All right, everybody, hello, Sandow podcast number
64, 64 episodes since we started this thing back
in May, June of last year. Since then, we have
been on a journey to understand DAOs and that
led us to foundation companies. Here we are on
part six of our foundation company miniseries.
We have a return guest with us. Carolyn from
Walker's Global. Back in episode 59, it was Carolyn
and Melissa. Carolyn, you're an associate with
Walker's Global, whereas Mel is a partner, correct?
Yeah, well, I'm actually an associate at Walker's
and thanks for having me on again, Lance. I'm
so glad to have been invited back to the show
and sort of happy to be as helpful as I possibly
can in answering any questions you have. Yeah.
Thank you. Very, very happy to have you back
on. Last time we had to cut it off right at the
hour mark and there were so many questions left.
I was able to answer quite a few, I think, on
some subsequent episodes since I... since then.
But there's still some really, really burning
questions I have that I think will close this
out really nicely. So the scope of the talk for
today is another analysis of the facts, a Q &A
with a practicing attorney over in Grand Cayman
Islands, who is actually very experienced with
foundation companies, as was Mel. And it's all
about transparency, trying to give our community
and others more information to make smart decisions
as we DAO. Disclaimer is neither of us represent
the Sandbox Game or the Sandbox Foundation. We're
not your financial or legal advisors, and nothing
we say is to be taken as financial or legal advice.
True for me, Carolyn. Still true for you? Very
true for me, Lance. Very true. All right. So
when we say the word SIP, AIFP, or anything of
that sort, we're talking about an improvement
proposal for the DAO. When we say DAO, we mean
a centralized autonomous organization. And if
I ever use the word SandFam, we're talking about
the Sandbox community, those who participate
in the people, product, and purpose of the Sandbox
ecosystem. That ecosystem looks a little bit
like this, where you have people, everyone from
gamers to the Sandbox team. The product is everything
from the game client to the DAO. And the purpose
is what is established on the white paper, as
well as what's been expanded upon by the leaders,
the leadership of the Sandbox ecosystem, mostly
Sebastian Bourget and Arthur Madrid. And the
ecosystem lets everything go round and round.
Today is episode 64 and we are squarely on the
Dow. Today we have Carolyn. She's coming, a return
guest from episode 59 from Walker's Global. Again,
Carolyn, if you wouldn't mind reintroducing yourself
and yeah. Absolutely. Thanks, Lance. Yeah, no,
I'm an associate in the FinTech team at Walkers.
I have a vast amount of experience working with
Cayman Foundation companies and providing which
provides sort of the legal wrapper for the DAO.
I've worked on sort of with. you know the startup
um entities in this space very notable names
in the space uh global regulated cryptocurrency
exchanges um have advised um you know tens if
not you know tens of multiples of tens of these
types of entities so incredibly familiar and
and we are walkers is the biggest off -chain
offshore law firm providing services to daz foundation
companies in this area and we have a really great
regulatory team as well as as on the fintech
side and so we have a real depth and breadth
of expertise that we can offer to clients in
this space. And it's led by the wonderful Melissa
Lim and Lucy Forret -Walkers. Yeah, as we did
cover in a previous episode, Walkers is highly
experienced. If you could look, you looked at
the solutions, looked at the art people, locations
that they have. And we went over the article
that eventually led me to Mel and Carolyn from
episode 59. So. extremely experienced, and as
you can see, Carolyn is very familiar with foundation
companies. Hence, episode 64. We'll do a very,
very brief recap. I slimmed it down quite a bit,
and then we'll jump right in that Q &A. So that
recap started with episode 34, moved on, which
was a look into the DAO origins for the sandbox.
Episode 56 was a reading of the Cayman Islands
law. I read through everything from the... Companies
Management Act, the Companies Act, the Foundation
Companies Act, and more. And then 57, we had
a U .S. practicing attorney on where we talked
about Dow's and case law, particularly the case
law over happening in California. Episode 59,
we had Mel and Carolyn on talking, briefing foundation
companies from a Cayman Islands lawyer perspective.
And episode 60. was part four, and that was a
reading of all the Sandbox -style foundation
documents, particularly the Constitution, which
is made up of the Articles Association and the
Memorandum Association, as well as the bylaws.
And then episode 62, part five, was a reading
of Star Atlas -style documents and their Constitution.
So that leads us to today, episode 64, which
is a Q &A, and there were all the burning questions.
that I had and received from others about foundation
companies, we will get answered today. And yeah,
so that relationship map in episode 34 is what
kicked it all off, trying to figure out what
was going on, who was doing what. And so much
of this now makes so much more sense. We'll do
a wrap -up episode in a future episode to kind
of bring it all together. Then we did our, in
episode 56, that law regulation stack where the
Companies Act I mentioned. Foundation Company
Law, and others. It gave a lot of meaning to
all these things that we were looking at. What
is an article association? What is a foundation?
What does it mean to be limited by guarantee?
Why do we see the words Cayman Islands Monetary
Authority? Why is there a $50 duty stamp on it?
