C4IP-19: Code4rena adoption of UNA legal entity structure

[ninek9]

This proposal will be live on-chain on February 25, 2023 and available for voting in Tally's vote interface for Code4rena governance and will be open for five days.

As this proposal represents a change in operational structure, feedback and questions are welcome in this discussion thread.

Introduction

In furtherance of providing limited liability protection and greater US tax clarity to DAO members -- it is proposed to establish an Unincorporated Nonprofit Association ("UNA"). A document providing additional information relating to this decision can be found here.

In short, this proposal:

• Dissolves the Code4rena constitution.

• Establishes the UNA and the Association Agreement for the UNA.

UNA Formation

Overview

Per the Code4rena Constitution: Code4rena is a DAO, an unincorporated association of individuals, entities, and/or groups of persons who all agree to join together for a common purpose. Further formalization of the unincorporated association allows for the DAO to adopt a US domestic entity form that allows it to enter into contracts, pay taxes and protect its members from liability.

An UNA requires that the purpose of the DAO be not for profit. We believe this aligns with the mission of Code4rena's goal of facilitating high-quality audits providing increased reliability and transparency within web3.

Association Agreement

The Association Agreement (contained in the proposal below) establishes the governing principles of the DAO and is a combination of the Association Agreement itself, the on-chain Governance Protocol (e.g., smart contracts establishing quorum, voting, control of the treasury and control of the Code4rena Protocol), and any current or future validly enacted Governance Proposals.

Specific Authorization of Administrative Authority and Compensation

The basic philosophy of this UNA is to utilize governance proposals for the membership to collectively make all operational decisions, providing minimal amount of authority and authorization as necessary to enact those decisions.

As outlined in the Association Agreement, administrators are the primary agents of the UNA and are empowered to perform specific tasks on behalf of the UNA as authorized by the DAO. Members have no authority to act on behalf of the DAO except for participation in governance decisions and the administrators do not possess the authority to act beyond what is authorized by the DAO or to utilize broad discretion in their decision-making. Accordingly, it is necessary that ongoing Governance Proposals be made and validly executed to allow administrators to be authorized to sign contracts, interact with 3rd party advisors (e.g., accounting, tax preparation and legal), sign tax returns, obtain a bank account and make necessary payments on behalf of the DAO.

Depending on circumstance, the performance of these tasks may justify compensation which would be authorized as part of the Governance Proposal.

Code4rena Membership Disclosure

The following Membership Disclosure will be displayed on Code4rena DAO's website and any token agreements:

By (i) holding the $ARENA token and (ii) taking any action in furtherance of or for the benefit of Code4rena or otherwise indicating a desire to participate in or join the UNA, including but not limited to:

• Engaging in the governance process, including participating in discussions, proposals and/or votes;

• Receiving services from or through Code4rena;

• Performing any act providing services to, for, or on behalf of Code4rena;

• Participating in events, audits, contests, or any other services; and/or

• Referring others to use the services of Code4rena or participate in Code4rena,

the holder of this token agrees to be subject to the terms of Code4rena's governing protocol, including as a member of its entity structure.

Code4rena was established as an unincorporated association on January 13^th^, 2022 and organized as a WY UNA on March 1^st^, 2023.

Except as otherwise provided in Code4rena's governing protocol, the membership interests or rights thereunder of the $ARENA token are freely transferable to another person through its conveyance.

Except as otherwise provided in Code4rena's governing protocol, a member shall be deemed to have resigned from Code4rena DAO upon disposal of all $ARENA tokens.

Association Agreement

Code4rena is an Unincorporated Nonprofit Association under Wyo. State. Title 17, Ch. 22 of the laws of the State of Wyoming. This Association Agreement is referred to in this document as the "Agreement." Capitalized terms used in the Agreement marked in bold text are defined in Exhibit A to the Agreement.

Article 1

Name

The name of this Association and the name by which it will be known is: Code4rena (referred to below as "the Association").

Article 2

Purpose

The objects and purposes of the Association shall be as follows:

1. The Association is established as an organizational framework for community engagement, collective decision-making, and innovation in order to pursue the common nonprofit purpose of furthering the trustworthiness of protocols and code in the blockchain industry.

2. The Association has the power to do all things necessary or convenient to carry on its activities or affairs as an Unincorporated Nonprofit Association ("UNA") under the laws of Wyoming that are in furtherance of its purposes as set forth in Paragraph 1 of this Article and as otherwise permitted by this Agreement.

