Operating Agreement Template

For an Algorithmically or Member-Managed Non-Profit DAO LLC or For-Profit DAO LLC

DISCLAIMER: This template is provided for illustrative purposes only and does not contain legal advice, nor does the provision and your use of this template create a lawyer-client relationship. MIDAO Directory Services Inc. is not a law firm. You are responsible for retaining independent legal advice.

WARNINGS:

Each DAO LLC is responsible for ensuring their method of algorithmic or other management is appropriately described in this Agreement, and for ensuring their method of membership tracking is appropriately described.

Each DAO LLC is responsible for complying with all Marshall Islands laws and laws of the jurisdictions where it does business. For example, a for-profit DAO LLC may be subject to the Marshall Islands Securities and Investment Act if selling securities to Marshall Islands residents.

The Marshall Islands laws and regulations relating to DAO LLCs may be amended and updated regularly. You are responsible for ensuring the DAO LLC's Operating Agreement remains in compliance with current law.

HOW TO USE THIS TEMPLATE: This Agreement sets forth the agreement between the Members of the DAO LLC. You are not obligated to use all of the language and provisions in this template. Customize it according to the unique needs and operations of the DAO LLC. Highlighted parts require customization. You may amend your Operating Agreement at any time following the process contained therein. Once a year, during annual filings, you will have to submit the latest copy of your Operating Agreement, as amended.

Operating Agreement of [INSERT NAME] DAO LLC

Notice of Restrictions on Duties and Transfers

The rights of members in a decentralized autonomous organization may differ materially from the rights of members in other resident domestic or non-resident domestic limited liability companies. The DAO Act, underlying smart contracts, certificate of formation, and limited liability company agreement, if applicable, may define, reduce, or eliminate fiduciary duties and may restrict transfer of ownership interests, withdrawal, or resignation from the decentralized autonomous organization.

This Operating Agreement ("the Agreement") of [insert name of company] DAO LLC, a [insert non-profit or for-profit] limited liability company (the "Company") incorporated as per the laws of the Republic of the Marshall Islands pursuant to the DAO Act, LLC Act, and the Non-Profit Act (if applicable), is entered into as of [insert Effective Date] (the "Effective Date").

WHEREAS, in pursuit of compliance with a fit-for-purpose legal regime that seeks to protect members and support innovation, the [insert either elected representatives or a majority of members or founders or other] of the Company approved the incorporation of the Company as a Marshall Islands [non-profit or for-profit], [algorithmically or member]-managed DAO LLC.

NOW, THEREFORE, for and in consideration of mutual covenants contained and intending to be legally bound hereby, the parties agree as follows:

Article I — Organization

I.1 Organization. The Members hereby agree to organize as a Marshall Islands [non-profit or for-profit], [algorithmically or member]-managed decentralized autonomous organization limited liability company ("DAO LLC") pursuant to the provisions of the DAO Act, the LLC Act, and the Non-Profit Act (if applicable).

Note: Algorithmically-managed DAO LLCs make operational decisions and have governance processes that are primarily governed by algorithms and smart contracts encoded in the DAO's protocols, as opposed to member-managed DAO LLCs that are directly controlled by human members.

I.2 Decentralized Autonomous Organization. The Company is a decentralized autonomous organization within the meaning of §102(c) and §104(1) and (3) of the DAO Act, whereby the notice of restrictions on duties and transfers appears conspicuously at the beginning of this Agreement.

I.3 Registered Office; Registered Agent. The registered office of the Company in the Marshall Islands shall be the initial registered office designated in the Certificate of Formation or such other office as provided by law. The registered agent shall be [insert name of registered agent].

I.4 Principal Office. The Principal Office of the Company shall be at the principal office designated in the Certificate of Formation or at such other location as the Members may designate from time to time, and the Official Online Venue(s) at [insert online venue URL(s)].

I.5 Term. The Company shall commence upon the date of the filing of the Certificate of Formation and shall continue in existence until dissolved pursuant to this Agreement.

Article II — Purposes and Powers

II.1 Nonprofit Character. [Note: delete this provision for a for-profit and re-number paragraphs below] The Company shall be a non-profit entity within the meaning of the Non-Profit Act.

II.2 Purposes of the Company.

[If non-profit:] The Company is organized exclusively for charitable, educational, scientific, religious, social, fraternal, or other types of "good works" purposes and not for profit. Specifically, the Company shall: [briefly summarize purpose].

[If for-profit:] The Company is organized exclusively for the purpose of [briefly summarize purpose].

II.3 Authority of the Company. The Company shall have and exercise all of the powers and authority conferred by Marshall Islands law on an entity recognized as a decentralized autonomous organization limited liability company with [non-profit or for-profit] status.

