The Republic of the Marshall Islands (RMI) has established itself as the preeminent jurisdiction for decentralized autonomous organization incorporation. Through a series of legislative enactments — the Decentralized Autonomous Organization Act of 2022, the 2023 Amendment Act, and the 2024 Regulations — the RMI provides a sophisticated legal wrapper for DAOs that harmonizes blockchain autonomy with the requirements of international corporate personhood.
The framework utilizes the Marshall Islands Limited Liability Company Act of 1996 as its foundation — itself modeled after the Delaware LLC Act — providing a familiar yet technologically progressive environment for Web3 projects.
Why the Marshall Islands?
The legislative journey began with a recognition that the absence of legal personhood for DAOs generates cascading practical and legal difficulties. Without a formal structure, DAOs are frequently classified as unincorporated general partnerships by default, exposing all participants to joint and several liability for the organization’s actions.
The RMI approach is distinct from traditional offshore registries due to its historical leadership in the maritime shipping industry. For over five decades, the RMI has managed one of the world’s largest shipping registries, representing over 20% of global shipping capacity and hosting over 40 companies traded on the NYSE and NASDAQ. This experience in managing complex, internationally active entities provided the institutional confidence necessary to pioneer DAO legislation.
The Legislative Framework
Decentralized Autonomous Organization Act 2022 (P.L. 2022-50)
The foundational act allowed DAOs to incorporate as resident domestic limited liability companies in the Marshall Islands, providing the first sovereign legal recognition of DAO structures as distinct corporate entities.
2023 Amendment Act (P.L. 2023-83)
The 2023 amendments introduced critical refinements:
| Component | Amendment |
|---|---|
| Asset Classification | Distinguished between “digital consumer assets,” “digital securities,” and “virtual assets” for regulatory clarity |
| Governance Tokens | Explicitly stated that governance tokens conferring no economic rights are not considered securities |
| Open-Source Immunity | Provided unique legal immunity for DAOs using open-source software, protecting the protocol layer from certain forms of liability |
| Series Formation | Introduced the capacity for a DAO LLC to form sub-DAOs with segregated assets and liabilities |
| Tax Mechanism | Formulated the 3% Gross Revenue Tax for for-profit entities; capital gains and dividends excluded from the tax base |
| Registration | Mandated Registrar approval within 30 days of application |
2024 Regulations
The 2024 Regulations clarified identification requirements for DAO members, authorized law enforcement monitoring of on-chain activity, and formalized the role of Representative Agents.
Smart Contract Legal Recognition
Central to the RMI framework is the statutory definition and recognition of smart contracts. The law defines a smart contract as an automated transaction comprised of code that executes the terms of an agreement. The implications are extensive:
- Custody and Transfer — Smart contracts are recognized as being capable of taking custody of and transferring assets
- Membership Voting — Code-based administration of membership interest votes is legally binding
- Conditional Logic — Execution of instructions based on specified conditions is treated as a valid corporate action
- Written Record — A blockchain transaction recorded in electronic form and authorized by a cryptographic signature satisfies the legal requirement for a record to be “in writing”
This effectively elevates code and cryptographic signatures to the same legal status as paper documents and ink signatures.
Management Structures
The RMI recognizes that decentralization exists on a spectrum. The law permits two primary management structures:
| Type | Mechanism | Implications |
|---|---|---|
| Member-Managed | Active voting by members, often proportional to token holdings | Default status. Decisions are made collectively. |
| Algorithmically-Managed | Smart contracts with minimal human intervention | Governing smart contract must be in place at filing. |
A DAO LLC is not required to have traditional officers or a board of directors. This flexibility allows a “manager-less” structure — a core goal for Web3 projects seeking true decentralization. However, the law does allow optional appointment of managers for off-chain administrative functions.
Liability Protection
The primary motivation for an RMI DAO LLC is limited liability status. Legal cases such as Samuels v. Lido DAO and the CFTC’s action against Ooki DAO demonstrated that the “code is law” defense is insufficient in traditional courts. In these instances, token holders were considered general partners, making them personally responsible for the organization’s debts and legal infractions.
By incorporating as a DAO LLC in the Marshall Islands, projects gain:
- Judicial Shielding — Members are shielded from personal involvement in lawsuits against the organization
- Asset Protection — Personal assets are protected from seizure to pay the DAO’s liabilities
- Financial Integrity — The DAO pays its own fines and taxes from its treasury
Furthermore, Section 104 of the DAO Act allows the Certificate of Formation to define, reduce, or eliminate fiduciary duties for members and managers — preventing members from suing each other for breach of fiduciary duty based on voting behavior.