Article 3

Membership

1. A Person shall become a Member of the UNA by (i) holding $ARENA token and (ii) taking any action in furtherance of or for the benefit of Code4rena or otherwise indicating a desire to participate in or join the UNA, including but not limited to:

   • Engaging in the governance process, including participating in discussions, proposals and/or votes;

   • Receiving services from or through Code4rena;

   • Performing any act providing services to, for, or on behalf of Code4rena;

   • Participating in events, audits, contests, or any other services; and/or

   • Referring others to use the services of Code4rena or participate in Code4rena.

2. Members agree to abide by the established Governing Principles of the Association.

3. A Member shall be deemed to have resigned as a Member of the Association upon the disposal (voluntary or involuntary) of all Membership Interests (e.g., the $ARENA token(s) conveying their voting rights within the Association).

4. The withdrawal of a member by transfer of all or any of its Membership Interests shall not dissolve the Association and the Association shall be continued.

5. A Member's Membership Interest or any right thereunder is freely transferable to another person through conveyance of such Membership Interest unless other restrictions on the Membership Interests apply.

6. A Member is representing themselves to be the rightful owner of their Membership Interest when engaging with the Association as a Member.

Article 4

Rights and Duties of Members

1. Members have no ownership rights of the property of the Association via their Membership Interest.  

2. A Member of the Association is not an agent or representative of the association solely by reason of being a Member and all fiduciary duties are waived.

3. A Member of the Association has no authority to bind the association to a contract, sign documents, or act in any representative capacity on behalf of the DAO absent specific authorization from a validly executed Governance Proposal as set forth in this Agreement.

4. To the extent permitted by applicable law, any debts, obligations and liabilities arising from the DAO's operations, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Association and no Member or Administrator shall be obligated personally for any such debt, obligation or liability solely by reason of being a Member of the Association or participating in the governance of the DAO. 

Article 5

Voting; Governing Principles

1. As defined in Appendix A, an UNA's Governing Principles are a culmination of all the agreements (i.e., this Agreement, the Code4rena Protocol, or executed Governance Proposals). As Governance Proposals are enacted, elements of the existing Code4rena Protocol and this Agreement may be superseded by validly executed Governance Proposals.

2. As part of its Governing Principles, the Association will provide for its governance through Smart Contracts, referenced collectively as the Code4rena Protocol.

3. The Association will retain control of the Smart Contracts comprising the Code4rena Protocol via Governance Proposals of its Members.

4. Voting procedures through Smart Contracts, referenced collectively as the Governing Protocols, provide the following:

   a. proposals from Members in the Association for upgrades, modification, or addition to software systems / protocols;

   b. proposals from Member to appoint Administrators to perform designated functions on behalf of the Association;

   c. proposed changes to the Association's Governing Principles;

   d. quorum requirements for validly executed Governance Proposals;

   e. votes necessary for a Governance Proposal to be enacted;

   f. distributions of the Association's assets to facilitate transaction in furtherance of the Association's common nonprofit purpose; and

   g. any other matters of governance or activities within the purpose of the Association.

5. In the event this Agreement conflict with the Smart Contracts -- the Smart Contracts control.

Article 6

Administrators; Agents

1. This Association is organized for decision-making to be performed through its Smart Contracts. The Association may grant authorization for specific delegated tasks through a validly executed Governance Proposal and any separate contract between the Association and Administrators.

2. An Administrator has no authority to act on behalf of the Association beyond the specific authorization granted through a validly executed Governance Proposal or otherwise in accordance with the Governing Principles.

Article 7

Compensation

1. Except as otherwise provided in subsection 2) of this Article, the Association may not pay dividends or make distribution to a Member or Administrator.

2. In accordance with the laws of Wyoming, this Association may:

   a. pay reasonable compensation or reimburse reasonable expenses to its Administrators, agents and Persons outside the organization for services rendered, including with respect to the administration and operation of the Association;

   b. confer benefits on its Members or Administrators in conformance with its common nonprofit purpose or purposes; and/or

   c. make distributions as a cooperative established as an UNA.

Article 8

Dissolution; Wind-up

1. This Association has a perpetual duration and may only be dissolved by any of the following methods:

   a. upon a validly executed Governance Proposal;

   b. three years of inactivity, per Wyoming law; or

   c. by court order.

2. After dissolution, the Association continues in existence until its activities have been wound up and it is terminated pursuant to Paragraph 3 and 4 of this Article.