So all these sorts of things had a lot of meaning
given to it after we read the regulations. Then
in episode 57, we went over some court rulings
that are applicable. to DAOs right now, OokiDAO,
BZX, Lido, and others. And then that led us to,
throughout the course of that, an article that
I was reading penned by none other than Mel and
Carolyn in Walker's Global called Cayman Island
Foundation Companies are a leading vehicle for
wrapping a DAO. That led us to episode 59, where
Mel and Carolyn gave us a rundown of foundation
companies, DAOs, and virtual assets, going over
things such as why would a DAO form? a Cayman
Foundation company? What are the timeline events
that lead from the inception of a foundation
company to a director -led to a token holder
-led? I didn't know anything about that until
they said that. So that was huge, huge education
for me. And then what documents are required
to form a foundation company, as well as many
other things. Check that out in episode 59. We
left with TLDR, which I began in episode 34,
and I've been updating ever since. What is a
foundation company? Right now I have is both
the name of the Sandbox DAO and a type of company
in the Cayman Islands. It's also flexible in
how it's structured and operates. What is an
exempted company? It means a company that does
business outside the Cayman Islands. Limited
by guarantee means the members of the foundation
can only lose what they put into the company.
Without any share capital means no shares, otherwise
known as units of ownership, were created when
the company was formed. Articles and Memorandum
of Association. The memo seems to be the thing
that creates the foundation company. The articles
describes how it will be operated, kind of like
your business rules. And bylaws establish internal
business rules, which are optional if you are
dealing with a foundation company. Not optional
if you're in the foundation company. I'm sure
Carolyn will correct me on that one. Lots of
business is done in the Cayman Islands. A thousand
companies alone were registered in the Cayman
Islands. A thousand alone. with about 120 active
since late 2024. Foundation rules are flexible
and varied. Subscriber seems to be the one that
creates the foundation company. Secretary seems
to be the one that's licensed by SEMA, the Monetary
Authority, to document, record, certify other
activities. Director leads the foundation company,
and the members, founders, officers, supervisors,
managers, they all conduct daily activities in
accordance with their role. All this is governed
by the Grand Cayman Island law, namely the Companies
Act and the Foundation Company Act. We're going
to start our Q &A. And the very first thing we're
going to ask Carolyn is, is anything I just said
incorrect, Carolyn? Do I need to fix anything
on that TLDR? Thank you. I think broadly that
was that was correct. I mean, maybe just to provide
a little bit more clarity. So when we talk about
bylaws and and how that interacts with the M
&A, it really depends, which is a very legal
answer. But the bylaws typically set out token
holder governance and then the memorandum and
articles of association, the foundation company
are. updated to reflect that token holder governance.
So thereby creating this sort of link between
the two documents. And it's those two documents
combined that provides the legal wrapper for
a DAO. So maybe just that's a slight clarificatory
point that it's token holder governance. They
are optional, of course, if the intention is
that there is not going to be token holder governance,
then bylaws do not need to be implemented. We've
also seen it where there's a DAO, but the DAO
provides ad hoc instructions to the foundation
company. And so those governance mechanics are
not set out in bylaws. So there's also that consideration
as well. Now I get that. That's why the director
led the token hurdle letter the way it was on
that slide. So the token hurdle letter is initiated
with the bylaws. That's the document that sets
out the governance, OK? So that would be the
document where you see all the kind of voting
proposal, how proposals can be made, voting thresholds,
through what channels, who has the right to vote
on that, you know, sets out the sort of quorum
and voting process and voting, you know, the
sort of thresholds for voting as well in terms
of when a proposal will be passed and then implemented.
And then the the foundation company and the direct
foundation company will implement the token holder
governance votes that have been passed. And the
director, the director or directors, in accordance
with the memorandum and articles of association,
have to act in compliance with the articles and
also the bylaws. And so they fall if. any sort
of token holder voters ask the directors to do
anything that was illegal, contrary to Cayman
law, then obviously the directors have the ability
to not follow it. But save for that, they must
follow, act in accordance. with the bylaws and
the articles. And so if a token holder vote has
passed and that's been set out in the bylaws,
then the directors will enact the will of the
DAO. So the foundation company itself, obviously
represented by its directors, will enact the
will of the DAO in that circumstance, in those
circumstances. Got it. I don't think I understood
that nuance. When you first talked about that,
it kind of went over my head, like token holder,
what's the trigger now? Okay. Okay. Yeah. Yeah.
We're getting into the thing that's been, that's
been on my mind ever since I started this and
I still, I need to get, I need to, we need to
tear this apart. What is the relationship between
the Dow and the foundation company? Talk about
separate legal entities, people, personalities.
Can you spell that out for me, please? Yeah,
so I think probably the best explanation is that
the interaction between the DAO and its foundation
companies, a blend of sort of decentralised governance
and centralised legal execution. So the DAO will
make decisions through kind of on -chain voting.
That might be sort of budget allocations, grants,
you know. improvements to the network. The foundation
company, because it's a legal entity, implements
those decisions in the real world. So signing
contracts, transferring the fiat funds or sort
of filing legal documents. Now, that's because
the DAO is not in and of itself a legal entity.
