Legal Organisations and Technology Arrangements Max Ganado GANADO - - PowerPoint PPT Presentation
Legal Organisations and Technology Arrangements Max Ganado GANADO Advocates A L e g a l Org a nisa tion A F a c tua l De sc ription of a Body Corpora te Associations Governance have members Administrators Partimony Written
GANADO Advoc ate s
Partimony Assets Endowment
Governance Administrators Purpose Employees Contractors Volunteers Written Statute, Intent
Associations have members Foundations have founders
GANADO Advoc ate s
DLT Platform Software Patrimony
Administrator Developer White Paper Description of Purpose Users Consensus Mechanism White Paper Description of Operator or Owner
Identification of Owner?
GANADO Advoc ate s
DLT Platform
miners, users,
auditors...
Administrator SPV
Insurance cover Who is liable? Is administrator a fiduciary?
GANADO Advoc ate s
DLT Platform
Developer
Administrator
Contract of Insurance Users Compliance Regulator Accounting
Can the arrangement be considered a body corporate, a legal organisation? SPV issues tokens
ASE the disc lo sure s
ac ts
ms and c onditions e xc luding
lia b ility fo r diffe re nt pa rtie s
T platfor m within an e xisting type of le gal or ganisation a nd b uild in c he c ks a nd b a la nc e s
ify the laws a pplic a b le to the
c o nte xt - b ut wha t c a n we a ssume a b o ut the o wne rs, c o ntra c tua l a rra ng e me nts a nd lia b ility?
GANADO Advoc ate s
DLT Platform (Asset)
Governance
Administrators (Fiduciaries?)
Purpose White Paper
Liability
Insurance Contract Guarantee Cash flow
Written Statute, Intent White Paper Technical administrator Contract (Fiduciary?)
Compliance
AML, GDPR (officers or delegates) (contracts
REGISTRATION Systems auditor Contract
Are users
holders
Are users members? Are they
liable? Are users partners or co-owners and liable as such? Are issuers
paper founders
GANADO Advoc ate s
Risk of be ing de e me d a L e gal Or ganisation
Se e
Hac ke r
“Co r
por ate Go ve r nanc e for Comple x Cr ypto c ur r e nc ie s? A fr ame wo r k fo r Stability and De c isio n Making in Blo c kc hain-Base d Or ganisatio ns”
(No ve mb e r 22, 2017) https:/ / ssrn.c o m/ a b stra c t=2998830 whe re he sta te s the fo llo wing whe n he c o mpa re s a b lo c kc ha in with vo ting a nd pro fit pa rtic ipa ting to ke ns to tra ditio na l c o mpa nie s a nd o the r fo rms o f le g a l o rg a nisa tio ns: “ ....it has e ve n be e n sugge ste d that blo c kc hain-base d ne two r
ks might, in the mse lve s, be par tne r ships in a le gal se nse , par tic ular ly if use r s fo llo w a jo int pur po se and shar e pr
c r
e fe r s to Ze tzsc he e t al. “T he Distr ibute d L iability o f Distr ibute d L e dge r s: L e gal r isks o f the Blo c kc hain”, U. I
llino is L . Re vie w https:/ / pa pe rs.ssrn.c o m/ so 13/ pa pe rs.c fm? a b stra c t id=3018214, a t 36 whic h is a n e ve n mo re ro b ust a rtic ula tio n o n ho w the se a rra ng e me nts c a n g ive rise to c la ssific a tio n a s a pa rtne rships;
GANADO Advoc ate s
Philipp Ha c ke r: “Co r po r ate Go ve r nanc e fo r Co mple x Cr ypto c ur r e nc ie s? A fr ame wo r k for Stability and De c isio n Making in Blo c kc hain-Base d Or ganisatio ns ”
(No ve mb e r 22, 2017) http s:/ / ssrn.c o m/ a b stra c t=2998830 who a rg ue s fo r the a do ptio n o f a c o rpo ra te g o ve rna nc e fra me wo rk to b lo c kc ha in b a se d
e duc ing unc e r ta inty.
