[Update] PA Financial/Legal

[0xTranqui]

Overview & Disclaimer:

I’ve put together the following summary of PA’s current tax/accounting situation and proposed solutions based on conversations I’ve had with some legal and tax folks. Note that this is all shared to help educate this group, but is not intended to be legal or financial advice. We can collectively consider retaining accountants, lawyers, or tax advisors to get more precise advice for PA, and should also consult our own lawyers and financial advisors for our personal tax issues.

Additionally, much of this is more relevant to myself, @losingmyego, @valcoholics, @junghwan, @DBlodorn, @salief, @Javier-Szyfer — but as the whole DAO will need to be on board with the transition into its next phase, it feels important to have all of this information published + discussed publicly

Summary of Situation

• PA should take the following steps to handle tax compliance for 2022 ops + set up pathway to transitioning into an UNA during 2023

  • 7 person PA founding team should consider drafting an internal agreement acknowledging that their ownership of the veto power means the current PA structure is a general partnership that they control. This agreement should also say that the plan is to convert it into an UNA as soon as possible
  • Each member of 7 person founding team needs to pay income tax on a 1/7 portion of the treasury value at the end of 2022 (which amounts to all auction revenue earned Dec 2 - Dec 31, since the partnership didn’t have expenses in 2022)
    • Income reported as “other income” for US + Canada members. Argentina may be different
    • Partnership also should likely file a 1065 to report the partnership’s revenue/losses. Template

• Each member of 7 person founding team who received a founders allocation needs to report the revenue from that allocation – and can use the eth/usd price of the previous day’s auction as a proxy for that value (eth/usd price at time of allocation received)

  • Canada + Argentina may have stricter rules for reporting this

• A non zora member should open up a new checking/credit account that can be used to transition ops expenses to during the process of setting up an official business account for PA

  • Currently Zora is covering ops costs as a service provider to the DAO. We’ll want to move away from this as soon as possible, so will need to be able to pay the expenses ourselves directly.

• For clarity, salaries paid to Max, Joey, and Dain are not DAO expenses - they will continue to get paid by Zora separately for the core Zora work they are doing for the time being.

• PA should pass a proposal authorizing Zora as a service provider for the DAO for current operational expenses and provide compensation (this can be a discounted rate)

• PA should also set a date that we want to transition of ZORA funding for operational expenses (aka payments coming via Zora brex card for things like discourse, figma, etc)

  • Start working on setting up UNA business bank account (longer term thing, Builder hasn’t even gotten this set up yet)
  • Start charting the UNA
  • Once this date gets hit, payment for ops transfers over to the bank account someone from 7 person founding team has set up, since in the period after we transfer away from zora funding + before the PA UNA is set up, it is all still a general partnership so payment can come from anyone on founding team

Proposals to submit once the above is prepped

1. Submit proposal to retroactively acknoweldge ZORA as a service provider up till this point + reimburse them for expenses paid up to the agreed upon transition date

2. Submit proposal to charter UNA

3. Submit follow up proposal to authorize agents (preferably non zora employees) to be able to do things such as get the UNA a tax ID, elect corporate taxation, set up bank accounts, and take on the responsibility of owning and paying for our operational service providers like figma etc.

[losingmyego]

Hmmm I wonder how he would define the value of our governance tokens from the founders allocation— there is technically no price associated with them.

[0xTranqui]

i would use the price of the first token that was auctioned following the initial allocation – thats a good point

[neatonk]

What is a UNA? Also, I’m assuming the tax burden for the founding team would be improved as a result of incorporating. Seems like a raw deal to be taxed on the treasury balance rather that the amount personally received from the treasury.

[0xTranqui]

great info @valcoholics shared a while back that points to some information about UNAs that Builder posted. can provide some more info tm when I’m back on comp

[0xTranqui]

adding a bit more detail (NOT FINANCIAL/TAX ADVICE + im very out of my depth talking about all of this so take it with a grain of salt) about UNAs (Unicorporated Non-profit Associations) to this thread

what it means for PA after we convert to an UNA (dependent on the ratification passing via proposal):

• Owning a token DOES NOT MEAN that you own a portion of the treasury. It means you have a say in how the treasury is allocated, but there is no concept of profit-sharing within an UNA (as opposed to an LLC where members could decide to split profit from dao activities amongst themselves)

• limited liability protection for DAO members (token holders)

• members can remain anonymous – even for payouts which require some level of official accounting – by routing funds through an LLC

• PA can authorize agents to act on behalf of the dao to set up things like bank accounts, EINs, hire accountants, attorneys, etc

will leave off with two helpful graphics from the Builder dao forum post about why they decided a US based UNA (based out of wyoming) was the best approach for the dao – in my opinion (as well as the advice we received) similar reasoning can be applied to PA which is why this model probably makes the most sense for us to copy

[salief]

What are the next steps for this? From what I read via Paradigm’s DAO Matrix, it looks like there is no formal entity making process for becoming an UNA, so we can just declare it via proposal.

But does that mean we can’t establish any type of business bank account in the name of Public Assembly?

[salief]

me: Can UNA’s open a business bank account?

bot: Yes, UNAs (Unauthorized Non-Profit Associations) may be able to open a business bank account, depending on the laws and regulations of the country in which the association is located. However, since UNAs are not registered with the government and do not have legal status, it may be more difficult to open a bank account in the association’s name.

In some countries, UNAs may need to provide additional documentation or meet specific requirements to open a bank account. It is recommended to contact local banks and inquire about their policies and requirements for opening a business bank account as a UNA. It may also be helpful to consult with a legal professional or an accountant for guidance on setting up a business bank account for an UNA.