And so the foundation company acts as the legal
entity on behalf of the DAO. in that particular
respect so what you'd have is um you know you
have these community members as i've said to
kind of submit proposals um and that might be
to hire a developer or fund an event and then
if approved the foundation company is the one
that might process those payments sign those
agreements perform the necessary legal actions
on behalf of the dow um And then the foundation
is there to also ensure that the DAO activities
comply with the regulations. So, you know, in
Cayman, is it acting in accordance with the law
in terms of the virtual asset service providers
legislation, particularly KYC AML? And so it
may reject or modify proposals if those pose
any legal risks. And hopefully often they're
doing that with community transparency. And so
it's basically they're there to manage kind of
the off -chain assets as instructed by DAO governance
and enter into those. The foundation is to enter
into contracts with third parties to carry out
the kind of DAO approved work. And, you know,
I think in DAO and foundation companies that
operate really, really well, you know, the foundation
court says transparency between the two and the
foundation reports to the DAO provides updates
on legal and financial and operational matters.
And transparency is that key to maintaining that
community trust and decentralization. But effectively,
you know, we also spoke about the shield of liability
that the foundation company may provide to the
DAO. And that article of mine that you read.
um touched upon that because um the idea is that
if an action is brought against you know There
is a litigious claim, for example, that the foundation
company would absorb that claim as opposed to
the DAO members in and of themselves, provided
that it's the foundation company that is entering
into, for example, a contract that becomes litigious.
It wouldn't be the individual DAO members is
the sort of theory behind the shield of liability
point that the foundation company can provide
to the DAO. So I think that that's kind of a
good summation of the interaction between the
two. Okay. And we're getting some touchy subjects,
but it needs to be asked. What is the legal authority
that the foundation company has over the DAO,
if any? Yeah, it's an interesting question. Yeah,
conceptually, it's not really the way it works.
You know, you have a DAO that will pass community
governance proposals and then the foundation
company implements those. The foundation company
and the director of that foundation company,
the director of the foundation, you need to act
in the best interest of the company. And so if
the DAO members propose something that gets passed,
that the directors. You know, that's, for example,
contrary to Cayman law or in breach of one of
their duties, the directors have the ability
to reject that proposal, but otherwise must act
in compliance with the bylaws and the articles.
So it's not so much what legal authority does
the foundation company have over the DAO as it
is, how can the DAO influence the foundation
company? And I think you've mentioned like SIPs,
you know, the improvement proposal process and
that. All of that, like SIPs and improvement,
any sort of improvement proposal process will
be set out in the bylaws. So it's a really important
document. And that kind of sets the tone for
the relationship between the two and provides
the authority, if you like, for the DAO to instruct
a foundation company to carry out the will of
the DAO. Okay. I'm writing that down because
that's going to become important for us later.
So I've been endowing now as a verb since May,
and I've been dowing near full time. It's like
a second job to me now. I'm enjoying myself thoroughly
in the process. What I've learned is that in
the execution of its responsibilities, I have
observed foundation companies, and not disparaging,
just my observation. I've observed foundation
companies exercise a degree of authority over
the DAO in different situations, such as a foundation
company director, let's say, would appoint someone
to a DAO position. Or in your case, you mentioned
a foundation company officer or director would
alter. the voting results of a dow uh and when
i say alter i mean change parts of the proposal
that it did not believe was executable so i think
that falls squarely within what you're saying
earlier but i've noticed other situations that
don't fit neatly within the if it's aml or if
it's illegal immoral unethical that sort of thing
it's more of like um i don't even know what it
is procedural um Do you get what I'm getting
at? Are you? It's difficult to comment without
knowing the kind of the context of what we're
talking about here. But I suppose, you know,
the directors, one of the non -executive independent
directors are there to provide independent oversight
and will highlight risk. That's part of their
job is to highlight risk. act in accordance with
the best corporate governance procedures and
so if there is something that the directors perceive
as a risk to the foundation company because you
know ultimately the directors have to act in
the best interest of the foundation company they
have fiduciary obligations sort of you know a
duty to disclose any conflicts for example and
so if there is something that the directors perceive
as a threat to that then they are within their
rights to highlight that risk appropriately.
And if that risk, you know, is if that risk is
something where it is, you know, illegal or against
their primary obligations to the foundation company,
then. they have the ability to refuse to or certainly
to maybe adapt it so that it conforms to the
required standard before they implement it. Okay.
In situations where there's no legal issue at
play, there's no money laundering at risk, let's
just say that the special counsel is elected
and one of them is moral disrepute. Moral turpitude
maybe is the word, but it's not spelled out in
the bylaws that that is a thing. The director
believes, regardless of whether or not the bylaws
specify that as a reason to remove someone, decides
to remove that council member anyways. What would
you say, how would you classify that? I think,
you know, they have the authority to act in the
best interest of the company. And if you have
a council member that does not is in, you know,
it's called disrepute to the foundation company,
then they potentially would have, you know, they
would certainly be raising questions about that.
And I would imagine that the bylaws would have.
um mechanics for i mean i've reviewed and commented
upon many bylaws where there is a process for
removing special council members and so to the
extent that that process is followed um then
um you know i it would i think that would be
within their their remit of their authority so
it sounds it sounds as though the directors regardless
of kind of how the Bylaws are structured because
the director has that fiduciary responsibility
and they're the overall person responsible for
the company. They kind of have that ultimate
authority to do what's in the best interest of
the foundation company, regardless of what the
bylaws say. No, no. So they know. No, I mean,
they have their primary duty is to act in the
best interest of the company. But it's not. And,
you know, I think if that is at odds with a proposal
that is being passed. or there is something like,
in your example, whether it's a special council
member who's been brought in to do this repute,
then the directors would need to look at that
very closely and to determine whether or not
that's in the best interest of the foundation
company. But they also have to be cognizant of
the fact that if a proposal has been passed and
the bylaw sets something out, then they're...