Banking and Traditional Finance
Because the RMI DAO LLC has a formal Certificate of Formation and a Registered Agent, it can undergo the KYB (Know Your Business) process required by banks. RMI DAO LLCs have successfully opened accounts with US-linked institutions including Signature Bank and Western Alliance Bank. This allows the DAO to:
- Pay for off-chain services in fiat currency
- Sign employment contracts and pay taxes for core contributors
- Hold real estate or intellectual property in the name of the entity
- Sue or be sued in its own name rather than naming every token holder
Open-Source Immunity
A unique feature of the 2023 Amendment Act is the provision of legal immunity for DAOs using open-source software. This protects the protocol layer — the underlying code — from certain forms of liability. For developers, this is significant: contributing open-source code to a DAO’s smart contract infrastructure does not create personal legal exposure. No other major jurisdiction offers this statutory protection.
International Tax Status: EU Delisting
A critical development occurred in October 2023, when the European Union removed the Marshall Islands from its list of non-cooperative jurisdictions for tax purposes. This delisting followed significant progress in the RMI’s enforcement of economic substance requirements.
For EU-based founders, this resolved the primary regulatory concern. The German Tax Haven Defense Act (StAbwG) previously imposed punitive measures on transactions with RMI entities — including denial of dividend tax exemptions and non-deductibility of business expenses. With the delisting, these sanctions generally no longer apply.
Professional Critique and Mitigation
Specialized European law firms have identified legitimate risks that DAOs must navigate to ensure their legal wrapper withstands scrutiny. These concerns are worth addressing directly:
| Identified Risk | Mitigation Strategy |
|---|---|
| Generic operating agreement templates | Avoid copy-pasted agreements that fail to account for the specific technical logic of the DAO’s smart contracts. The operating agreement must reflect the actual governance mechanism. |
| Audit vulnerability | Ensure the DAO Constitution and Operating Agreement are robust enough to pass scrutiny during banking KYB or regulatory review. Documents must be legally defensible, not just technically complete. |
| Pseudo-decentralization | Clearly define “Algorithmically-Managed” status in the Certificate of Formation. If the entity claims to be decentralized but a single founder controls all keys, courts may pierce the veil. |
entity.legal addresses these risks by generating operating agreements tailored to each entity’s specific smart contract architecture, not generic templates. The goal is a legal wrapper that withstands real-world scrutiny — not a checkbox exercise.
Geopolitical Context
The Marshall Islands’ relationship with the United States is governed by the Compact of Free Association, which provides:
- Judicial Consistency — RMI courts look to Delaware case law when no local statute exists
- Financial Integration — Use of the US Dollar and access to the US Postal Service
- Sovereign Autonomy — The RMI maintains its own legal and regulatory sovereignty, allowing faster adoption of tech-forward legislation
The Republic of the Marshall Islands has constructed a comprehensive, iterative, and technologically native legal framework that addresses the core anxieties of the decentralized world: liability, tax clarity, and operational legitimacy. For any DAO seeking to move from informal token voting to a fully integrated ecosystem with real-world rights and protections, the RMI framework stands as the gold standard for decentralized governance.
Frequently Asked Questions
What is a DAO LLC?
A DAO LLC is a decentralized autonomous organization registered as a limited liability company. It combines the liability protection of a traditional LLC with on-chain governance. Smart contract execution is legally recognized as valid corporate action, and members are shielded from personal liability. The Marshall Islands was one of the first sovereign nations to provide this structure through the DAO Act of 2022.
What is the legal system in the Marshall Islands?
The Marshall Islands operates under a common law system modeled after US law, specifically Delaware corporate law. RMI courts look to Delaware case law when no local statute exists. The country is a sovereign nation in free association with the United States, using the US dollar. This combination provides legal predictability (Delaware precedent) with sovereign flexibility (independent legislation like the DAO Act).
Why do companies register in the Marshall Islands?
Companies register in the Marshall Islands for favorable tax treatment (0% for non-profits, 3% for for-profits), strong privacy protections (anonymous membership below 25% ownership), statutory recognition of smart contracts, no requirement for local directors or offices, and the RMI’s 50+ year track record managing international entities through its maritime shipping registry — over 20% of global shipping capacity.
What is the Marshall Islands LLC Act?
The Marshall Islands Limited Liability Company Act of 1996 is the foundation of corporate law in the RMI, modeled after the Delaware LLC Act. The Decentralized Autonomous Organization Act of 2022 builds on this foundation to provide specific legal recognition for DAOs, with amendments in 2023 adding Series LLC capability, digital asset classification, and the 3% Gross Revenue Tax mechanism. The 2024 Regulations further clarified KYC thresholds and on-chain monitoring requirements.
How much does a Marshall Islands DAO LLC cost?
Through entity.legal, a for-profit Series DAO LLC is $50/month. Non-profit entities are $30/month. Monthly billing, cancel anytime. This includes the Entity ID, tax number, on-chain shareholder registry, banking, and automated compliance.
Further Reading
- Series DAO LLC — How the Series structure enables segregated assets and sub-DAOs
- DAO LLC Tax Structure — For-profit (3% GRT) vs. non-profit (0%) taxation
- Compliance & KYC — BOIR, FIBL, and the three-tiered agency system
- Jurisdiction Comparison — RMI vs. Wyoming, Cayman, and Delaware
- Legal Entities for AI Agents — Machine incorporation via API