“T
he Distr ibute d L iability o f Distr ibute d L e dge r s: L e gal Risk o f Blo c kc hain” b y
Dirk Ze tzsc he e t a l., 2017, E BI Wo rking Pa pe r Se rie s 2017 no . 14., in pa rtic ula r the c o nc lusio n: “Part o f the thrill o f b lo c kc hain to date has b e e n its disre g ard o f the law. With law in the pic ture , data are le ss attrac tive ly ho use d in distrib ute d le dg e rs. T his do e s no t me an liab ility will e xist in all c ase s. Ho we ve r liab ility matte rs, and distrib ute d le dg e rs may, in time , mo st o fte n b e le g ally struc ture d (partic ularly in pe rmissio ne d syste ms) as a jo int ve ntur
e whe r e all se r ve r s ar e o wne d and
ate d – ir
rathe r than as a c o o pe ratio n amo ng multiple e ntitie s.” Naturally the c halle ng e b e c o me s e ve n mo re c o mpe lling whe n c o nside ring a uto no mo us a rte fa c ts o n pub lic , pe rmissio nle ss a rte fa c ts.
Option 1 – use existing legal forms Option 2 – vary some rules in existing forms Option 3 – design a completely new legal form
F
T hing s
a c hie ve d thro ug h Asse ts
b e e sta b lishe d fo r:
Assoc ia tions
a c hie ve d thro ug h
Colla bora tion
fforts
b e e sta b lishe d fo r:
GANADO Advoc ate s
Corporate
mploye r Assoc iations;
Non-Corporate
Partne rships;
c orporate form.
GANADO Advoc ate s
Legal Person Blockchain Activities Centralised administration Decentralised – no central counterparty or point of reference Governance Governing Body (Board / General Meeting) May have governance embedded in it Accounting and Auditability Governed by applicable law May have accounting and auditability embedded in it Legal Personality ? Depends on Legal Form chosen + Registration Just a piece of software!
GANADO Advoc ate s
De c e ntr a lisa tion – Wha t doe s this me a n?
Owne rship? Ma na g e me nt a nd c o ntro l? De c iso n ma king ?
QUE RIE S.............
Administra tio n ha s to b e ve ry c e ntra lise d fo r c o mplia nc e purpo se s. Wo uld no t the sa me a rise in a b lo c kc ha in if it ha s to c o mply with
filing s o r pro c e sse s?
Ha s a nyo ne e ve r sug g e ste d tha t the se func tio ns sho uld b e c a rrie d
for himse lf? Is the re a lity no t still c e ntra lise d?
Is a g e ne ra l me e ting o f me mb e rs e ve r c e ntra lise d? Wo uld a de c e ntra lise d a sse t b e c o me c e ntra lise d just b e c a use it is
OWNE RSHIP: What liability doe s
ship imply? L E GAL CE RT AINT Y r e gar ding liability – who is liable for what? CAVE AT E MPT OR? WHE RE doe s liability lie ? L iability limite d to insur anc e c ove r ?
Individuals are born with natural rights and
an ordered fashion as they get older A legal organisation is a construct of the law and has A PURPOSE and logically all powers to achieve that purpose These powers are principally patrimonial and contractual and cannot be equal to those of an individual The powers can be limited by the statute and the special law applying to the legal form Blockchains don’t need powers but their deployment and operations clearly does need the power to contract services to comply with law, to protect users through insurance, for example ...
through individuals they are presumed to ACT. Things, like ships or aircraft, are regulated for their design, composition and functionalities/behaviours;
criminal law;
act themselves;
vicarious liability where SOMEONE (natural or legal person) bears liability for their actions;
blockchains?
with its conditions?
automation?
1. Legal organisations are by definition more transparent than individuals because of statutory requirements; 2. Legal persons are even more transparent due to:
manner
can be recorded as they happen
L e g a l pe rso na lity is o ne e le me nt in le g a l c e rta inty re la ting to :
The counterparty in contracts The powers of the counterparty to carry out an act The patrimonial effects of the transactions carried out The compliance with obligations
.
The compliance with obligations
Principles in law Context to Blockchain Collaborative Element to achieve a common purpose Are token holders “associating” when they buy the tokens? Is there a common purpose? Governance Level 1 - Administrators Is there governance? Do we need administrators? Is this not always centralised? Governance Level 2 - General meeting of Associates - Democracy Is there the equivalent? Consensus mechanisms?
