Picture a project that runs the way a lot of them now do. There is a treasury holding a meaningful amount of money. There are forty or fifty contributors scattered across a dozen countries, most of whom have never met and several of whom are known only by a username. Decisions get made by a vote, the vote passes, and someone reaches for a keyboard and signs an agreement with a hosting provider, or an auditor, or a marketing agency. Everything works. The invoice gets paid. Nobody thinks about it again.
Then something breaks. The auditor sues for unpaid fees, or a regulator sends a letter, or a token holder in another country decides that the treasury was mismanaged and wants his money back. And at that point somebody has to answer a question that the project never bothered to ask on the way up, which is simply this: who is the counterparty? Who signed? Who owns the treasury? Who, in the eyes of a court, is actually there?
For a great many decentralised organisations, the honest answer is nobody, and the legal answer is far more uncomfortable, because when the law cannot find an entity it does not shrug and walk away. It looks for people.
The Default Position Is Worse Than Most Founders Think
In the majority of jurisdictions, a decentralised autonomous organisation has no legal personality at all. It cannot own property in its own name, it cannot enter into a contract that a court will enforce against it, and it cannot sue or be sued as itself. This sounds like a technicality until you follow it through, because if the organisation is not a person then the activity being carried out has to belong to somebody, and the somebody the law tends to settle on is the group of individuals who were participating.
That characterisation, whether it is called an unincorporated association or a general partnership depending on where you are standing, carries a consequence that founders rarely price in. Liability becomes joint and several. A contributor who voted on three proposals two years ago and has not logged in since can, in principle, be pursued for the whole of an obligation the organisation cannot meet. There is no corporate veil to hide behind, because there is no corporation.
The enforcement action brought against Ooki DAO in the United States made this concrete in a way that conference panels never quite managed to. The regulator did not treat the absence of an entity as a reason to abandon the case. It treated the DAO as the association of its token holders and proceeded accordingly, and the message the industry took from it was not subtle.
There is also a quieter, more mundane version of the same problem, which is that an organisation without legal personality cannot function in the ordinary world. It cannot open a bank account. It cannot hold a lease, register intellectual property, engage an employee on a contract that means anything, or issue an invoice that an institutional counterparty will accept. Even something as small as signing a non disclosure agreement becomes awkward, because the other side quite reasonably wants to know who is bound by it.
What a Wrapper Actually Buys You
The response that has emerged over the last few years is the legal wrapper, which is simply an entity formed in a jurisdiction that recognises it, sitting alongside the on-chain organisation and giving it a face that banks, courts and counterparties can deal with.
Wyoming moved first, adding a DAO-specific supplement to its limited liability company law in 2021, and has since layered on a further vehicle designed for non-profit decentralised associations. The Marshall Islands followed, enacting a DAO statute that gave it a claim to being the first sovereign nation rather than a sub-national state to do so, and its DAO LLC has been used by a substantial number of projects looking for a base outside the United States. Vermont has its blockchain-based limited liability company. In the Gulf, the Abu Dhabi Global Market offers a DLT Foundation built specifically for token holder governance, and RAK DAO has developed association structures aimed squarely at digital asset communities. Cayman and Swiss foundations continue to serve where a non-member, purpose-driven vehicle fits better than a membership one.
What all of these deliver is essentially the same pair of things. The organisation gets separate legal personality, so it can contract, hold assets and appear before a court in its own name. The participants get limited liability, so a vote is no longer an act of personal financial exposure. That is a genuine and significant achievement, and it is why the wrapper question has moved from an afterthought to one of the first items on the agenda.
What a wrapper does not do is worth stating just as plainly, because this is where a lot of otherwise careful projects come unstuck. It does not change how a governance token is characterised, so if the token looks like a security in a given jurisdiction it will keep looking like one after incorporation. It does not answer the licensing question, so if the organisation is doing something that resembles the business of a virtual asset service provider — custody, exchange, transfer, brokerage — then a licence is still required and the entity is now a rather more visible applicant. And it does not remove tax; it merely gives the tax authority a name and address.
The Structural Trap
The subtler risk is that the wrapper and the reality drift apart. Most of the DAO-specific regimes rest on the premise that the organisation is genuinely participant-governed rather than centrally managed, and that premise sits inside the statute as a condition rather than a description. A charter that vests broad discretionary authority in a council, a foundation board, or a small group of signatories can quietly place the organisation outside the very characterisation it was formed to claim, even while the marketing continues to describe it as decentralised.
The mismatch runs the other way as well. Constitutional documents drafted from a template will often describe a governance process that has nothing to do with what actually happens on chain, and when a dispute arrives the two versions have to be reconciled by somebody who was not in the room. Getting the operating agreement, the association charter and the smart contracts to say the same thing is unglamorous work, and it is almost always cheaper to do it at formation than after the fact.
Choosing where to sit is a judgement rather than a comparison exercise. Two statutes can read almost identically and still behave very differently, because what stands behind a statute matters more than its text — the courts that will interpret it, the banks that will or will not open an account for an entity formed under it, the registered agent regime, the annual cost of keeping it alive, and whether a serious institutional counterparty will accept it without a long conversation. A vehicle that is elegant on paper and unbankable in practice has solved nothing.
Where We Come In
At Esquare Legal we spend a good deal of our time on exactly this question, structuring digital asset organisations across the United Arab Emirates, El Salvador, the British Virgin Islands and Panama, and matching the vehicle to what the project actually does rather than to what sounds impressive in a deck. That means looking at the activity first, then the licensing exposure, then the entity, and drafting the governance documents so that they describe the organisation as it really operates — the same discipline we apply to cross-border structuring and token issuances generally.
If you are building something that runs on collective decision making and you have not yet resolved who the law thinks you are, that is a conversation worth having before the first difficult letter arrives rather than after.
Esquare Legal structures DAOs and digital asset organisations across the UAE, Brazil, Pakistan and China. Contact us to discuss a wrapper and governance review.
Author: Haider Ali, Associate, Esquare Legal.