Legal and Compliance

Legal Framework for the Creation and Management of a Nonprofit DAO

The Cathedral Foundation DAO is structured as a nonprofit organization and operates under the legal framework of Estonia, a country renowned for its progressive stance on digital innovation, blockchain technology, and decentralized governance. Estonia’s regulatory environment offers a clear pathway for the legal recognition of decentralized autonomous organizations (DAOs), ensuring compliance with both local and international standards.

DAO Legal Recognition in Estonia

Estonia is one of the leading countries in Europe for blockchain and digital assets legislation, thanks to its e-Residency program and forward-thinking approach to the digital economy. Estonia allows the formation of DAOs as legal entities through a flexible framework that encourages innovation while ensuring legal compliance.

The Cathedral Foundation DAO, operating as a nonprofit, must register with the Estonian Commercial Register under the appropriate entity type, such as a nonprofit association (MTÜ) or foundation. Once registered, the DAO is recognized as a legal entity, allowing it to:

• Enter into legal contracts.

• Open bank accounts.

• Participate in legal and financial activities as any traditional organization.

• Operate under a decentralized governance structure while adhering to local regulatory requirements.

Estonian law provides a comprehensive framework for ensuring that decentralized organizations like DAOs can operate within the bounds of legality while embracing decentralization and blockchain technology.

Compliance with Nonprofit Regulations

Estonia’s nonprofit regulations are clear and designed to ensure that organizations operate transparently and in accordance with their stated missions. The Cathedral Foundation DAO, as a registered nonprofit, is required to:

• Operate without distributing profits: The organization must use all funds to achieve its mission, which in the case of the Cathedral Foundation DAO is to democratize access to finance through decentralized technology.

• Ensure transparency in financial reporting: Estonian nonprofit organizations must submit regular financial reports to the Tax and Customs Board to demonstrate that funds are used appropriately and in alignment with the organization’s objectives. The DAO will ensure that all funds raised, spent, and allocated are documented transparently.

• Governance and operations: The nonprofit status ensures that decision-making power is held collectively by the DAO’s members, aligning with Estonia’s requirements for transparent governance. The DAO’s governance structure, automated through smart contracts, ensures that it operates within the legal framework while maintaining the decentralized ethos.

Compliance with Blockchain Regulations

Estonia is a leader in blockchain and digital assets regulation, having established a supportive legal framework for companies working with digital currencies, tokens, and decentralized technologies. The Cathedral Foundation DAO operates within this framework, ensuring compliance with Estonia’s regulations regarding:

• Anti-Money Laundering (AML) and Know Your Customer (KYC) requirements: The DAO implements robust AML/KYC procedures to ensure that all participants are verified and that the DAO’s activities align with Estonian and EU standards for financial integrity.

• Data privacy and security: Estonia’s adherence to the EU General Data Protection Regulation (GDPR) ensures that all data related to DAO members and transactions is handled securely and privately, in full compliance with European data protection laws.

Tax and Financial Compliance

Nonprofit organizations in Estonia are subject to certain tax exemptions, provided they operate in compliance with their nonprofit mission and adhere to financial reporting obligations. The Cathedral Foundation DAO will submit annual financial reports to the Estonian authorities to maintain its nonprofit status and ensure compliance with Estonian tax laws. Additionally, the DAO may benefit from tax exemptions on donations and funding used to further its mission of financial democratization.