It's not so much that one kind of trumps the
other. They need to sort of view it in side by
side. But in essence, you know, their duty and
their obligation is to the foundation company
to ensure that they are making the right decisions
for the foundation. It's not for. the the dow
the dow in and of itself is it's slightly separate
um but you know you create this nexus through
the bylaws with the foundation company to um
to so that you know the foundation company enacts
the will of the dow to the extent that it is
not you know contrary to cayman law or that it's
not in the um you know the directors are not
in breach of any of their duties I need to I
need to crystallize that because that to me is
is the period right there. As long as it's not
in contrary to Cayman Island law or in breach
of their duties, did you say? Yeah. OK, cool.
All right. I think I think that settles it right
there is there is a difference. That difference
does take on significant meaning. Should there
be any divergence between what the Dow recommends
or votes and the foundation company or the director
decides within all due bounds that this is not
within the best interest of the foundation company.
But to use that power, would you say sparingly
and to ensure that it's still the act within
the will of the bylaws and the Dow? Yeah, exactly.
Exactly. Yeah. All right. I think that's the
best way to look at it. Excellent. Cool. I think
this is coming together very nicely. All right.
Here is, let's get some techniques down. This
one has been plaguing me for a while. I've been
trying to figure it out. Are the DAO token holders
considered members or beneficiaries of the foundation
company? No. Okay. Can you tell me more about
that? Especially the beneficiaries part. Um,
so. So beneficiaries, you don't have to designate
beneficiaries of a foundation company, but you
can. And I think we maybe touched upon this when
we spoke at the beginning and because of the
way in which the concept of foundation companies
came to fruition. But if you think about how
the foundation company is set up with them, sort
of. where it's limited by guarantee and it has
the characteristics of a civil law foundation.
And so civil law foundations were used for succession
planning and philanthropic purposes. And but,
you know, foundations were not available in the
Cayman Islands. Therefore, we had civil law clients
who required to use more traditional common law
trust structures. And so the concept of a trust,
it's quite important to understand beneficiaries,
although is sort of quite flexible and reliable
in succession. planning tools it's less attractive
to many civil law clients um and so two of the
main reasons for that was the unfamiliarity with
the separation of the legal and the beneficial
interests and the uncertainties to kind of the
tax treatment so there was lots of you know offshore
jurisdictions who then want to establish sort
of um common law or offshore foundations by statute.
However, the difficulty with that approach is
that offshore foundations is kind of sort of
statutory constructs with no established body
of jurisprudence. So this has resulted in considerable
uncertainty. So the Cayman Islands solution to
this was to establish a hybrid that looks like
a civil law foundation, but benefits from long
established jurisprudence, which relates to companies.
And so What you have is you can have in the articles
of association provisions, which include having
beneficiaries, but it's not a requirement that
Cayman Foundations have beneficiaries. Details
of if you did appoint beneficiaries, they would,
you know, they're set out in the bylaws or otherwise.
And unless otherwise provided the memorandum
of association, the beneficiary has no power
or rights relating to the foundation company
if one is in fact instituted and its management
or on its assets. And it's not considered to
be an interest in person as defined in the act.
So it's not really relevant for the types of
clients we work with. And I don't know whether
the sandbox DAO, do you guys have? I've not seen
your constitutional documents. I don't know whether
you guys would, your foundation company has beneficiaries
or not, but typically we don't often see that,
but it can, it can. I believe that was one of
my questions is who, because they weren't specifically
identified, but there is a role for it. Oh, right.
In your, in your articles, is that what you're
saying? Right. Yes. That's right. Right. That
was my question to TTA and the Dow admin team
is, who are the beneficiaries? I'm trying to
understand who fulfills those roles. Yeah, I
mean, they benefit from the foundation's purpose,
right? They should be explicitly named, really,
in the constitutional documents. But yeah, I
mean, it could be like classes of persons, but
it potentially depends on... Yeah, it's difficult
to say without looking at the documents and knowing,
but effectively, yeah. And members, I think we
discussed before, obviously, a foundation company
is incorporated with a subscriber who guarantees
to contribute the amount on a winding up, which
I think is typically like a dollar in the memorandum
and articles of association. Yeah, all of them
say a dollar. yeah there's a dollar right um
and so um uh but then on incorporation that that
member resigns and um the foundation company
is left as a shareholderless memberless entity
moving forward okay keep going please and then
the dao token holders obviously we're talking
about the community there right So that is separate
from the foundation company. The way in which
the nexus between the foundation company and
the DAO token holders is established, it's through
the bylaws and the articles being amended to
conform to the token holder governance mechanics
as set out in the bylaws. Got it. I want to pose
a... I won't say a hypothetical. I'm going to
pose a situation. I'm trying to peel this apart
a little bit. Let's say there becomes a... unmitigatable
conflict between the token holders i'm not saying
this is real this is let's just bring this to
where it's going to be sometime in the future
someone's going to trip over this when the token
holders are at odds with the leadership of the
foundation company what recourse do they have
to correct things as they'd see fit let's call
it do they have any recourse um that is probably
a question that requires gen uh actual legal
advice okay because it's a bit tricky because
we've got clark you know i i wouldn't want to
speak out of turn on sure and i wouldn't want
you to be going through this process at the moment
but i totally understand why the question is
being asked yeah and and it's it's just a matter
of at this point trying to understand these entities
like what what is um If they're not beneficiaries,
but they are the ones who execute a vote on everything
and they're the engine behind it, what happens
if there is a conflict? Is there an amicable
way to resolve that? Those are the things that
are running through my head just as a natural
thought thinking through this. Yeah, I mean,
I think it's just important to know that, you
know, DAO token holders are not, you know, not
the members, not the shareholders, beneficiaries
or directors of the foundation company. The Cayman
Islands Foundation Company is managed by its
board of directors who have the legal authority.
