 US dollars) until the maximum limit of 500 local dollars is reached. The annual fee for the renewal of the status of a foundation company constitutes a fixed 854 US dollars.

The official state duties of the Cayman General Registry.

The jurisdiction retains an attractive tax regime for international holdings and high-technology projects. The local legislation guarantees a zero rate for corporate tax, capital gains tax, as well as the tax on the repatriation of income. The founders have the right to request an official certificate of exemption from taxes, guaranteeing the immutability of the current fiscal conditions for a term of up to thirty years. 

Conclusion

To register a DAO in the Cayman Islands means to create a legal construction that transfers decentralised management into a recognised corporate form. For a Web3 project, this is a question of legal operability: who signs the contracts, who owns the rights to intellectual property, who manages the treasury, who bears the obligations towards the regulator and who actually controls the decisions. The Foundation Company gives a flexible construction, but does not cancel the requirements for the disclosure of control, compliance, tax transparency and the duties of directors.