Factom Non-Profit Bylaws - First Draft Discussion

Timed Discussion

Discussion ended:

Status
Not open for further replies.
Secured
#1
The Legal Review Working Group has finalized the first draft of the nonprofit bylaws. The community kicked off the discussion about the purpose and scope of the nonprofit in the Non-Profit Creation thread on Factomize, and then, all Guides and ANOs who voted, unanimously approved the creation of a nonprofit in Wyoming after additional discussion in the Vote to create a Wyoming Non-Profit thread.

As you know, the purpose of the nonprofit would not be to serve as a management body for the protocol, but rather as a vehicle to hold certain assets on behalf of the community. Examples of assets include FactomProtocol.org and the Factomize forum. Accompanying documentation outlining the transfer process for these assets will be presented to the community in the coming days.

The purpose of this post is to start additional discussion regarding the substance of the bylaws and the community document. This is a complex document and feedback is expected from the whole community. Therefore, in order to structure the discussion, please indicate clearly in your posts the parts that are general commentary, and the parts that relate to specific proposed changes to the text. If you propose specific changes, please indicate the section that you are describing. For example: “I would like to propose the following change to Article XX, Section XX.” Please note that changing language in one section of the document might have effects on other sections as well. Given the number of people who can provide feedback, in order to keep the proposed edits manageable, editing and suggesting are disabled in the google doc. Please describe suggested changes in a forum post under this thread.

We will consider the proposed changes and present new drafts for approval.

You can find the first draft of the bylaws here.

Disclaimer: The Legal Research Working Group (the “Group”) provides members of the community around the Factom ecosystem with an opportunity to identify and research issues in the young, complex and ever-evolving legal and regulatory fields related to distributed ledger technology in general and Factom’s protocol and governance, in particular. Membership in the Group is open to the public and not restricted to Standing Parties or Factom stake holders. Any communication from the Group in any form is intended for informational and discussion purposes only, and not as legal, investment, tax, or any other advice or opinion. The Group disclaims all liability related to actions taken or not taken by any person or entity based on communications from the Group. Standing Parties, Factom stake holders and all other persons or entities are encouraged to seek legal or professional advice on specific issues.
 

Chappie

Timed Discussion Bot
Secured
#2
This thread is a Major Timed Discussion and I am designed to help facilitate efficient communication.

Everyone may take part in this discussion and vote. Unless this discussion is ended early or extended, it will end in 8 days after which a vote may take place. After 18 hours from the start of the thread or any point up until 24 hours are left in the discussion, you can make a motion to end the discussion immediately or extend the discussion beyond it's initial time frame by selecting the pertinent button at the top of this thread. If someone "seconds" your motion, a poll will take place and if a majority of voters vote yes by the time the discussion is scheduled to end, the time period will be extended for 72 hours.
 
Secured
#3
Few small questions to get started:

1. Article II, Offices: "The corporation shall maintain a registered agent within the State of Wyoming. " Who would be that person concretely? Someone exterior from the community? What will be his duty and power on the non profit? Will it help do things like taxes?

2. Article IV, b). Am I understanding correctly that the community will have to vote for the option that will end up in the final by law document?

3. Are the officers necessarily different persons that the directors? Do you recommend that they are?
 
Secured
#4
Article VI, Section 6 notes that the Secretary will need to record the post office address of each member. Do we need to consider privacy laws here? Is this something for the GDPR group to handle as part of our review?

Other than that outstanding question, this looks robust to my untrained eye. I think it executes well the intentions expressed by the community when we voted on the creation of the non-profit. The scope of purpose is clearly defined and limited, as are the powers and responsibilities of the directors/officers.

Thank you very much to the LRWG for putting this together.
 
Secured
#5
Thanks, Paul and Alex, for your time reviewing this rather bulky document and for your feedback that starts the discussion.

Regarding Paul's questions in the order they were asked:

1. This would probably be a third party service for about $100 a year. The registered agent is something like a mailbox that can receive service of process and other official correspondence from the state authorities or private parties. The agent (person or company) has no duties or powers related to the operation of the entity.
2. Correct.
3. Overall, directors and officers have different functions, so it's normally recommended that they are different persons. We are not aware of a requirement under WY law that they need to be different persons, but the WY-licensed attorney who incorporates the nonprofit will be able to answer questions about state specific requirements. This is why this discussion is so important.

Regarding Alex's question: Absolutely something for the GDPR group to consider. This is also a good point for us to review the bylaws again and pay special attention to protection of private data in the text.
 
Secured
#6
Just a quick note to everyone that we will be making comments in the google doc based on feedback. Alex’s comment, for example, drawed our attention to some language that should be deleted. We have highlighted that language and will remove it in the next draft.

Also, to provide more feedback re Paul's second question: the options under article iv section 3 are to inform the community about the choices we have. A staggered board may be utilized if the board is large, but if the board is small (for example, 3 board members), it won't need to be staggered. A vote will be conducted if necessary.
 

Chappie

Timed Discussion Bot
Secured
#7
We are now 18 hours into the discussion. If you have taken part in the thread, you may now make a motion to extend this Major Discussion by 72 hours or end this conversation by selecting the pertinent button at the top of this thread. This option will end when there are 24 hours left in the discussion.
 