But if the foundation companies operates under
its charter and bylaws, that's Dow governance.
And so it's they the the foundation companies
there to, like I said, enact the will of the
Dow. So community token holder voting happens.
And then as a result of that, the foundation
company enacts the will of the Dow. There isn't
really a authority that is established other
than the. directors have to act in compliance
with the articles and so if the articles say
that it's token holder voting on a particular
topic for example the token holders by way of
token holder vote have the ability to appoint
and remove the supervisor then the directors
cannot just go ahead and remove the supervisor
by way of director resolution it has to go to
a token holder vote so it can be enforced you
know there is this link between the two and if
the directors act in non -compliance with the
memorandum and articles of association then the
supervisor may bring enforcement action against
the directors for breach of those for breach.
basically, and saying, hey, you didn't act in
compliance with a token holder vote, which said
we wanted to remove the supervisor. And, you
know, that would then follow on, you know, the
process would then follow on because the supervisor
has the ability to take the directors to court
on behalf of the foundation company for those
types of breaches. So there is that. mechanic
in play where you have a sort of a supervisor
which is like the enforcer um of um and counterbalances
that director director authority got it okay
thank you But there should be that clear that,
you know, that clear drafting in the articles
to reflect token holder governance, because then,
you know, it's pretty easy. And, you know, then
you've got something to point to to say, hey,
you didn't comply. And in the articles, it says
that you and this is the process you should have
followed. And you are also under an obligation
to comply with the articles of association. And
you didn't in this instance. And therefore, the
supervisor may take an action against it. directors
for that. Got it. When we mentioned the director
is a fiduciary, what is he or she a fiduciary
of? It's a foundation. Okay, so my brain thought
about parsing out the objects, the members, all
sorts of classes. Is that just an unnecessary
distinction or is it just foundation company?
No other distinction need be made. I'm sorry,
Lance, just say that again. My brain was parsing
that out as, is there such a thing as it's fiduciary
of the objects? It's fiduciary of the members?
Is that distinction unfit? Okay, yeah, no, I
see what you're saying. So the director of the
Cayman Foundation Company have fiduciary duties
to the foundation company itself and the foundation
stated purpose are set out in the memorandum.
They do not have responsibilities and fiduciary
obligations to the share, to token holders, members,
beneficiaries. It's to the foundation company
itself and, you know, duty of loyalty, duty to
acting with reasonable skill, care and diligence,
duty to act within its powers, which is the,
you know, know, the objects in the memorandum,
duty to avoid conflicts of interest, but they
do not owe fiduciary duties to the DAO token
holders directly. Their primary obligation is
to carry out the foundation's mission, which
often includes supporting a DAO or protocol,
obviously. And then if the governance process,
as I mentioned, is set out in the articles of
association, the directors have a duty to consider
those DAO uh votes um and is under an obligation
to follow them through say for if it's you know
uh contrary to cayman law or um is clearly not
in the best interest of the company yeah i'm
starting to hear the the same you're saying some
of the same things and it's starting to connect
now at least for me yeah yeah okay you know this
this is this is um intricate complex uh inner
workings of of how this all interacts so uh you
know it requires repetition and in order to sort
of uh to understand you know i've been doing
this for sort of a few years now so um i've got
i've got the hang of it myself but i appreciate
coming looking in from the outside it's all a
bit bamboozling yeah i think it took me reading
all every page of the company the the the foundation
company's law and the company for me to well
i had to do it for my my professional job so
it was just another set of body of regulations
But it was, it got dense. It got, especially
in the latter portions about the court, the remediation,
all of that. I think it took, that's why I was
so interested in you all coming on is to give
some practicality to what am I reading? Yeah,
yeah, totally, totally get it. I mean, that's
our job, right? We know the law, we distill it
and we can provide advice on particular areas.
So, yeah, I'm happy to help. In Section 7 of
the Foundation's Company Law, referencing Part
3, Section 7, it said the Foundation Company
has a duty to carry out the objects set out in
its memo if and only if the memo declares and
designates persons withstanding to enforce the
duty against the Foundation Company. That read
to me like the Foundation Company has a choice
in carrying out its objects. Am I misreading
that? uh sections i mean the way the objects
work is that it sets out a scope right so it's
saying that the foundation uh you know i mean
i'm just gonna try to see if i can pull up uh
you know just i can copy paste it in the chat
as well if that helps oh that's that's useful
but um yeah i mean the broad sort of you want
to have like a broad and flexible scope but it
might be that it's you know uh it's it's its
objects are to um assist with the growth and
support the development of a certain you know
insert decentralized network and so really we
provide we sort of suggest that they are quite
broad because you don't want their directors
or the foundation company to do something that's
outside of its objects um and so uh and so yeah
so so we make those we make those pretty pretty
broad but uh and the directors you know must
act in compliance with the objects yeah Okay.
