Issuing asset backed tokens from your DAO LLC

When it comes to tokenzing your business or assets, the Wyoming DAO LLC can be a simple solution for most use cases.

The process is simple :

- get your DAO LLC from companydao.org

- transfer your asset to the DAO LLC.

- issue tokens representing equity in the asset.

But which types of tokens can you issue? A DAO LLC can issue equity tokens (membership interests) that represent a specific asset held by the DAO LLC. This is often referred to as creating a “special class” of membership interests. By doing so, the DAO LLC can allocate the economic benefits, and potentially certain voting rights, derived from that particular asset to the holders of that special class of membership interests.

For example, if a DAO LLC holds both real estate and a patent, it could potentially issue one class of membership interests tied to the economic benefits of the real estate and another class tied to the economic benefits of the patent.

If the DAO LLC has a single member (owner) and subsequently issues another class of membership interests tied to a specific asset to another person or entity, then the DAO LLC would generally be considered a multi-member DAO LLC, because now there are two or more owners, even if they own different classes of membership interests.

The distinction between a single-member DAO LLC and a multi-member DAO LLC is crucial for federal tax purposes. A single-member DAO LLC is typically disregarded for tax purposes (unless it elects to be treated as a corporation), meaning its income, deductions, and credits are reported on the owner’s personal tax return. In contrast, a multi-member DAO LLC is typically treated as a partnership for tax purposes (unless it elects otherwise), which means it must file a partnership tax return (Form 1065) and issue K-1s to its members.

The specific rights, obligations, and allocations of each class of membership interest would be dictated by the DAO LLC’s operating agreement, but from a tax and legal standpoint, if there’s more than one owner of any class of membership interest, the entity is a multi-member DAO LLC.

If a Wyoming DAO LLC wants to grant an interest in profits from a particular asset without conferring membership interests, it can use financial instruments that don’t involve the issuance of membership interests.

• Promissory Note Token : This is a debt instrument where the DAO LLC promises to pay the holder an amount based on the profits from a specific asset. It can be structured in many ways, including as a “participation loan,” where the payout is tied to the performance of the asset.
• Royalty Token : If the asset is something like intellectual property, the DAO LLC could enter into a royalty agreement where the holder receives a portion of revenues or profits from the exploitation of that asset.
• Economic Rights Units (ERUs) Token : Some entities use this kind of structure to grant economic benefits without conferring ownership or voting rights. ERUs would entitle holders to a share of profits or distributions but wouldn’t make them members of the DAO LLC.
• Convertible Instruments: These are debt or other instruments that can be converted into membership interests later, but until conversion, they do not confer membership. Examples include convertible notes or SAFE/SAFTs (Simple Agreements for Future Equity or Tokens). Initially, the holder is just a creditor or has a contractual right, but they could become a member in the future under predefined conditions.

Regardless of the approach, clear, comprehensive documentation that outlines the rights, obligations, and mechanics of the profit-sharing or economic right is vital.

Disclaimer: This article provides general information about potential tax classifications and requirements for Wyoming DAO LLCs. The information contained herein is for educational purposes only and not intended as legal, tax, or financial advice. The tax code contains complex rules and regulations that must be examined closely with the help of a competent tax professional. Any entity considering forming a DAO LLC should consult with legal, tax, and accounting advisors to determine the proper tax treatment for their specific situation. This article does not constitute legal or tax advice and cannot be relied upon as such. Individuals and entities must conduct their own due diligence and/or consult with professional advisors familiar with their personal circumstances before making business or tax decisions.

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