The legal stack for Web3 founders: things to consider

DAO SPV

— 8 min read
The legal stack for Web3 founders: things to consider

For many founders, the first priority is building - shipping code, building your community, and making the product work. Legal and corporate structuring can feel like something of an afterthought. The web3 world adds its own particular dynamic to this: because teams, customers, and markets are likely to be so very international, and because it is entirely possible to build, ship, and transact on web3 rails, it can be tempting to treat the legal side as something that can be sorted out later on. This is unwise. 

Whether you're launching a decentralised app (dApp), protocol, token, marketplace, or infrastructure layer, you’ll be navigating a legal minefield from day one. Web3 may be decentralised in theory, but regulators, investors, and customers will still want to know who's responsible in practice. As a founder, you also need to look after your interests - to understand what you should and should not do, how your investors, token holders, and cofounders will impact the development of your project, and how both tax and regulatory questions will impact you.

To succeed, you need a legal stack. In this post, we lay out some of the core legal and regulatory considerations you should be thinking about early — not just to stay compliant, but to build a business that investors trust, users feel safe using, and regulators don’t shut down.

To interact with the ‘real world’, you need a legal entity. Your dev team may or may not be happy to receive tokens through a wallet, but landlords, cloud services providers, contractors, utility companies are likely to want payment in fiat currency, meaning you need some sort of banking facility, which means in turn someone or something must own the bank account. They will also want someone to make out a contract to. Just like your investors, they will also want someone to pressure if things go wrong. As a project scales, it becomes unfeasible or actively foolish for this all to be controlled by one person in their personal name; what you need is a legal entity. 

Setting up a legal entity is a central requirement for web3 projects that need to conduct off-chain economic interactions. Crucially, wrapping a project in a legal entity also limits the liability of the founders for anything that goes wrong with the project. This legal innovation - limited liability for companies - was one of the main tools behind the explosive economic growth of the modern era. It would be foolish to consider it has no place in web3

Founders typically set up entities (a) where they and their teams and based and (b) in places with low taxes, reliable legal systems, and specialized regulation

Your legal wrapper depends on your goals:

  • Do you want to issue tokens?
  • Do you plan to raise venture capital?
  • Do you want to be a neutral steward of a protocol?
  • Do you need a traditional company for operations and hiring?

Most common type of company you may need:

  • Development companies: these entities are used to manage and pay your development teams, run marketing, and possibly hold IP. They should be placed in a region that makes sense for the geography of your team. EU based teams, for instance, should consider Malta or Irish based development companies. 
  • Investment companies: entities through which to receive and pool investment. Founders should consider the cultural and risk preferences of investors in considering this entity. For people seeking to find US based investors, Delaware entities are usually the best bet. 
  • Token issuance vehicles: A separate vehicle through which to mint and issue tokens, and to manage the funds that this creates. Many jurisdictions technically allow the issuance of tokens, but they usually require licensing processes to allow it. Most founders therefore choose the light-touch token issuance regimes of either the BVI or Panama
  • DAO and Protocol wrappers: There are a variety of options for this. You should consider whether to use a foundation in Cayman or Panama, a Swiss structure (association or foundation), a DAO LLC in Wyoming or the Marshall Islands, or perhaps a DUNA. More exotic options - DAO trusts, for instance - can also be useful for some projects. Each comes with various pros and cons.
  • Holding companies: As the name suggests, used to hold some sort of asset. These are best placed in a specialised jurisdiction like Singapore or the BVI

💡 Tip: Many Web3 projects use a multi-entity setup. This could include one company to run operations, another to issue the tokens, and third to manage local developers. The Cayman Islands foundation is often seen in conjunction with one or more BVI entity, for instance.

This founder certainly did get stacked

Before you ship code, get your contracts in order. Investors, employees, and partners will judge your project’s seriousness based on the maturity of your legal stack.

Foundational contracts:

  • Articles of incorporation / association — Defines your company’s existence, rules, and governance
  • Founders’ agreement — Aligns expectations, equity splits, IP ownership, and responsibilities
  • IP assignment agreements — Ensure all code created by founders, contributors, and contractors belongs to the company
  • Service agreements / contracts — If you're hiring devs, advisors, or consultants, you need these agreements in place. You should also consider what terms to put in them - should you restrict your contractors from working at competitors, for instance
  • Token terms of sale / whitepaper — If you’re issuing tokens, these define rights and limitations
  • Bylaws or token governance rules — If your protocol will be governed by token holders

Don't treat these as optional admin tasks. They’re your legal OS — and once your project scales, changing them can be painful, expensive, or impossible.

Depending on the nature of the project, various other legal documents may be required. 

  • If you are offering security tokens, you will need a range of additional documentation to satisfy security regulations in the places your token will be marketed.
  •  DAOs will need DAO constitutions
  • If you want to get a token listed on a central exchange, you will typically need to get a legal opinion in order to satisfy the regulatory requirements of the exchange

3. Fundraising: equity, tokens, or both?

Raising capital in Web3 is legally complex, especially if you're combining traditional VC rounds with token launches.

Fundraising routes:

  • Equity-only: You sell shares in a company. Clean, familiar to investors.
  • Token-only: You sell tokens (with or without rights). Riskier unless clearly non-securities.
  • Hybrid: You sell equity now and reserve tokens for investors later. Common but messy.
  • SAFE (Simple Agreement for Future Equity) — Common in VC rounds
  • SAFT (Simple Agreement for Future Tokens) — Pre-sale promise to deliver tokens to the investor at some point in the future
  • Token warrant / option — Gives equity investors rights to purchase future tokens

Key fundraising risks:

  • Is your token a security?
  • Are you selling to retail or accredited investors?
  • Are you complying with KYC/AML rules?
  • Are your tokenomics transparent and defensible?