I think we brought it all full circle there.
Okay. And the founder role seems optional. Okay,
let me say seems. It's in the template of the
foundation company law, and it's not mentioned
anywhere else. Sandbox has a founder's role.
Star Atlas does not. I'm unsure about ApeCoin
because I haven't been able to. I can't find
their documents anywhere, so I'm not sure what
their stance is on that. What are your thoughts
on the founder's role? Well, the way we do it,
you know, the way we operate at Walkers is that
we have a memorandum and articles of association
that... are director -led, so the powers vest
with the directors, but you can have a situation
where the founder, you have a founder position
where they play sort of a crucial role in the
ongoing control or ongoing governance of the
foundation akin to, you know, akin to a director.
I've seen articles where they have the founder
concept built into it and it sets out the founder's
rights. and the founder writes, and they can
be pretty extensive. I haven't seen yours, but
Sandbox is pretty extensive. It seems like they
have near dictator powers, and it's extraordinary
how much power the founder has to remove and
appoint many, many positions, I think even the
director. Yeah. Yeah. And I think typically this
probably came around because you have like the
founders of these projects and then wanting to
retain control. Whereas, you know, if you're
looking at decentralized token holder governance,
then our view is that you have the we would set
it up with like initial bylaws just to get the
initial memorandum and articles of association
to get the foundation could be incorporated and
stood on its feet pretty quickly. the authority
um with the directors so you can do that with
the founder and then a later date You amend and
restate the memorandum and articles of association
to reflect the token holder governance. So then
at that point, the founder role kind of disappears
because it's not required. And the token holder
governance may take over some of those rights,
depending upon, you know, what the bylaws say.
But you do have to have directors. So that is
not something that just falls by the wayside.
You have to have a minimum of one director of
a Cayman Islands Foundation company. But the
founder role is not required by law. It's preference.
And this is, you know, a testament to the flexibility
of a Cayman Islands Foundation company and what
can be done with their constitutional documents.
Is there something about the founder role that
walkers, or at the very least, in your view,
it's just not suitable? particularly I think
I think it's maybe driven by like what clients
are seeking to do so you know if you think about
the decentralization um ethos um having the rights
and obligations, sitting with one person or persons.
But, you know, typically it might be a corporate
entity or a particular person is against the
decentralization ethos. And so I think we've
just seen that clients are not really looking
for that structure. But, you know, it depends
because also if you think that. Like, I don't
know about your DAO, Lance Sandbox DAO, but whether,
you know, that the idea is that token holder
governance is either in play or coming in shortly.
It might just be, OK, well, quickly, we'll get
it incorporated. We'll use the standard documents.
Yeah, it has found a power, but we know they're
going to change because we're going to have bylaws
which set out token holder governance. So when
we amend and restate the memorandum and articles
of association, it will have found a power. Now,
OK, now it's coming together. Our DAO leadership
has frequently talked about progressive decentralization
and the end goal being what I now know to be
called token holder led. This must be the precursor
to that then. OK. Yeah, yeah, yeah, exactly.
OK. And I've seen that. That's often the case.
So progressive decentralization is incredibly
popular. And, you know. Do we have you to think
for that? Is that you and Mel? No, it's client
driven. I have to admit, it's what do you want?
You know, we're saying to clients, if they have
their token holder governance sorted, right,
if they're already coming to us and they've got
a DAO, they've got tokens and now they want a
foundation company, then we might say, hey, well,
you're all ready to go with your token holder
governance and you've got bylaws, then we can
incorporate it with token holder governance from
the outset. But most clients come to us where
they're, you know, pre that uh level of sort
of sophistication and so they would say okay
well we'll incorporate the foundation and we
just happen to do it where it's director um director
led so the authority and the power vests with
the directors but i've seen it where it's vests
with the founders um but that that will change
when you amend and restate your articles if you
have bylaws which set out token holder governance
that are going to be implemented into the articles
so it will then reflect across the two documents
Okay. And switching gears to the interaction
between the roles, subscriber, director, secretary,
supervisor, at the beginning of when a foundation
company is contemplated, how do those roles play
out with each other? Sure, sure. So maybe if
we take the first role, so directors, I think
probably is a good place to start. So there must
be one director. And they do not have to be Cayman
Islands resident, but lots of clients opt for
that, given sort of tax position and interactions
with the US, particularly in having US people
on the board. They're similar to a traditional
company. The business and affairs of the foundation
will be managed by or under the control of those
directors. As we said, we've spoken about investing
the powers of the directors initially. And they
have that duty to act in the best interest of
the foundation company. They must always act
in accordance with the foundation's company's
memorandum and articles of association, as well
as any bylaws adopted by the foundation company
from time to time. So there will always be a
director from incorporation. basically and they're
they're taken in first they're the first ones
to be identified well they you have to have a
all there's sort of three roles right so you've
got to have a secretary who's licensed under
the companies management act in the cayman islands
and they typically provide the registered office
for the foundation company you can't incorporate
without a secretary you can't incorporate without
um directors um and where a foundation company
doesn't have members then a supervisor must be
appointed and as i kind of explained like we
incorporate foundation companies so that they
are memberless and so a supervisor is also um
you know in conjunction with the appointment
of the directors and the secretary um from incorporation
and so it all kind of happens together lance
like you've got you've got documents where it's
you see you know um you see this interaction
the subscriber has to subscribe um uh that it
will um it will pay that amount that that one
dollar amount that we discussed um if upon a
wine on the winding up of the foundation company,
and then their liability to pay that is extinguished
once the foundation company is incorporated.