Companie s – limite d b y sha re s / limite d b y g ua ra nte e Par
tne r ships –
VI L ; OR
RCI AL
N PART I CI PAT I ON;
Coope r
ative s a nd Mutuals
PRIVAT
E inte r e st assoc iations – pro fe ssio na l firms, jo int ve nture s
Soc ial o r public pur
pose a sso c ia tio ns
Companie s – a le gal pe r son with shar e holde r s having limite d liability
Ma ny te c hnic a l rule s o n:
e c tor s;
al me e tings a nd voting;
e s;
Ho w wo uld we d e a l with this in a b lo c kc ha in c o nte xt? Company
m…
Ca n we e liminate the Boar
d of Dir e c tor s? Ca n we sa y toke ns ar e shar e s a nd c o mply with the Co mpa nie s Ac t? Ca n we ha ve a n e le c tr
al me e ting o r e limina te it? Will the Shar e holde r Rights Dir e c tive a pply? Wha t is the c apital a nd ho w sho uld b e a c c o unt fo r it?
T
AX – non tr anspar e nt. Company taxe d and the n impute d to me mbe r s
Pa rtne rs a re unlimite dly lia b le – po ssib ly so me with limite d lia b ility Pa rtne rs a re fiduc ia rie s to wa rds e a c h o the r
Ma ny te c hnic a l rule s o n:
tne r;
a l me e ting s a nd voting;
Ho w wo uld we de a l with this in a b lo c kc ha in c o nte xt? Pa r
tne r ship owning the bloc kc ha in pla tfor m…
Ca n we e limina te the ma na g ing par
tne r s? Ca n we sa y toke ns a r e pa r tne r ship inte r e sts a nd c o mply with the Co mpa nie s Ac t? Pa rtne rship
c o ntra c t mo re fo c use d c o ntra c t b e twe e n pa rtne rs – suc c e ssio n o f sta tus no t a s e a sy a s with sha re s.
T
AX – tr a nspa r e nt. Pa r tne r ship not ta xe d a nd pa r tne r s de c la r e inc ome .
Me mb e rs who jo in in a c o mmo n purpo se o r pro je c t a nd sha re
Ma ny de ta ile d rule s in the Co -o pe ra tive s Ac t Ho w wo uld we de a l with this in a b lo c kc ha in c o nte xt? Co-
ative owning the bloc kc hain platfor m…
Ca n we e liminate the par
tic ipants? Ca n we sa y toke ns ar e par tic ipating r ights in the c o-ope r ative a nd c o mply with the Co -
pose
a nd c o- ope r
ative dynamic
T
AX – some inc e ntive s r e lating to tax
Priva te I
nte re st Asso c ia tio ns a re ve ry similar
to par tne r ships -
c o nc e ptua lly muc h mor
e fle xible a nd c lose r to a de c e ntr alise d str uc tur e
Go ve rne d b y the Se c o nd Sc he dule to the Civil Co de Ho w wo uld we de a l with this in a b lo c kc ha in c o nte xt? Ho w do
we de a l with the a pplic a b le rule s a nd the pro visio ns o n a sso c ia tio ns a nd the a sso c ia tio n de e d? E .g .. T he la w re q uire s a minimum o f two pe rso ns who a sso c ia te a nd a list o f o the r re q uire me nts to b e sta te d in the de e d fo r it to b e va lid
So c ia l Purpo se Asso c ia tio ns a re ve ry simila r to priva te inte re st
a sso c ia tio ns e xc e pt tha t the r
e is no pr ivate inte r e st – fo c use d o n:
pose a nd
y obligations to purpo se
e sc r iptive on me mbe r ship
e fle xible a nd e ve n c lose r to a de c e ntr alise d str uc tur e
Ho w wo uld we de a l with this in a b lo c kc ha in c o nte xt? Ho w do
we de a l with the a pplic a b le rule s a nd the a sso c ia tio n de e d?
Unive r
sality or pools of things a re e ndo we d to a c hie ve a
purpo se . T he e ndo wme nt is a T RANSF E R o f the thing s whic h the n he lps g e ne ra te a le g a l pe rso n ….