II.4 No Private Inurement. [Note: delete this provision if a for-profit] No part of its assets, income, or earnings shall inure to the benefit of, or be distributable to, any person or individual, including a Member or non-Member, during the life or upon dissolution of the Company, except:

In accordance with the advancement of the Company's purpose;
So that reasonable compensation may be paid for services rendered to or for the Company advancing its purpose; and
For reimbursement of expenses incurred on behalf of the Company for advancing its purpose where the Company has provided prior approval.

II.5 Limitation of Non-Profit Activities. [Note: delete this provision if a for-profit] The Company maintains non-profit status if it exclusively engages in raising or disbursing funds for charitable, religious, scientific, educational, social, fraternal, or any other types of good works, provided that:

No part of the net earnings inures to the benefit of any person or individual;
Its activities do not exclusively involve disseminating propaganda or otherwise attempting to influence legislation; and
It does not participate in, intervene in, or disseminate statements on behalf of or in opposition to any candidate running for public office.

The Company shall never be operated for the primary purpose of carrying on a trade or business for profit.

Article III — Members

III.1 Member Eligibility. A person becomes a Member by obtaining a Membership Interest, [which in the case of a non-profit DAO means a voting or governance right (not an ownership or economic right)] or [which in the case of a for-profit DAO means an ownership or economic right].

A person becomes a Member [insert explanation of how a person becomes a Member; e.g., by obtaining at least [insert number] [insert token ticker] Token(s), created from and constricted by the parameters defined in the Smart Contract located at [insert address]].

[If Multi-sig]: Membership shall be limited to those individuals or entities that are owners of the multi-signature wallet (the "Multi-sig") located at [insert address] on the [insert name of blockchain].

III.2 Initial Members. The names and addresses or Digital Ledger identifiers of the Initial Members [and Managing Members] are as reflected in "Exhibit A" attached hereto.

III.3 Classes of Membership. The Company shall have one class of Members unless additional classes are added in accordance with Article IX. [Note: delete this section if inapplicable].

III.4 Voting Weight. Each Member's voting weight is determined as follows:

[insert/describe voting weight; e.g., "One (1) Membership Interest equals one (1) vote"; or "One (1) Token equals one (1) vote"; or "Every Member has one (1) vote"].

A Member's voting weight may be adjusted upwards or downwards [insert description of how voting weight may be adjusted].

Article IV — Rights and Duties of Members

IV.1 Management Rights. All Members who have not Dissociated (as defined in Article VIII) shall be entitled to vote on any matter submitted to a vote of the Members as provided in Article V.1.

IV.2 Liability of Members. No Member shall be liable for the liabilities of the Company unless otherwise provided for in this Agreement or any governance rules approved in accordance with this Agreement.

IV.3 No fiduciary duties unless expressly approved. In accordance with §109 of the DAO Act, no Member shall have any fiduciary duty to the Company or any Member unless otherwise provided for in this Agreement or any governance rules approved in accordance with this Agreement.

IV.4 Good faith and fair dealing. In accordance with §109 of the DAO Act, Members are subject to the implied contractual covenants of good faith and fair dealing in respect of their interactions with the Company or any Member.

IV.5 Miscellaneous Obligations. Each Member shall be duty-bound to act consistently and in compliance with each of the provisions of this Agreement and with all policies, rules, and decisions of the Company adopted in accordance with this Agreement at all times.

Article V — Management

[Note: choose Member-Managed or Algorithmic Management. Add, edit, or delete provisions that do not apply.]

V.1 Member-Managed. The Company shall be member-managed, and decisions shall be voted on as follows: [insert explanation, including quorum requirements, how votes will be submitted and counted].

— OR —

V.1 Algorithmic Management. The ordinary and usual decisions concerning business affairs of the Company shall be made by the Members, with proposals submitted to and votes counted by the Smart Contract located on the [insert name of blockchain] at the address [add address] (the "Voting Smart Contract").

The decision-making of the Company shall be managed and made algorithmically as follows:

The Voting Smart Contract and the Company's on-chain or off-chain records should at any time be able to produce a document that records, just before a proposal opens for voting and just after a proposal closes for voting:
- the total number of [insert token ticker] Tokens attributable to Members; and
- the unique Distributed Ledger identifier/s attributable to each Member;
a member may submit a proposal in accordance with any approved rules that specify the approved form for proposals: [insert link];
members may vote on the proposal;
the result of whether the proposal is approved or not approved is calculated in accordance with the voting method specified in the proposal and displayed on the official online venue; and
the proposal shall be implemented in the manner specified in the approved proposal.

V.2 Managing Members. [Note: use this language if you have managers or councils with ultimate control. Delete V.2–V.6 if not applicable.] The Managing Members shall [insert their role, rights, and/or responsibilities]. The authorized number of Managing Members shall be as authorized by the Members from time to time.

