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 Statute, Assets Purpose Intent Endowment Foundations Employees have Contractors founders Volunteers GANADO Advoc ate s

A DL T pla tform a nd re la te d a spe c ts Administrator Developer Identification of DLT Platform Owner? White Paper White Paper Description of Software Description of Operator or Purpose Owner Patrimony Users Consensus Mechanism GANADO Advoc ate s

A DL T Pla tform in Ope ra tion Insurance Who is cover liable? SPV • Developers, miners, users, oracles, auditors... Administrator Is administrator a DLT Platform fiduciary? GANADO Advoc ate s

A Se t of Contra c tua l a nd Othe r SPV issues Re la tionships tokens Developer Can the arrangement Accounting Administrator be considered a body corporate, a legal organisation? DLT Platform Contract of Regulator Insurance Compliance Users GANADO Advoc ate s

What can we do to increase legal certainty ? • We c a n INCRE ASE the disc lo sure s • We c a n tighte n up the c ontr ac ts • We c a n impose te r ms and c onditions e xc luding lia b ility fo r diffe re nt pa rtie s • We c a n plac e DL T platfor m within an e xisting type of ganisation a nd b uild in c he c ks a nd b a la nc e s le gal or • We c a n lobby to c lar 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?

DL T de e me d to be a le g a l org a nisa tion! Governance Are users Are users members? Administrators or token (Fiduciaries?) Are they holders Systems Purpose owners and auditor owners? White Paper Contract liable? Are users partners or Liability co-owners DLT Insurance and liable as Platform REGISTRATION Contract such? Guarantee (Asset) Cash flow Compliance Are issuers AML, GDPR Written of white Statute, Intent (officers or White Paper paper delegates) Technical founders (contracts administrator Contract (Fiduciary?) GANADO Advoc ate s

Risk of be ing de e me d a L e gal Or ganisation Se e “ Co r por ate Go ve r nanc e for Comple x Hac ke r 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 ganisatio ns ” (No ve mb e r 22, 2017) Blo c kc hain-Base d Or 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 o fits; ” and use r s fo llo w a jo int pur po se and shar e pr s to Ze tzsc he e t al . “ T c r oss r e fe r 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

If we don’t deal with this issue it’s a world of legal uncertainty GANADO Advoc ate s

Proposal : Consider Legal Personality for DLT platforms 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 ganisatio ns ” Or (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 o rg a nisa tio ns a s a me a ns of r ta inty . e duc ing unc e r “ 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 onic ally – by o ne e ntity , o r a small numb e r o f spe c ifie d e ntitie s, o pe r 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.

Lets consider Legal Personality Option 1 – use existing legal forms Option 2 – vary some rules in existing forms Option 3 – design a completely new legal form • Do you go for an Association or a foundation, or none, as a model? • What variations to existing statutory requirements?

Types of Legal Organisations F ounda tions Assoc ia tions • Unive rsa lity o r po o l o f • Unive rsa lity o r g ro up o f Pe rsons T hing s • Purpo se a c hie ve d • Purpo se a c hie ve d thro ug h Asse ts thro ug h Colla bora tion of E fforts • Ma y b e e sta b lishe d • Ma y b e e sta b lishe d fo r: fo r: - a priva te inte re st; - a priva te inte re st; - a la wful purpo se . - a la wful purpo se .

L e g a l pe rsons vs L e g a l Org a nisa tions Corporate Non-Corporate - Comme rc ial Partne rships; - Unre giste re d Organisations; - Co-ope rative s; - Unre giste re d Assoc iations; - Unions and E mploye r Assoc iations; - Unre giste re d Civil Partne rships; - Sc hools; - Condominium Assoc iations; - F oundations; - Re giste re d assoc iations; - Voluntary Organisations not in c orporate form. GANADO Advoc ate s

L e g a l Org a nisa tion - Qua litie s Legal Person Blockchain Activities Centralised administration Decentralised – no central counterparty or point of reference Governance Governing Body May have governance (Board / General Meeting) embedded in it Accounting and Governed by applicable May have accounting and Auditability law auditability embedded in it Legal Personality ? Depends on Legal Form Just a piece of software! chosen + Registration GANADO Advoc ate s

Cha lle ng ing a ssumptions 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 ? S ............. QUE RIE  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 o ut by e a c h toke n holde r himse lf ? Is the re a lity no t still c e ntra lise d? for  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 o wne d b y ma ny thro ug h o ne le g a l o rg a nisa tio n? GANADO Advoc ate s

Impac ts of L e gal Pe r sonality – 1. L iability L E GAL WHE RE doe s CE RT AINT Y liability lie ? r e gar ding L iability liability – who limite d to is liable for insur anc e what? c ove r ? 1 2 3 4 CAVE AT OWNE RSHIP: E MPT OR? What liability doe s owne r ship imply?

2. Powe r s Individuals are born with A legal organisation is a natural rights and construct of the law and obligations then apply in has A PURPOSE and an ordered fashion as they logically all powers to get older achieve that purpose These powers are The powers can be limited principally patrimonial and by the statute and the contractual and cannot be special law applying to the equal to those of an legal form individual 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 ...

3. Re gulation (1) 1. Legal organisations can be regulated the same way as individuals as through individuals they are presumed to ACT. Things, like ships or aircraft, are regulated for their design, composition and functionalities/behaviours; 2. Legal organisations and special classes of things can also break the criminal law; 3. Blockchains are the counterparty of certain acts but normally do not act themselves; 4. Smart contracts can carry out acts as programmed;

3. Re gulation (2) 5. Things can act and can cause harm and we have principles of vicarious liability where SOMEONE (natural or legal person) bears liability for their actions; 6. Who will be responsible for actions on smart contracts on blockchains? 7. If the activity is regulated who will apply for a licence and comply with its conditions? 8. Is it possible to programme things to comply with the law through automation?