Purpo se ma y b e fo r:
ivate be ne fit (Be ne fic ia ry F
ho lde r b e ne fic ia rie s; o r
pose : fo c use d o n purpo se , the re a re no
b e ne fic ia rie s, ve ry fle xib le a nd c o nc e ptua lly c e ntra lise d a s c e ntra lly a dministe re d
F
iduc iar y dutie s to wa rds b e ne fic ia rie s/ purpo se
Po we r c e ntra lise d in a Boar
d of Administr ator s - one le ve l of Gove r nanc e - (Re se rve d Ma tte rs/ Supe rviso ry Co unc il)
Pub lic de e d a nd no ta rie s re q uire d b y la w fo r va lidity
I n the Co mpa nie s Ac t we ha ve the “Asso c iatio n e n partic ipatio n” b ut the fo c us the re is mo re o n the c o -
spe c ific pro je c t ra the r tha n a lo ng te rm struc ture with a purpo se
a sse ts. E a c h c o -o wne r dire c tly o wns a n undivide d pa rt o f a sing le a sse t. Co -o wne rship do e s no t c re a te a ny risk o f a le g a l o rg a nisa tio n e ve n if the re is c o mmo n a dministra tio n a g re e d b e twe e n the c o -
One line o f tho ug ht is tha t a b lo c kc ha in c re a te s c o -
L the USE RS o r PART I CI PANT S a nd tha t c a n b e g a rne re d fro m c a se s whe n lo sse s ta ke pla c e , e g . b y distrib uting lo ss to a ll use rs pro ra ta . T his is e vide nc e o f the le ve l o f le g a l unc e rta inty in the fie ld. E vide ntly unte na b le if so me use rs pa rtic ipa te fo r ve rific a tio n purpo se s, c o mplia nc e o r a sta te e ntity pa rtic ipa te s fo r re g -te c h g o a ls
Company: no n-tra nspa re nt, ta x re turns, a udit Par tne r ship: tra nspa re nt, no ta x re turns, no a udit a s
pa rtne rs pe rso na lly lia b le to do the se thing s
T r ust: c a n c ho o se ta x re g ime (tic k the b o x) F
c a n b e ta xe d a s c o mpa ny (no n- tra nspa re nt); c a n b e ta xe d a s a trust (tra nspa re nt) – tic k the b o x
A wr
itte n statute is ma nda to ry fo r a le g a l o rg a nisa tio n to E
XI ST (a ll la ws re q uire this to da y)
Re gistr
ation in a pub lic re g iste r is no w ma nda to ry to o b ta in
le g a l pe rso na lity fo r the le g a l o rg a nisa tio n
he re a re spe c ia l la ws (c o mpa nie s, c o -o pe ra tive s, o r Unio ns)
he re is the de fa ult la w – Se c o nd Sc he dule to the Civil Co de
Pub lic re g istrie s re q uire do c ume nta tio n, ha ve b ure a uc ra tic
pro c e sse s a nd ne e d huma n inte rfa c e
Pub lic Re g istrie s pro vide a uthe ntic ity a nd e vide nc e o f fa c ts
whic h pro duc e s a hig h le ve l o f tra nspa re nc y
e nt type o f le g a l o rg a nisa tio n;
e giste r e d... a nd be c ome a le gal pe r son;
iant of a foundation ... the c lo se st to the e nd re sult o f wha t
we ne e d;
e ady have many pr ivate law pr
de taile d tax r ule s so we will a vo id the ne e d o f a ne w re g ime ;
c o mplia nc e , lia b ility a nd re g istra tio n?
Give n tha t b lo c kc ha in a nd sma rt c o ntra c ts c a n pro vide fo r
automate d gove r nanc e solutions, the c ha lle ng e is how to c ollapse the gove r nanc e le ve l e xisting in c urre nt la w thro ug h
a dministra to rs into the te c hno lo g y itse lf a nd ha ve this pe r
mitte d by the law – wha t will the la w re q uire a s a sub stitute ?
E
vide nt ne e d fo r so me a spe c ts to b e c a rrie d o ut b y huma ns e .g . re pre se nta tio n:
Wha t do we do in DAOs?
