DAOs and decentralized organizations: the legal framing

A DAO — Decentralized Autonomous Organization — is an organization whose rules are written in smart contracts and whose decisions are made by token holders, often without a physical seat or a classic board of directors. Fascinating on the technological level, but with a question that no smart contract solves on its own: legally, what is it? In Switzerland the answer requires serious framing work, because a “naked” DAO is not free of legal consequences — quite the opposite.

The starting point: there is no “DAO form”

Swiss law does not provide for a legal form called a DAO. This does not mean that a DAO sits outside the law: it means that when a group of people pursues a common purpose by pooling resources, the legal order assigns it a qualification regardless. The risk is that this qualification is one that nobody wanted.

The simple-partnership risk

If several people collaborate for a common purpose without choosing and constituting a legal form, Swiss law tends to qualify the relationship as a simple partnership (société simple / einfache Gesellschaft). This is the default outcome, and the most dangerous one: the simple partnership has no legal personality and, above all, its members are liable in a personal, joint and unlimited way for the common obligations.

Translated for a DAO: if the voting token holders are qualified as partners in a simple partnership, they could be liable with their own assets for the DAO’s activities. This is the scenario that any serious framing aims to avoid.

The legal forms used as “wrappers”

To give the DAO a shell that protects participants and allows it to operate, in Switzerland one typically resorts to a legal wrapper. The most recurrent options:

• Association: suited to DAOs with a not predominantly economic purpose or to governance communities. Democratic structure, members, general meeting: it lends itself well to a voting logic. It has limits, however, when the activity becomes markedly commercial.
• Foundation: useful when assets must be tied to a purpose, for example to protect a protocol. Rigid governance and supervision, but strong asset separation.
• Capital company (GmbH/AG): when the activity is economic and a balance sheet, capital and limited liability are needed. It is the choice when the DAO has a real business behind it.

There is no absolutely “right” wrapper: it depends on the purpose, value flows, the token’s role and the project’s ambitions. The right structure is chosen after mapping what the organization actually does.

The role of the token

The token changes everything. Its nature must be qualified according to FINMA practice:

• utility token, which gives access to functions of the protocol;
• payment token, used as a means of payment;
• asset/security token, which incorporates financial or participation rights.

A governance token can take on different nuances depending on the rights it confers. The qualification determines issuance obligations, supervisory profiles and tax treatment. Getting it wrong upstream is the most costly error.

The anti-money-laundering profile

Many DAOs manage treasuries and move value on behalf of the community. If the organization — or the vehicle that represents it — carries out financial intermediation (custody, exchange, transfer of virtual currencies for third parties), it becomes subject to the AMLA (Anti-Money Laundering Act), with affiliation to an SRO or FINMA authorization. Its “decentralized” nature does not remove the obligations: one must understand who actually exercises control and makes the decisions.

The typical mistakes

• Starting without a wrapper, exposing participants to simple-partnership liability.
• Choosing the form as a fashion rather than according to the real purpose.
• Neglecting the token’s qualification and the related obligations.
• Ignoring AML on treasury management.
• On-chain governance disconnected from the legal governance of the wrapper: the two levels must talk to each other.

How we approach it

Framing a DAO means aligning three planes: economic purpose, legal shell and on-chain rules. SIH ONE handles the structuring and advisory: we map the activity, choose and constitute the suitable wrapper, qualify the token and define the necessary AML safeguards. Where the activity is subject to authorization, the path runs through authorized partners, and our team brings direct experience as AMLA Officer on the anti-money-laundering front.

Are you building a DAO or a decentralized organization and need a solid structure? Let’s talk: we define the right framing before it becomes a problem.