📌 Tip: Don’t rush a token sale. Treat it like a regulated securities offering unless your lawyers say otherwise. Get legal advice before you issue anything.

4. Token classification and regulatory implications

A major part of your legal planning should focus on what your token is, legally speaking. You likely know this aready, but to recap -

Token categories:

  • Utility tokens — Give access to a platform or service. Often fall under consumer protection laws.
  • Governance tokens — Provide voting power, but can still be deemed securities if they accrue value.
  • Security tokens — Represent ownership, rights to dividends, or profit. Heavily regulated, with regulations that vary strongly between different geographies.
  • Stablecoins — Pegged to fiat or crypto. Increasingly under regulatory pressure.

The line between utility and security is blurry and variable. Many tokens start as “utility” and end up being classified as securities, especially if:

  • They are sold for profit
  • Buyers are passive investors
  • There’s a central team promising future work

If your project is offering a token, and that token will gain in value, be traded, or provide some form of additional revenue, you are strongly advised to consult a legal advisor and consider explore to

  • Securities laws (e.g. SEC in the U.S., FCA in the UK, ESMA in the EU)
  • Anti-money laundering regulations
  • Consumer protection and data privacy laws

5. Data protection and platform liability

If your Web3 app collects user data, facilitates communication, or enables transactions, you may be subject to:

  • GDPR (Europe)
  • CCPA (California)
  • Digital Services Act (EU)
  • Platform liability laws (e.g. for illegal content or fraud)

You also need:

  • Privacy policy (clear and accurate)
  • Terms of use / service
  • Cookie policy, if applicable

Privacy and data laws vary internationally, and cane come with unexpected pitfalls. Even if you think your project is decentralised, if your company built and operates the frontend, you're likely liable for how it handles users.

6. Hiring and contributor relationships

A fully automated Singularity-type future aside, companies are ultimately composed of people. If you're building a team, you’ll need to formalise how contributors work with your entity .This helps you and them understand what to expect from each other, and determines the rights and responsibilities of the relationship. 

Questions to think about:

  • Are team members employees, contractors, or DAO contributors?
  • Are you issuing equity or token options to them?
  • Who owns the IP they create?
  • What jurisdiction are they in, and are you compliant with employment law there?
  • How do you intend to pay them?

Platforms like Deel, Remote, or Oyster can help you hire compliantly — but you still need contracts that reflect your tokenomics and IP model.

7. Dealing with decentralisation and DAO governance

Decentralisation and DAO governance are major topics, and one we cover in other articles. Broadly speaking, if you're building a DAO or plan to decentralise governance, think through:

  • How decisions will be made: Will there be snapshot votes, and on-chain proposals? Do you want a quorum before certain decisions are made? Does there need to be a supermajority for certain fundamental decisions
  • Who can propose, vote, or execute? Who gets to vote, and on what decisions?
  • What liability constraints does the DAO needs? How much does the DAO need to shield itself from risk? One useful heuristic for this question - how much money will the DAO hold?
  • Does the DAO own treasury assets directly or via a legal wrapper? This has an impact on operations & liability
  • If and how the DAO will distribute value: will the DAO need to make payments? Distribute grants?

DAO wrappers:  There are a range of wrappers out there. These can include

  • Swiss Association
  • Cayman Foundation
  • Wyoming DAO LLC
  • Marshall Islands DAO LLC

These structures give DAOs limited liability, bank account access, and legal personhood. Many also provide tax clarity and a formal governance framework.

8. Intellectual property strategy

IP is often neglected — until it’s too late. To protect your project you should:

You should:

  • Register your trademarks (project name, logo)
  • Use open-source licenses carefully (MIT, GPL, etc.)
  • Ensure contractors assign IP to your company or DAO
  • Protect key algorithms or brand assets that are core to your value

💡 Avoid messy IP fights by defining ownership early — especially between co-founders or early contributors.

9. Tax strategy and compliance

You need to think globally — tax is not just a problem when you hit profitability. Some taxes can hit you even before profits, and if you get the tax positiining wrong you can have all sorts of unexpected bills

Key tax considerations:

  • Where is your corporate residence?
  • Do you owe VAT or sales tax on token sales or subscriptions?
  • How legally distinct have you made yourself from your project and its entities?
  • How are tokens treated: inventory, income, or capital assets?
  • What’s the tax treatment of airdrops, staking, or treasury revenue?

You’ll also need a tax residency strategy for founders, contributors, and entities — especially if you’re nomadic or have a globally distributed team.

10. Prepare for regulation and investor scrutiny

Investors, regulators, and even users are becoming more sophisticated. They will ask:

  • Is your entity structure robust?
  • Is your token legal?
  • Are you compliant with AML/KYC obligations?
  • Can your DAO be held liable?
  • Do you own your code and brand?

Being unprepared on these questions can kill deals — or worse, invite enforcement action.

Wrapping up

Web3 is a fast-moving, high-stakes environment. You can ship code in days — but legal missteps can haunt you for years.

As a founder, your job is not to become a lawyer. But you must think legally like a builder:

  • What is my legal architecture?
  • What risks must I mitigate now vs. later?
  • How will I prove my legitimacy to investors, regulators, and partners?

If you get the legal structure right early, you’ll build faster, raise easier, and sleep better.

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