3. The Association continues to exist beyond dissolution only for the purpose of winding up.

4. In winding up the Association, the members:

   a. Shall discharge the Association's debts, obligation and other liabilities, settle and close the Association's business, and marshal and distribute any remaining property to another entity or persons with similar nonprofit purposes, as determined by a validly executed Governance Proposal;

   b. May, as a result of a validly executed Governance Proposal, appoint an Administrator or Administrators to wind up the Association and:

   i.  preserve the Association's operations and property as a going concern for a reasonable time;
   
   ii. prosecute and defend actions and proceedings, whether civil, criminal, or administrative;
   
   iii. transfer the association's property;
   
   iv. settle disputes by mediation or arbitration;
   
   v.  receive reasonable compensation for services rendered in winding up the association; and
   
   vi. perform other acts necessary or appropriate in winding up.
   

Article 9

Rights of Members and Administrators to Information

1. Wyo. Stat. Title 17, Ch. 22 does not require UNAs to maintain specific Records regarding its activities, financial condition or other situations. As such, Members have no rights to any Records or information of the Association. The Members may, through a validly executed Governance Proposal, direct the Association to obtain or prepare information to present to the Members. Further, Members may collect and present any information that is publicly available on the blockchain.

Article 10

Service of Process

1. The Association may file in the WY office of the Secretary of State, a statement appointing an agent authorized to receive service of process.

2. In the event a statement to appoint an agent authorized to receive service of process is executed, it must be reauthorized and refiled every five years.

Article 11

Advancement of Expenses

1. The Association may reimburse a Member or Administrator for authorized expenses reasonably incurred on behalf of the Association through a validly executed Governance Proposal to the extent allowable by the laws of Wyoming.

2. The Association may allocate and disburse funds to the Administrators through a validly executed Governance Proposal to be used to fund activities that have been authorized by a validly executed Governance Proposal.

Article 12

Agreement to Arbitrate

1. Any dispute, claim or controversy arising out of, or relating to, the activities of the Association and its Members, Administrators, and/or agents for the breach, termination, enforcement, interpretation, or validity of the Governing Principles, including the determination of the scope or applicability of this Agreement to arbitrate, shall be determined by arbitration in Wyoming before one arbitrator.

The arbitration shall be administered by AAA pursuant to its Commercial Arbitration Rules and Procedures -- Expedited Procedures. Judgment on the Award may be entered in any court having jurisdiction. This clause shall not preclude parties from seeking provisional remedies in aid of arbitration from a court of appropriate jurisdiction.

Although final costs would be subject to the results of arbitration, any advance costs associated with the arbitration proceedings would be shared equally by both parties.

Article 13

Miscellaneous

1. Separability of Provisions. Each provision of this Agreement shall be considered separable and, if for any reason, any provision or provisions herein are determined to be invalid, unenforceable, or illegal under any existing or future law, such invalidity, unenforceability, or illegality shall not impair the operation of, or affect those portions of, this Agreement which are valid, enforceable and legal.

2. Governing Law. This Agreement shall be governed by, and construed under, the laws of the State of Wyoming (without regard to conflict of laws principles), all rights and remedies being governed by said laws.

3. Amendment. This Agreement may not be modified, altered, supplemented, or amended except by a validly executed Governance Proposal.

4. A claim for relief against the Association does not abate merely because of a change in its Members or Persons authorized to administer the affairs of the Association.

5. Notwithstanding any other provision of this Agreement, to the extent that, at law or in equity, the Administrators, Members or any other persons having duties (including fiduciary duties) to the Association or to any Member, all such duties (including fiduciary duties) are hereby eliminated to the fullest extent permitted by the law and replaced with the duties expressly set forth herein or as expressly established by a validly executed Governance Proposal.

Appendix A

Definitions

1. "Administrator" means a person authorized by the members of the Association to fulfill administrative or operational tasks at the direction of the Members.

   An Administrator is distinguished from a manager filling a traditional management function because Administrators only possess the power to administer those affairs specifically authorized through a vote of the membership per its Governing Principles.

   Absent specific authorization from a validly elected Governance Proposal, an Administrator has no authority to bind the Association to legal agreements or to act on its behalf.

   An Administrator may be, but is not require to be, a Member of the Association.

2. "Code4rena Protocol" means the collection of Smart Contracts with which users interact to participate in the Association. The existing Code4rena Protocol includes Smart Contracts for minting tokens, maintaining the Treasury, and governance of the Association.

3. "Distributed Ledger Technology" means a distributed ledger protocol (e.g., designated regulatory model of software that governs the rules, operation, and communications between intersection and connection points in a telecommunication network) and supporting infrastructure (e.g., computer software, hardware, or collections of computer software or hardware, or both, that utilize or enable a distributed ledger), including blockchain, that uses a distributed, shared, and replicated ledger, whether it be public or private, permissioned or permissionless, and that may include the use of digital assets as a medium of electronic exchange.

