Do Continuous Organizations require the incorporation of a legal entity?


#1

One thing I find fascinating about CO is that it does not require the incorporation of a legal entity to operate. In that sense, it can be seen as a “Decentralized Autonomous Organization”. As such, CO faces the same questions as other DAOs (I remember having a chat about that with Maria from Aragon), the most central being “How does a DAO interact with other legal jurisdictions?”. Think Intellectual Property, Taxes, Law enforcement etc…

It is yet to be validated by law professionals but one way to see it is that COs are just a decentralized General Partnership (Société en Nom Collectif in France). Basically, it is the simplest form of organization: it provides 0 legal protection and is tax transparent. I think a traditional organization (TO) could totally do business with a CO (i.e. invoice a CO) by considering it as a general partnership.

If we consider that a CO does not belong to any jurisdiction, then it is free to apply its own rules. For example, as a CO issues Security Tokens (ST), we are planning on KYC/AMLing all investors in the CO but one could argue that it should not be an obligation.

To conclude, I feel that COs sweet spot is to organize and incentivize a group of independent workers towards achieving a common goal. No legal incorporation is needed. CO can be considered as a General Partnership if it is ever brought into a court. Even though CO have have no access to debt (yet?) and their liabilities should be limited, it still means that people working for a CO would be wise to do it under the umbrella of a legal entity that provides them limited liability (like a LLC, SARL etc…).


#2

If a CO is a general partnership-like organisation, then the CO might still follow the juridictions of each associate’s tax domicile, mightn’t it?

Also, in France, a Société en Nom Collectif must be incorporated and have at least 2 associates. But it does not seem to be the case in England, Wales, Japan or US.

In England, a general partnership requires the equality of each associate in liability, dividends and voting rights:


#3

Not really. GP organisations are tax transparent so, ultimately, what is being taxed will be the legal entity of each partner of the CO, not the CO itself. Regarding the CO, we can have 2 different approaches:

  1. We argue that the CO does not operate within any jurisdiction so it does not care about income tax, sales etc…
  2. We argue that the CO operates in every jurisdiction its investors and customers belong to in which case the CO could for example collect/pay sales tax depending on the location of the customer (only if the customer pays in fiat).

I think we can first argue (1) whlie nobody cares about COs (it simplifies our work a lot)… and when the time comes and COs is a more mature and accepted type of organisation, we could switch to the (2) approach.

Regarding the exact comparison with a SNC or a GP in different jurisdictions, I never said it exactly matches those entities :slight_smile: However, I think that if/when a CO enters a legal dispute with one of its stakeholder, I suspect that a court would assimilate a CO to a GP. That’s my only point. A judge will never say “Well, I don’t know how to judge that. Case dismissed.” There is no void in the law, only more or less degrees of interpretation for the judge.