Note: Beneficial owners (i.e., those with 25% or more of the economic or voting rights in a DAO) are required to perform KYC in accordance with Marshall Islands law. If there are no beneficial owners, all managing members must perform KYC.

V.3 Term of Managing Members. Each Managing Member shall serve until the following, whichever occurs earlier:

The Dissociation of such Managing Member as provided under Article VIII;
The resignation of such Managing Member;
The election and qualification of the Managing Member's successor by a majority vote of the Managing Members; or
The replacement or removal of the Managing Member.

V.4 Compensation of Managing Members. Each Managing Member may be reimbursed for all reasonable expenses incurred in managing the Company and may be entitled to compensation as determined from time to time by a vote pursuant to Article V.

V.5 Removal of Managing Members. Any Managing Member may be removed for gross negligence, self-dealing, or embezzlement, or via an affirmative vote [add voting rule required] of the [optional: remaining] Managing Members or Members.

V.6 Election of New Managing Members. The Membership may elect a new set of Managing Members decided by a vote of the Members pursuant to Article V.

V.7 Authority to Bind Company. Only the authorized Members, [Managing Members,] and authorized agents of the Company shall have the authority to take any action to bind the Company.

Article VI — Accounting and Records

VI.1 Required Records. The following records shall be kept and maintained for a minimum of five (5) years:

A complete, reliable, and up-to-date list of current and former Members and/or the unique Distributed Ledger identifier(s) attributable to each Member;
A copy of the Certificate of Formation and all amendments thereto, together with executed copies of any powers of attorney pursuant to which the Certificate of Formation has been executed;
A copy of this Agreement, including all amendments thereto;
Any meeting minutes, accounting records, and financial statements of the Company;
As long as actions, transactions, voting, and decisions of the Company take place on a distributed ledger, and where human-readable explanations of those actions are publicly available for a period of five (5) years after dissolution.

VI.2 No Separate Rights to Access Public Information. In accordance with §111 of the DAO Act, except for relevant government officials with reasonable grounds to investigate a violation of the laws of the Marshall Islands, no one shall have the right to demand to separately inspect or copy the records of the Company.

Article VII — Contributions

VII.1 Initial Contributions. On or before the date of filing of the Certificate of Formation, each Initial Member has made a sufficient contribution to the Company for the Company to begin its operations. No interest shall accrue on any contribution and no Member shall have the right to demand the return of their contribution.

Article VIII — Dissociation of a Member

[Note: choose one of the two options below.]

VIII.1 Member Status Cessation (Option A). A Member shall cease to be a Member automatically ("Dissociation Event") if such Member (i) ceases to hold any Membership Interests as described in Article III, (ii) is or becomes a Restricted Person, as defined below in Article IX, or (iii) in accordance with Article IX.

— OR —

VIII.1 Member Status Cessation (Option B). A person shall cease to be a Member upon the happening of any of the following events:

The person's voluntary resignation or withdrawal from Member status; or
The person's involuntary removal in accordance with Article III by approval of [add voting rule] due to unlawful conduct or violating this Agreement.

VIII.2 No Distribution on Cessation of Member Status. Unless specified elsewhere in any approved governance rules, the voluntary resignation or withdrawal, or the involuntary removal of a Member shall not entitle that person to a distribution of any property or economic resources available to the Company.

Article IX — Admission of Additional Members

IX.1 New Members. Any new Members may join pursuant to Article III.

IX.2 Additional Classes of Members. By approval of [state voting rule], the Members may approve additional classes of members and the rights and obligations attaching to those additional classes. [Note: this provision is optional; delete if inapplicable.]

IX.3 Restrictions on Membership. It is the policy of the Company to comply with the Marshall Islands sanctions regimes, including the United Nations Sanctions (Implementation) Act, 2020. "Designated persons" subject to United Nations targeted financial sanctions regimes and listed on the UN Security Council Consolidated List are not eligible to be Members of the Company.

Article X — Dissolution

X.1 Dissolution Events. The Company shall be dissolved, and its affairs wound up in accordance with §114 of the DAO Act upon either:

Approval by a [add voting rule] of a proposal specifically for the purpose of dissolving the Company; or
Any of the events specified in §114(1) of the DAO Act.

X.2 Dissolution Requirements. As soon as possible following the occurrence of any dissolution event, an authorized agent or Member shall file Articles of Dissolution with the Registrar in the form prescribed by the Registrar.

[If non-profit:]

X.3 No distribution to Members on Dissolution. The voluntary or involuntary dissolution of the Company does not give rise to any right of a Member to a distribution of any property or economic resources.