And the subscriber appoints the directors and
the secretary, but it all happens together. None
of this comes together without those roles being
in place. And so when we're incorporating, we
will ask, okay, who have you decided are going
to be your directors? Who's going to be your
supervisor? Who's going to be your secretary?
And then we draft all the documents. It's all
reflected and all happens on the... same day.
And so the supervisor, I'm sorry, the secretary
must be licensed by SEMA. Does the director need
to be licensed by SEMA? And I'm not talking about
ones that are under the jurisdiction of Securities
Investment Business Act and all of that. Just
the regular, regular director? I think Avi at
Walker's is yes. Yeah. I think. And then we've
also, you know, you've got the supervisor. The
supervisor and the director can actually be the
same person. And they have kind of the voting
rights. at general meetings, which are really
like, it's a non -thing really for foundation
companies. They have the rights to access some
of the accounts, the records or information of
the foundation company. And they may bring an
action in the name or behalf of the foundation
company, the enforcement of duties of the directors.
So they have a really crucial role, but it's
in the day -to -day running and operations of
the foundation company. Their role is typically
quite passive. The supervisor you're referring
to? the supervisor okay so you can make the supervisor
have like greater rights and powers and set those
out in the articles but um the way that we see
have seen this structure work and what we've
worked on is that the supervisor role takes it
is a very passive role um but there are like
you know um they have sort of statutory Or, you
know, there are things laid out in the Foundation
Companies Act where they have the right to access
the accounts, records and information of the
foundation company. But it's a very, very passive
role typically. And the supervisor and director
being the same person, there's no concern there
of conflict? Very good question. I mean, I think
so. I think they have the right. uh to bring
action are they really going to bring it against
themselves but um and we've seen the market evolve
over time there's no there's no uh it's not against
the law for them to be the same person you know
it's not that they explicitly they can be the
same person um but um we've seen the market evolve
on this and we're now often seeing uh foundation
companies where they you have that separation
got it that makes sense and so a director is
licensed by sema Just as a secretary, yes. They
don't have to be licensed, but they, you know,
our view is that the company, if they're providing
direct ship services, then they should have a
company's management license. And again, the
market has shifted on this over time. And now
most service providers in the Cape and Islands
will have the company's management license. But
there is that sort of. hesitant is because there's
like varying views on this um but but yeah that's
typically where where we've aligned ourselves
we want them to be providing those services through
a regulated uh a body that has the company's
management license got it as i was reading through
all of the the laws i think that one was the
most obscure to me which is does the director
need to be licensed or not it seems like yes
when you've crossed this very obvious threshold
but then there's this area of What about those
that are not in that area and couldn't make heads
or tails of it, but thank you. I appreciate that.
You're welcome. Just briefly on the terminology,
I found some terms that applied one, didn't apply
in others. They seem to be substituting words.
Is that a big deal or is there something meaning
there that I'm missing? You mean, sorry, just
to... Like the terminology variation between
all the acts. Yeah, I mean, you know, the acts
will have sort of clear definitions within them
that set out. what it is they're referring to
and if you think about the foundation companies
act the act that applies to that and should really
be read in conjunction with that is the companies
act so that's crucially important and then any
kind of regulatory um overlay sort of the virtual
asset service providers legislation needs to
be read in the context of a standalone um uh
statute uh but the foundation companies in the
companies act has an interplay and the foundation
company um so it incorporates the Companies Act.
And then there are certain provisions which are
carved out of the Companies Act. So if you looked
at the foundation company, there's a schedule
at the back. I'm just flicking through it myself,
which says that these are excluded provisions
from the Companies Act. And then modifications.
provisions of the Companies Act for foundation
companies. So it's quite interesting. And whenever
I'm looking at a particular piece of law, you
know, and I'm thinking about the Companies Act,
I'll just flick to the back of here and just
to make sure that actually is it excluded or
is it a modified provision for the purposes of
a foundation company, just to ensure that I'm
covering, making sure that's, you know. That's
the nuance I missed. Got it. Yeah, I mean, have
a look at it. It's in Schedule 1 of the Foundation
Companies Act, if you are interested. I am very
interested. I will look at that. Schedule 1,
I'm looking for excluded provisions. And what
was the other term? Modifications to certain
provisions in the Companies Act that are applicable
to foundation companies. Applicable to... That
is fascinating. Okay, I will take a look at that.
And when I run across modifications to... certain
provisions applicable to the foundation company
how how do i how do i read that it's it's not
an excluded provision um no they're just modifying
like that in parts of the companies act um okay
so it will point you in the direction of you
know uh like for example one of the modifications
in section 89 there's like a definition where
they've slightly tweaked it in the foundation
companies act um so it's it's things like that
where you would look at it and be like oh okay
they've they've changed it to mean this um and
so then the foundation companies act needs to
be that's why i said they need to be read in
conjunction with one another because it implements
all of the companies act safe for any excluded
provisions in the back or modifications to provisions
in the companies act okay um so there's like
a definite nexus and you know interplay between
those two statutes okay no that makes that makes
sense to me Oh, that's awesome. That is awesome.
