DAOs are transforming the way we think about organizations. But the big question for Indian founders is: Can we legally operate a DAO-based business in India?
In this article, we'll dive deep into the legal reality, available structures, regulatory challenges, and practical paths to legally operate a DAO-style business within or from India.
A DAO (Decentralized Autonomous Organization) is an internet-native organization governed by smart contracts, blockchain voting, and community consensus — not by traditional boards or management hierarchies.
DAOs aim to eliminate the need for intermediaries by automating decision-making through smart contracts on blockchain platforms like Ethereum, Solana, etc.
📜 Code-Defined Governance: Rules are encoded in smart contracts.
🗳️ Token-Based Voting: Decisions are made via token-holder votes.
🌍 Global Participation: Anyone from anywhere can join or contribute.
🔐 Transparent & Immutable: All actions are recorded on-chain.
🤝 Trustless Collaboration: No single person controls the DAO.
As of now, DAOs have no formal legal recognition under Indian law.
No clause in the Companies Act, 2013, LLP Act, or Trust Act mentions DAOs.
Smart contracts have no enforceable status in Indian courts.
There's no clarity on taxation, asset holding, or legal liability for DAO members or token holders.
Despite this, Indian founders are not legally barred from participating in DAOs or even forming one — but they must use alternative legal wrappers to operate in the real world.
Since DAOs can't be registered directly, founders must wrap the DAO in a recognized Indian business structure to interact with banks, employees, vendors, and the government.
Let’s explore the main options:
🔧 Best For: Startups looking to raise VC funds, scale quickly, or handle fiat transactions
Registered under Companies Act, 2013
Requires two directors and minimum ₹1 lakh capital (practically)
Subject to ROC compliance, audits, and taxation
Legally valid, globally accepted structure
Easy to enter into contracts, hire staff, and open bank accounts
Preferred by investors, especially VCs
Centralized structure — contradicts DAO philosophy
Cannot embed smart contracts directly into operations
Extensive compliance load
🔧 Best For: Small DAO teams and consulting-based or low-scale Web3 businesses
Registered under LLP Act, 2008
Requires two partners
Flexible agreement allows token distribution clauses
Less compliance than Pvt Ltd
Can be more community-centric in structure
Profit-sharing customizable via partnership deed
Still requires human partners — no true decentralization
More difficult to scale or raise institutional capital
🔧 Best For: DAOs focused on public goods, open-source projects, or non-profit goals
Useful for community grants, donations, or protocol development
Can register under Indian Trusts Act or Societies Registration Act
Aligns with DAO philosophy of community ownership
Easy to justify treasury operations for public benefit
Good for protocol development DAOs or open-source tools
Commercial activity is limited
Cannot distribute profits
Regulatory monitoring is high
Most Indian founders are now using a hybrid DAO model:
🧠 DAO handles on-chain governance + 🏢 Pvt Ltd or LLP handles off-chain operations
| Layer | Function |
|---|---|
| 🧱 DAO (on-chain) | Manages community votes, grants, treasury (crypto) |
| 🏢 Indian entity (off-chain) | Handles payroll, fiat banking, compliance |
| 🌐 Foreign entity (optional) | DAO incorporated in a crypto-friendly jurisdiction (e.g., Singapore, UAE, Cayman) |
Running a DAO in India is not illegal, but it’s not easy either.
Here are the major legal and regulatory gray areas you must navigate:
Indian Contract Act does not currently recognize self-executing code as a binding agreement.
If a dispute arises over a DAO vote or action, courts may not accept on-chain records as final proof.
India has not defined DAO tokens — are they securities? Commodities? Virtual digital assets?
The Income Tax Act (VDA rules) applies a flat 30% tax + 1% TDS on crypto transfers, even for governance tokens.
Indian law requires human owners or partners.
You can't register an org where no one is in charge — that’s legally invalid.
If DAO treasury receives funds or payments from outside India, FEMA (Foreign Exchange Management Act) applies.
Crypto transfers across borders may attract scrutiny from ED, RBI, and SEBI.
India has taken a cautious stance on crypto and DAOs:
| Department | Position |
|---|---|
| RBI | Strongly skeptical of private cryptocurrencies |
| Finance Ministry | Imposed VDA tax laws; not outright bans |
| SEBI | Working on a regulatory framework for digital assets |
| MeitY | Exploring blockchain for governance; no DAO laws yet |
here is no direct law banning DAOs, but there is also no clear legal path to fully decentralize a business in India.
Here are real-world strategies that Indian DAO projects are using to stay compliant:
Register DAO in Singapore, UAE, or Cayman Islands
Keep Indian entity as a “tech service provider”
Avoid crypto exposure in India directly
No crypto transactions in Indian bank accounts
Use stablecoins or crypto for community operations
Convert only when required through legal exchanges
Indian entity signs an MoU with the DAO (yes, with a multisig or smart contract)
Define services, scope, and deliverables clearly
Helps auditors and banks during scrutiny
| ✅ Action | 🔍 Why It Matters |
|---|---|
| Register an Indian entity | Needed for hiring, tax, compliance |
| Use a compliant crypto exchange | To manage fiat conversion legally |
| Maintain clean documentation | Especially around token grants and treasury use |
| Consult a crypto-knowledgeable CA/Lawyer | Traditional firms may not get it |
| Stay updated on VDA taxation | Rules may evolve soon |
India is drafting the Digital India Act, which may bring better legal definitions around blockchain, digital assets, and maybe DAOs.
Meanwhile, organizations like:
BACC (Blockchain & Crypto Assets Council)
IAMAI (Internet & Mobile Association of India)
...are engaging with regulators to help formalize DAO-like models in the country.
✨ India may not fully embrace DAOs yet, but a future-friendly legal framework is possible within the next 2–3 years.
DAOs are the future — but the present in India requires a workaround.
🧠 You can operate a DAO-style business in India — just don’t expect to do it purely on-chain (yet).
By wrapping your DAO with a Pvt Ltd, LLP, or Trust, and using smart contracts and tokens off-chain, you can stay compliant while exploring Web3 innovation.