X.4 No distribution to interested parties on dissolution. Upon a court order dissolving the Company following a successful petition from an interested party in accordance with §114(3) of the DAO Act, that interested party shall not have any right to a distribution of any property or economic resources.

[If for-profit:]

X.3 Distribution to Members on Dissolution. Upon dissolution and after settling all debts, the Company shall distribute to the Members, in accordance with their Membership Interests, any property or economic resources that may be or become available to the Company.

X.4 Distribution to interested parties on dissolution. Upon a court order dissolving the Company following a successful petition from an interested party in accordance with §114(3) of the DAO Act and after the Company settles all debts, that interested party shall have a right to a distribution of any property or economic resources.

Article XI — Amendment

XI.1 Amendment or Modification. This Agreement may be amended or modified from time to time as approved pursuant to Article V [or "pursuant to Article XI"].

XI.2 Governance rules. [Note: delete or edit as appropriate] [If relevant, name other governance rules for how to amend the Agreement, for example, if you want a greater majority to be required than for votes pursuant to Article V].

Article XII — Dispute Resolution

XII.1 Dispute Resolution Process. Unless a different process is set out in other governance rules, in the event of a conflict or dispute between the parties under this Agreement, the following default dispute resolution process is to apply:

The parties to the conflict shall negotiate in good faith to resolve the matter.
A proposal shall be submitted in one or more official online venues of the Company, redacting any confidential information as appropriate, to notify the Members of the nature of the dispute, as well as: the amount or range of any compensation or damages claimed; the amount of fees quoted by an independent person or authority to be appointed to oversee or arbitrate; whether funds are requested to be met by the Company; and the reasons why negotiations in good faith have not resolved the matter.
If the proposal is approved in accordance with Article V, then the parties must act in accordance with the proposal to resolve the dispute.
If the dispute is not satisfactorily resolved after undertaking the above processes, then a dispute arising out of or in connection with this Agreement shall be finally settled using the [courts of the Republic of Marshall Islands / arbitration].

XII.2 Alternative Dispute Resolution.

Should a controversy, dispute, or claim arise between any Member out of or in relation to this Agreement ("Dispute"), such Members must give thirty (30) days notice of such Dispute to the Company and the relevant party (the "Notice of Dispute"). Should the Dispute not be resolved at the expiration of thirty (30) days, the process below shall apply.
Should the Dispute remain at the expiration of thirty (30) days after service of the Notice of Dispute, the Dispute shall be settled by arbitration administered by the International Centre for Dispute Resolution in accordance with its International Arbitration Rules. The arbitration shall take place in [insert location]. The language of the arbitration shall be [insert language].
In the event that a Member who is party to a Dispute (i) is in material breach of this Agreement, (ii) acts in material violation of any statutory requirements of the Republic of the Marshall Islands or the laws or regulations of any other applicable jurisdiction, or (iii) engages in conduct that materially harms the Company or its Members, such Member may be removed pursuant to the process in Article VIII.

Article XIII — Miscellaneous Provisions

XIII.1 Entire Agreement. This Agreement represents the entire agreement among all the Members and between the Members and the Company.

XIII.2 Governing Law. This Agreement is governed by and shall be construed in accordance with the laws of the Republic of the Marshall Islands without regard to its conflict-of-law principles.

XIII.3 Separability of Provisions. Each provision of this Agreement shall be considered separable, and if for any reason any provision or provisions herein are determined to be invalid, unenforceable, or illegal under any existing or future law, such invalidity, unenforceability, or illegality shall not impair the operation of or affect those portions of this Agreement that are valid, enforceable, and legal.

XIII.4 Indemnification. Subject to applicable laws and any restrictions set forth in this Agreement, the Company shall have the power to indemnify and hold harmless any Member or other person from and against any claims and demands whatsoever.

XIII.5 Hierarchy in Conflicting Company Documents. Where the underlying Certificate of Formation or this Agreement and any Smart Contract(s) are in conflict, the Certificate of Formation and the Agreement shall pre-empt any conflicting provisions of the Smart Contract, and as soon as reasonably practicable:

Prominent disclosure should be made in official online venues of the Company to ensure the conflict and the approach to resolving the conflict is communicated to Members; and
Proposals should be posted for consideration of the Smart Contract(s) to be upgraded or documents amended to remediate the inconsistency and prevent further conflicts.

Signature

IN WITNESS WHEREOF, the parties hereto have executed this Agreement effective as of the Effective Date.

COMPANY:

_________________________ By: Member Name

[Add more lines as needed]

Exhibit A

Managing Members

Managing Member	Address / Digital Ledger Identifier	Membership Interest

Members

Member	Address / Digital Ledger Identifier	Membership Interest

[Add or delete rows above as needed or delete the entire Exhibit if it is not referenced above.]

cyberia/midao/operating agreement.md