Secured
#8
First off, thank you to the Legal Research Working Group for your work.

1. Article IV Section 2, (b). --- The wording here has me a little confused. A Director will hold office for one year. But in paragraph (f) it says they can serve for 9. Does the wording here imply they will continue to serve until they are replaced or resign? Does the director have to be removed before someone can be nominated for their spot? Meaning there's no elections between incumbent and new candidate?

2. Section 6 Special Meetings --
or any ten / five members in the Factom Community
I think you're opening up a can of worms there as we haven't really defined "member". We've defined Standing Party but do you really want 5-10 token holders having the power to call a special meeting once token holders are onboarded? I view that as a very cheap attack vector.

I'd suggest 5 ANOs can call a special meeting.

3. Section 12 --- it says the Directors shall adhere at all times to governance docs and processes but should we include any employee or contractor working for the non profit? Or is that covered by stating the Directors?
 
Last edited:
Secured
#9
Article 1 section 1.

Of course I am not a lawyer, but is there a specific reason to mention parties like investors and traders in the foundation bylaws, while the wording already makes it pretty clear that it applies to a diverse group of people and organisations. The reason I am asking is more from the protocol perspective to which the non-profit also has a relationship of course. To me this ties in a bit into the security/utility aspect of the protocol itself and by mentioning these groups specifically I can imagine that is could have an unintentional impact on how the protocol is perceived as well.
 
Secured
#10
Article 1 section 3

The purpose of this nonprofit corporation is not to provide essential managerial efforts for the Factom Protocol or governance efforts for the Factom Community.
Shouldn't this be worded more strongly? The essential part allows for some of these roles in the foundation I guess, which should certainly not be the case. Don't you also not want to split the managerial efforts from governance?
 
Secured
#11
Article IV section 2 d
All members in the Factom Community are eligible for nomination, either through self-nomination or nomination by other members in the Factom Community.
Change members to natural persons?

Also unless I am missing something I do not see the process for subsequent nominations in there?
The next section mentions the directors nominating and the standing parties electing. That means the directors will have the power to nominate the people they like, without others having a say. So if the 3 directors nominate themselves for 9 years?

Same part:
  1. The initial directors shall be directly nominated and selected by the Factom Community. The incorporator shall organize a vote in the community forum or any other platform utilized by the Factom Community to select the initial board of directors. All members in the Factom Community are eligible for nomination, either through self-nomination or nomination by other members in the Factom Community. The vote shall be conducted among the parties who are eligible to vote to approve any amendment to Factom Governance Doc 001, and through the rank-based voting process then in effect for selecting and approving grant proposals. The top [three (3)] selected nominees who accept their selection shall be the initial directors.
That seems contradictory. The selected part I mean, not the nomination. Not sure whether you could percieve selected as the actual vote outcome
 
Secured
#12
Also this really shows I am not a lawyer, but it got me wondering whether bylaws are specific enough ;)

  1. A director may be removed with or without cause by the Factom Community. To initiate the removal process, the members of the Factom Community shall call a special meeting of the Board in accordance with the procedure set forth in Article IV Section 5 to request that the Board conduct a vote in the Factom Community to remove the subject director. The Board or a committee of the Board shall then conduct the vote in the manner set forth in Article V Section 2, within forty-eight (48) hours after the conclusion of the special meeting. An affirmative vote by the number of the members of the Factom Community that would have been required for approving any amendment made to the Factom Governance Doc 001 at the time of the vote shall be required for removing the subject director.

This shows the community holds all powers. But in the end they are no party in the foundation as it has no members. What if a director fights this? How is that handled from a legal perspective. He/She is a director of a company. What if the respective director just ignores the "wishes" of the outside parties?
 
Secured
#13
Special meetings of the Board of Directors may be called by or at the request of the President, the chairperson of the Board, any two (2) directors, or any [ten (10)//five (5)] members in the Factom Community.
Any spam protection? (talking about the community of course). What happens if several people register using aliases. According to the definition they are part of the community. That means they can tie up the board
 
Secured
#14
I get that the board should be in charge of their own compensation as the non-profit is a company that has to make sure it is funded anyway, which probably means they have to be pretty open about it to 3rd parties anyway.

What does strike me is that it allows the same for them to participate in committees. First of I think it would be beneficial to make clear that this is a committee in the non-profit itself and has nothing to do with committees in the protocol. Second, why have additional pay for committees they are in charge of creating themselves anyway?
 
Secured
#16
Thank you for all the work on the protocol’s non-profit bylaws. We are very lucky to have lawyers in this ecosystem, as well as dedicated members in this working group. My comments from first glance:

ARTICLE I

SECTION 3. The purpose of this nonprofit corporation is not to provide essential managerial efforts for the Factom Protocol or governance efforts for the Factom Community.
The wording here could be construed as “The purpose of the non-profit is to provide non-essential managerial efforts for the Factom Protocol.”, which I don’t think is intended. Suggest losing the word ‘essential’.