4. "Governing Principles" means all the agreement (e.g., Association Agreement, Governance Protocol, or validly executed Governance Proposals), whether in a record, implied from its established practices, or in any combination thereof, that govern the purpose or operation of the Association and the rights and obligation of its Members and Administrators.

5. "Governance Proposal" is the mechanism in which Members bring forth an issue for the vote as established in the Smart Contracts, specifically the Governance Protocol.

6. "Governance Protocol" is the collection of Smart Contracts through which Members of the Association are able to put forth proposals, vote on active proposals, establish the rules regarding voting and ultimately, govern the Code4rena Protocol.

7. "Member" means a person who may participate in the selection of persons authorized to administer or manage the affairs of the association or in the development of policy of the Association.

   A Member may not be admitted to the Association without their consent, however -- the assumption of the Membership Interest can be a clear demonstration that a person intends to be a member of the Association and abide by its Governing Principles (i.e., the purchasing of a Membership Interest, solicitation of Member Interest, acceptable of a delivered Membership Interest, etc.). As such, it is not a requirement that a person actually participate in voting or the actual administration of the affairs of the Association to be a Member.

8. "Membership Interest" means a right of a person to participate as a Member of the Association, make Governance Proposals and vote in the affairs and policies of the Association.

9. "Person" means an individual, corporation, business trust, estate, trust, partnership, association, agency, joint venture, governmental subdivision or instrumentality, or any other legal or commercial entity.

10. "Record" means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in a perceivable form, including information inscribed on Distributed Ledger Technology.

11. "Smart Contract" means an even-driven computer program used to track and tabulate votes using made on Distributed Ledger Technology that is used to automate transactions, including, but not limited to, transactions that:

    a. Take custody over and instruct transfer of assets on that ledger;

    b. Create and transmit digital assets;

    c. Synchronize information; or

    d. Authenticate user rights and convey access to software application.

12. "Unincorporated Nonprofit Association" means an unincorporated organization consisting of two (2) or more members joined by mutual consent for a common, nonprofit purpose. However, a joint tenancy, tenancy in common, or tenancy by the entireties does not, by itself, establish a nonprofit association, even if the co-owners share the use of the property for a nonprofit purpose.

[Picodes]

If I understand correctly, this means that from now on wardens and judges will be able to write bills to the UNA?

[sockdrawermoney]

Edit: totally misunderstood the question :)

[Picodes]

@sockdrawermoney I realize my question wasn't clear. I was referring to writing bills to justify the current cashflows between the DAO, wardens, and judges. So far, at least in my experience (and I guess I am not alone considering these messages for example https://discord.com/channels/810916927919620096/976603323450941440/1012017670444548126 or https://discord.com/channels/810916927919620096/976603323450941440/1012118647159935046) it is quite a pain to justify the source of funds earned through contests to banks/accountants/taxes as C4 had no legal entity. I was wondering if this change will be of any help on this matter.

[sockdrawermoney]

Oh yes, exactly correct! This will make it so C4 can provide recipients with those records.

[Love4codes]

i have zero voting power... why is that?

[sockdrawermoney]

Are you on Polygon and holding ARENA tokens in that wallet?

[Love4codes]

I'm on polygon but i don't have Arena Tokens
How do i purchase them?

[0xA5DF]

Will this change apply to contests that started before the change but weren't paid out yet? If so, can C4 delay those contests' payout until after the proposal passes?
(For me it's relevant for Drips and Reserve mitigation contest)

[ninek9]

Yes it will, the date of the payout isn't particularly relevant as they'll happen in 2023 either way.

[0xA5DF]

Great, thanks @ninek9!

[0xA5DF]

I see that the proposal has passed, when should we expect the formation to be finalized?
This can help me explain the source of the funds, and the sooner I can have formal documents of the formation of the UNA the better.

[Picodes]

Thank you for your answer!

[0xA5DF]

Hey @sockdrawermoney
Any update on this? 🙂

[Picodes]

@0xA5DF in case you need the UNA details: https://discord.com/channels/810916927919620096/1116020312782426214/1116125829718614147

[0xA5DF]

Great, thanks @Picodes!

[sockdrawermoney]

Thanks, @Picodes.

[ninek9]

The US tax ID for Code4rena is 87-2014468, and the mailing address is:

Code4rena
30 N Gould St Ste 26454
Sheridan WY 82801

[0xEVom]

Note: this information is outdated. If anyone ends up here looking for the address, this seems to be the current one.