T
e c hno lo g y c a n b e ve ry e ffe c tive in re la tio n to c o mplia nc e re duc ing huma n e rro r a nd e ve n e limina ting inte ntio na l e va sio n
Ope n so urc e so ftwa re is b e c o ming a va ila b le fo r spe c ific
purpo se s in this se c to r
Aspe c ts
like ide ntific a tio n, p re ve ntio n
mo ne y la unde ring c o mplia nc e , da ta pro te c tio n a nd c o nsume r pro te c tio n c a n the re fo re b e pro c e ss-drive n
I
n c a se o f b re a c h due to te c hno lo g y fa ilure s, the te c hnic a l a dministra to r ma y b e g ive n po we rs to c o rre c t
I
n c a se o f b re a c h due to c ha ng e in la w, the te c hnic a l a dministra to r c a n b e g ive n po we rs to a ddre ss dire c tly o r thro ug h de le g a te s/ de ve lo pe rs who c a n upda te the te c hno lo g y
Re g ula r re po rting to the a utho ritie s c a n a g a in b e inb uilt T
he pa yme nt o f ta x c a n b e a uto ma te d
We a re in a po sitio n to de sig n who is lia b le fo r wha t in the
fo rmula tio n o f a va ria nt o f e xisting PURPOSE fo unda tio ns
I
t is po ssib le to c re a te se g re g a te d c e lls who ring -fe nc e a sse ts a nd lia b ilitie s
A c e ll c o uld b e de sig ne d to ho ld the b lo c kc ha in pla tfo rm a s
the princ ipa l e ndo wme nt o f the o rg a nisa tio n with immunity fro m a tta c hme nt fo r lia b ilitie s a nd a lso b e b a nkruptc y-re mo te b a se d
b e ing “pub lic do ma in” (no t o wne d b y a nyo ne o r ra the r o wne d b y the fo unda tio n unde r fiduc ia ry o b lig a tio ns to wa rds the purpo se )
No te :
a diffe re nt a ppro a c h ma y b e ta ke n in priva te / pe rmissio ne d b lo c kc ha ins
a pplic a nt fo r c e rtific a tio n unde r the pro po se d I nno va tive T e c hno lo g y Arra ng e me nts a nd Se rvic e s Ac t (in pro g re ss)
he d e c la ra to ry sta te me nt will ma ke pub lic , in writte n fo rm, the minimum c o nne c ting info rma tio n to the b lo c kc ha in pla tfo rm whic h will the n c a rry in a pub lic a nd a c c e ssib le ma nne r a ll info rma tio n re q uire d b y the la w re la ting to this ne w le g a l e ntity a nd its fe a ture s – e xa mple the na me o f the fo unda tio n, the b ra nd na me o f the b lo c kc ha in a nd the pub lic ke y
T
he b lo c kc ha in will se rve the purpo se it is b e st suite d fo r whic h is a pub lic , a c c e ssib le a nd immuta b le le dg e r fo r
whic h we c an e asily r e ad RE GIST E R
T
he b lo c kc ha in func tio na litie s c a n sub stitute fo r the tra ditio na l ro le o f no ta rie s pub lic
E
a sy a c c e ss to the pub lic c a n b e pro vide d thro ug h the pub lic ke y witho ut a c c e ss to info rma tio n whic h is no n- pub lic whic h c a n b e limite d to diffe re nt g ro ups (use rs, a utho ritie s e tc .) o n the b a sis o f diffe re nt a c c e ss rig hts
We a re a t a po int whe re o ur e xisting fo unda tio n mo de l c an be
F ORKE D
T he ne w mo de l will b e :
pose foundation
e gate d c e lls
e nt r ights of ac c e ss or e ngage me nt or par tic ipation
e pr e se ntative of unitise d be ne fic ial inte r e sts T he le gal de sign is in o ur hands ….
www.g a na doa dvoc a te s.c om
Important Notic e : T
his pre se nta tio n is fo r info rma tio na l purpo se s o nly a nd do e s no t c o nta in o r c o nve y le g a l a dvic e . T he info rma tio n c o nta ine d in the se slide s sho uld no t b e use d o r re lie d upo n in re g a rd to a ny pa rtic ula r fa c ts o r c irc umsta nc e s witho ut first
In this pre se nta tio n ‘ GANADO Advo c a te s’ re fe rs to the la w firm Ga na do & Asso c ia te s, Advo c a te s, a n a sso c ia tio n e sta b lishe d unde r the la ws o f Ma lta . A full list o f me mb e rs is a va ila b le upo n re q ue st a t the princ ipa l o ffic e o f the firm a t 171, Old Ba ke ry Stre e t, Va lle tta VL T 1455, Ma lta .
Max Ganado mg a na do @ g a na do a dvo c a te s.c o m