We are almost through all the questions. I loved
that we just went right through that. The last
one I had was the flow chart. But I think you
may have answered quite a bit of that since it's
done all at the same time. when yeah it was difficult
looking at this I was yeah I wanted to like maybe
expand upon that slightly for your listeners
um but but yeah it's it's it's it's sort of difficult
to have a flow chart in lots of ways because
of the uh how it kind of operates but um yeah
you've got the you know if we're in the context
of like there is already a DAO in place then
yeah you know the DAO wants to have a legal wrapper
and so then They could definitely approach law
firms and ask for sort of recommendation or go
to different service providers. Yeah, a selection
of service providers prior to incorporation.
So to fulfill those roles that we spoke about,
which are, you know, the director, director role,
supervisor role and the secretary who provides
the registered office role. Selecting legal providers
like all of that is, yeah, like. um prior typically
prior to incorporation um and then when we say
the director provides corporate services i think
you know they provide director services um i
guess it is a kind of corporate service but to
be more explicit um yeah i pulled that directly
from the act itself so i because i wasn't sure
that was the terminology thing i was discussing
earlier yeah yeah yeah like that's like obviously
they are they form part of like a corporate services
banner And then on incorporation. You know, as
part of the incorporation process, obviously,
you have the memorandum and articles of association,
which are those core constitutional documents
that are drafted at the point of incorporation.
So everything is drafted. You have the, you know,
all of the requisite documents to appoint those
service providers. You have the memorandum and
articles of association. And then, you know,
that then is and then the foundation company
is incorporated and then has all of those roles
fulfilled. um and then optional bylaws i would
agree with that like bylaws you can You don't
have to have bylaws. And if there isn't token
holder governance, then there wouldn't be any
bylaws. Even if there is token holder governance,
sometimes the bylaws are not introduced and the
DAO provide kind of ad hoc instructions to the
foundation company. It's not the way we do it
at Walkers. So I can't really speak too much
more on that. But typically where we've got token
holder governance, that governance process is
set out fully in the bylaws. Okay. So in the
procession of things, a DAO, whether or not they're
firmly formed or they have an idea of a DAO,
they come to – they can do it in any order they'd
like in terms of if they come to Walker's first
or if they go to a director's management company
first. It kind of all comes – it kind of all
– loops back around to itself in the end because
you have to do everything all at once in terms
of who's the director who is the exactly the
yeah yeah the thing is like if it comes to somebody
in cayman the likelihood is you know it's gonna
hit a few different uh service providers well
it definitely will all in georgetown yeah exactly
in georgetown so it will be the case of like
you know it might get it might go to walkers
or one of the other law firms initially it might
not it might come from one of the direct ship
shops he's got a good relationship with somebody
who's like hey i'm looking to set up a dow um
but it will filter across you know you will get
These positions have to be fulfilled prior to
incorporation. So, or certainly in conjunction
with incorporation. So it will all sort of come
to fruition once the foundation is incorporated.
Makes sense. I think it's all come together quite
nicely now. And so, like you said, the market
evolves and I'm sure as different, I think in
America we call it case law. Do you call it something
similarly? Where judgments are ruled and then
the market will evolve based on judgments. Yeah,
yeah, yeah. I mean, that's absolutely right.
Yeah, we call it case law over here. It kind
of operates in the same way as this common law
jurisdiction. So we sort of follow the United
Kingdom or sort of precedent and case law. Got
it. That is everything I wanted to go over in
terms of on the... prepared questions did you
have anything that you wanted to go over any
other topics you wanted to cover before we conclude
no i'm just delighted to to be part of this lance
and thank you again for um contacting me and
letting me letting me be part of this podcast
and talk and about things something i'm incredibly
passionate about which is foundation companies
and our structures and you know uh it's great
to be at the forefront of it while it's still
um In its infancy. It's certainly in its infancy
in terms of a lot of the DAOs over here. Yeah.
So many of us didn't even know what this was
until like last year. I'd say it still hasn't
hit mainstream. But the more DAOs are starting
to take hold of Web3, and they are. They're happening
quite quickly. The familiarity with DAOs. Foundation
companies are like almost... almost a paired
word now so great success when it comes to the
cayman islands business framework being being
applied to dow's i i think they they almost go
hand in hand yeah almost great Yeah, I agree.
I agree. It's an incredible vehicle, really,
and a vehicle of choice for people in this space
and for DAOs, you know, for the reasons we've
discussed on this podcast. So long may it continue
is all I can say from my perspective. Long may
it continue. Carolyn, thank you so much for your
time. I appreciate you giving us your expertise
and not legal advice, but also your perspective
and helping us try and... piece this together.
I think we have quite a clear picture now that
we can draw from how foundation companies support
DAOs. Well, you're more than welcome anytime,
Lance. And yeah, hopefully I'll see you again
soon on another interesting topic on this podcast.
I'd love to. I'd love to. Thank you, Carolyn
and everyone else. Thank you.