# Discuss: How should CityDAO capture value from proposals?

Governance
11

The only realistic path for CityDAO to proceed is by migrating to a non-profit structure. Here’s why:

  1. Ideas like “competing with the government” are unrealistic both theoretically and in practice. They’re provocative by their very nature of being utopian, which is the opposite of being actionable.

  2. What are our actionable options? They fall into 2 categories:

    2a. For-Profit

    The key issue here is the relationship between CityDAO as a for-profit and the Citizen tokens as investment contracts. CityDAO leadership has taken the position that CityDAO is a for-profit (having elected to be taxed as a C-Corp and classifying the Citizen token primary-sale and royalties as sales revenue), the Citizen tokens are not investment contracts, the Citizen tokens constitute membership interests in CityDAO, LLC ,and that the LLC is algorithmically governed (as defined by Wyoming law). Typically, LLC members are entitled to profits and membership interests are investment contracts. It is presently unclear how these factors add up and in practice expose CityDAO, LLC to significant risk.

    2b. Non-Profit

    I have previous advocated in CIP-16 that we re-organize CityDAO, LLC into a non-profit. In doing so, we resolve the ambiguities raised as a for-profit and put our community onto solid ground moving forward. This is the approach the CIP-100 has chosen because the opposite, structuring as a for-profit, would make it more likely the Citizen tokens are investment contracts.

  3. Are there any other options for CityDAO, LLC besides becoming a non-profit?

    3a. Citizen token holders to retroactively vote that they are not members of the LLC (and are not entitled to any of the rights granted from LLC membership), which is what CIP-126 proposes. However this may not be legal as revoking membership interests in an LLC, by vote or otherwise, requires both a suitable operating agreement provision (which we lack) and a reasonably agreed upon buyout amount.

    3b. CityDAO, LLC could reverse its position that Citizenship tokens are not investment contracts and instead claim that, in line with typical LLC membership interests, they are investment contracts. Doing so would require registering the tokens with appropriate regulatory bodies and ensuring token holders are accredited investors as defined under US law. This would enable CityDAO to raise additional capital, make equity investments in projects, and clearly entitle token holders to profit / equity. However this “about face” may still expose us to legal issues (corporations cannot typically decide whether they’ve issued securities) and will certainly be expensive.

I believe this leaves us with a single option: to re-form CityDAO LLC as either a public or private benefit corporation aka a non-profit.