Money is coming online and frontier orgs are managing financial affairs entirely on blockchained code (“DAO”). Want to pool and pay contractors by the second? DAOs can vote to “smart contract” with those params — set and forget. Computers never sleep, after all.

Still, there is a hidden tax in uncertainty that escapes computing. The legal system provides a very real attack vector for DAO or similar tx signers who control smart contracts or engage services.

Thus, “legal wrappers” have emerged in “crypto law” to manage judiciable risks that leak from smart contracted arrangements, like litigation against identified DAO members for agreement defaults. (See the The LAO, MCV Delaware LLC-DAO setups tailored for investment clubs.)

Ricardian LLCs for All

“It is the policy of this chapter to give the maximum effect to the principle of freedom of contract and to the enforceability of limited liability company agreements.” — §18–1101(b), Delaware LLC Act

To make LLC-DAO and related SPV tools more accessible, an efficient network to create these entities in the form of a Series LLC “ricardian contract” seems worth deploying as an Ethereum utility. In essence, 1-click LLC from a private key. To host a reasonable legal framework, Delaware law is well understood and can serve to root these “Ricardian LLCs” as a “Series” of entries on a smart contract-based Master LLC Agreement, giving them a unique legal personality to enter agreements and hold off-chain assets. This setup is not considered in a vacuum, but builds on public legal scholarship and the work of digital company formation projects like Otoco. To provide a gas-efficient, obvious and agnostic way to mark LLC accounts, the Master LLC Agreement is maintained in a “non-fungible” token (NFT) minter. For compliance and practical purposes (such as lost private keys), a DAO can incubate and govern this NFT ledger and related legal framework (enter, LexDAO, summon, Ricardian LLC).

Soft Launch

The soft launch docs for the Ricardian LLC project are here for review, but the dots are:

• Optimized: The Ethereum deployment costs of Ricardian LLC NFTs are optimized after extensive testing and this “gas” is all you pay to join the network. There are no legal fees or registered agent costs. A default template for DAO code-deference operating agreement is also embedded into each NFT. Altogether, the Ricardian LLC network is the cheapest and most crypto-native way to create an LLC-DAO or SPV for wallets today.

• Open: Any Ethereum account can make an entry as a Ricardian (Series) LLC by calling the ens domain ricardianllc.eth or the mintLLC() function. This will grant the network user an NFT and works as an acceptance of the Ricardian LLC Agreement Package (Note: Schedule B, Disclaimers!).

• Flexible: An entire batch of Series LLCs can be created for complex governance systems via mintLLCBatch(). Individual NFTs can also hold other legal data, like agreements and LLC addendums, through owner-restricted calls to updateTokenDetails().

• Legal-Engineered: LexDAO, through its own Series, will first govern this NFT ledger through a Gnosis Safe (2/4 signers). This governance includes the right to update the masterOperatingAgreement(), the default NFT metadata, and the power to revoke a listing in the Ricardian LLC network.

• Support: Tech support will be first routed through this Gitter chan for users who want to engage in the Ricardian LLC soft launch and provide feedback.

• SIMPLE RICARDIAN USE CASE == Hypo: Multi-sig managing a smart contract or deal flow wants a basic legal wrapper with low friction. The key signers vote to execute a call to ricardianllc.eth, wrapping their multi-sig into an LLC in the Ricardian network.

In many ways, this is a warmup for a smart contract Secretary of State — to bootstrap, this Smart Secretary explores the permissibility of the Series LLC provisions and Delaware’s deference to private law.

Crypto Law Renaissance

Parallel to crypto lawyers developing best practices in this domain, such as the “code-deference” approach, the community has forged paths to make crypto digestible to judges and the legal-system-at-large by pushing for supportive legislation (To name a few milestones, the adoption of blockchain-related provisions into Delaware corporate law, the establishment of a Vermont sub-chapter for a Blockchain-based LLC, and the drafting of a Wyoming bill with LLC provisions tailored to DAOs).

Things are moving fast. Crypto law is in a period of wild experimentation with smart contracts and it’s exciting to see the melding of old and new instruments of power to make agreements more predictable. A crypto-governed, crypto-native approach to legal registration therefore seems ripe to hash out today.

A legal wrapper is pretty much just a boring old legal “company.” People have been using the legal system to organize themselves and handle their rights and privileges for centuries. DAO software lets us handle a lot of the internal admin for an organization in novel ways, but the way a group of people interact with the government hasn’t really changed.

So, a “legal wrapper”, in whatever jurisdiction it’s set up, is what we call the “wet” code. It’s comprised of the all of the non-automated, human-negotiated, contracts and filings needed to interface with a government.

The same way that DAOs are able to handle novel token incentivisation models, legal wrappers are massively flexible — ‘centuries of human scheming’ sort of flexible. There are b-corps and c-corps and LLCs, and on and on. All good options, for the right kind of organization.

To know which legal wrapper is the right one you really have to start from a look at what your organization is trying to do, so that’s where we started.

LexDAO is a non-profit cooperative, and the keeper of the “Web 3 Legal Engineer” moniker. Our mission is to continue to define the role of “legal engineer” and promote high standards for legal engineering work and education. As well as the growth of legal engineering as a practice and a public good.

LexDAO, “the DAO” has organized itself as a Wyoming Un-incorporated Non-Profit. For organizations like LexDAO, with a nonprofit and educational purpose, there are advantages of unincorporated nonprofits over whatever the “default” organizational type may be without a legal wrapper (usually a “general partnership”.) We might be the first formally tokenized version of such an entity. Maybe not 🤷‍♂️ But, it’s cool either way. 🚀

As part of setting up our wrapper, we’ve generated a DAO constitution to guide our collaboration with each other and the outside world. Often these are called “articles of incorporation”, and they are frequently filed with the state as a declaration of the intent of the members of the organization. In our case we’re unincorporated, so we just have to tell the state we’re a non-profit, and we get some extra protections.

Next step in legal wrapper setup is what’s usually called an “operating agreement.” It’s mainly just a contract among all the partners that lays out the rules you’re all agreeing to follow.

Because of our unique org structure we decided to call this document our “constitution”. We expect that it will evolve over time. Already the document makes reference to documents like our handbook, which we expect will evolve at a faster rate. Either way, read up if you want to know how we do things over here:

The text of our constitution is available on Github: https://github.com/lexDAO/LexDAO-Constitution

And the LexDAO LDM holders have ratified the current version of the document on-chain, via vote: https://mainnet.aragon.org/#/lexdao/0x82c603da6b707e99d16e3931414c2c8eafa76bf0/vote/84/

That’s our legal wrapper, now the real work starts. We have structures in place, and the protections that come with properly applying both smart and dumb contracts — both wet and dry code. Now we need to decide what it means to be a legal engineer, and how to grow our expertise and our ranks.

LexDAO Legal Engineers are here to help. Use the links at the bottom 🚀

LexDAO is a maximally open project, everyone is welcome to take part and work toward a LexDAO Legal Engineer certification. (More on this soon.) If you are interested in the intersection of Web 3, transactional automation, and the law/government, maybe you should take a look.

https://lexdao.org or https://lexdao.chat

al thanks to _g4brielShapir0 from whose work we started when generating our constitution. Find that document here.