Can a DAO enter into contracts with other parties?
Select jurisdiction
Germany
Basically, a DAO can enter into contracts with other parties if it can be subject to civil law
obligations and can exercise civil law rights. This is the case when the DAO can be regarded
as a legal entity under civil law.
Whether a DAO can be regarded as a legal entity, depends on its structure, mainly on the relationship between its members. According to German law, a DAO may qualify as a
company, in particular as a civil law partnership (Gesellschaft bürgerlichen Rechts – GbR) or
under certain circumstances as a general partnership (offene Handelsgesellschaft – OHG). In
current legal practice, other legal forms are rather unlikely to be relevant for DAOs.
As far as the DAO cannot be regarded as a legal entity under civil law, only its members can
enter into contracts with other parties. At first sight it may not make much difference, but from
a legal and practical point of view it has significant implications. In particular, if only a member is party to the given contract, the DAO is not obliged to fulfill the obligations arising
from it and cannot be held liable for breaches. Moreover, having a natural person as a
contractual counterpart may cause additional contractual risks for the other party, e. g.
liquidity risk.
India
To be competent to contract, Indian contract laws require for a person to have attained
majority, be of sound mind and not be disqualified from contracting under any law governing
such person. The extant laws define a “person” to include any company or association or
body of individuals, whether incorporated or not. In the given context, a DAO can most
suitably be recognised as an Association of Persons (AOP) or a Body of Individuals, which
term has been interpreted under various judicial rulings to mean an association or a body in
which two or more persons come together for a common purpose or common action, in
addition to a few other criterions (not covered here for the sake of brevity) laid out by the
courts. This makes DAO a competent association or body to enter into contract. It is
however recommended for a DAO to include in its charter or constitution, its intention to
enter into contracts, nature and extent of such contracts, individuals who would be
authorised to enter into such contracts on behalf of DA and the process of or criteria
governing nomination of such individuals for authorisation.
Poland
Traditionally, contracts or agreements require the presence of parties with legal capacity, which usually includes natural persons and recognized legal entities, such as corporations or partnerships. DAOs, however, operate in a decentralized manner and often lack a centralized management structure or legal entity status, which can create challenges when entering into contracts under traditional legal frameworks.
One potential solution for a DAO to enter into contracts with other parties is through the use of smart contracts. Smart contracts are self-executing agreements implemented on a blockchain, which can automatically enforce the terms and conditions agreed upon by the parties. While the legal enforceability of smart contracts in Polish jurisdiction is not well-established, there are arguments that they could be recognized as legally enforceable under Polish law if they meet the necessary legal requirements for a valid contract.
Another possibility is that a DAO could establish a legal entity, such as a corporation or partnership, to represent its interests and enter into contracts with other parties in a more traditional legal context. This approach, however, could require navigating complex legal and regulatory requirements, and it might not fully align with the decentralized nature of a DAO.