ARTICLE IV

SECTION 2. NUMBER, TENURE, QUALIFICATIONS, AND ELECTION.

(a) … No decrease shall have the effect of shortening the term of an incumbent director.
Suggest making the wording clearer here. “No decrease in the number of directors shall…”

(e) … For any successor directors, the Board of Directors shall nominate the candidates
I understand this makes the most sense for a traditional company with shareholders, but it’s at odds with our other election processes and would be akin to the Guides nominating their successors. Is there any reason we couldn’t just repeat the initial director election process?

(f) No director shall serve for more than [nine (9)] consecutive years. The term limit may be waived by the Board and approved by the Factom Community in accordance to the procedure set forth in Article V Section 2.
Seems unnecessary to have a term limit, especially if it’s only applicable for consecutive years and it can be waived by the Board.

SECTION 3. RESIGNATION AND REMOVAL OF DIRECTORS.

(b) … A director may be removed with or without cause by the Factom Community.
Need to define 'Factom Community'

ARTICLE V

SECTION 2. APPROVAL PROCEDURE. An affirmative vote by the number of the members of the Factom Community that would have been required for approving any amendment made to the Factom Governance Doc 001 at the time of the vote shall be required for approving such action.


Suggest changing to “at the time of the vote was first initiated shall…” (in case Doc 001 changes mid-vote)
 
Secured
#18
@David Chapman, @Niels Klomp, @Benjamin Dufty

Thank you much for your very good comments and suggestions. This kind of feedback is what we were hoping for, and hopefully, everyone will see the benefit of community review and more people will jump in with thoughtful commentary such as yours.

We have pasted your questions to save you the "pleasure" of scrolling up and down to find reference. We have also changed the formatting to make it uniform. Please follow up with us if you feel like your questions remain unaddressed or if you have additional questions.

@David Chapman

1. Article IV Section 2, (b). --- The wording here has me a little confused. A Director will hold office for one year. But in paragraph (f) it says they can serve for 9. Does the wording here imply they will continue to serve until they are replaced or resign? Does the director have to be removed before someone can be nominated for their spot? Meaning there's no elections between incumbent and new candidate?

Comment: We will change “years” to “terms” in Article IV, Section (f) and that should clear the confusion. The term is one year, at the end of which, a director must be reelected. No more than nine consecutive terms. Benjamin suggested removing the term limit, so this is open to discussion.


2. Section 6 Special Meetings --
or any ten / five members in the Factom Community

I think you're opening up a can of worms there as we haven't really defined "member". We've defined Standing Party but do you really want 5-10 token holders having the power to call a special meeting once token holders are onboarded? I view that as a very cheap attack vector.

I'd suggest 5 ANOs can call a special meeting.

Comment: Really good point. For decentralization purposes, the best solution might be something different than 5 ANOs calling a special meeting, in order to avoid having one class of Standing Parties control any part of the process.


3. Section 12 --- it says the Directors shall adhere at all times to governance docs and processes but should we include any employee or contractor working for the non profit? Or is that covered by stating the Directors?

Comment: Article VI, Section 3 gives broad powers to the Board to remove officers in its discretion. The directors can then control officer duties through a resolution. We also added the following text to Article I, Section 3 “The nonprofit corporation shall adhere to and obey all applicable Factom Governance and Community Documents.”


@Niels Klomp

Article 1 section 1.

Of course I am not a lawyer, but is there a specific reason to mention parties like investors and traders in the foundation bylaws, while the wording already makes it pretty clear that it applies to a diverse group of people and organisations. The reason I am asking is more from the protocol perspective to which the non-profit also has a relationship of course. To me this ties in a bit into the security/utility aspect of the protocol itself and by mentioning these groups specifically I can imagine that is could have an unintentional impact on how the protocol is perceived as well.

Comment: Absolutely right on. The nonprofit should not represent investors and traders, because optically it goes against the utility argument. The language will be removed.

Article IV section 2 d

All members in the Factom Community are eligible for nomination, either through self-nomination or nomination by other members in the Factom Community.

Change members to natural persons?

Comment: Changed.

Also unless I am missing something I do not see the process for subsequent nominations in there?

The next section mentions the directors nominating and the standing parties electing. That means the directors will have the power to nominate the people they like, without others having a say. So if the 3 directors nominate themselves for 9 years?

Comment: It’s still a two tier system, because the community needs to vote to approve or reject a nominee. In this sense, the community will have a say. If the 3 directors nominate themselves for 9 years, and the community approves it, then that should be ok.

But Benjamin suggested replicating the original election procedure, which would directly involve the community and might resolve this concern.

Same part:

1. The initial directors shall be directly nominated and selected by the Factom Community. The incorporator shall organize a vote in the community forum or any other platform utilized by the Factom Community to select the initial board of directors. All members in the Factom Community are eligible for nomination, either through self-nomination or nomination by other members in the Factom Community. The vote shall be conducted among the parties who are eligible to vote to approve any amendment to Factom Governance Doc 001, and through the rank-based voting process then in effect for selecting and approving grant proposals. The top [three (3)] selected nominees who accept their selection shall be the initial directors.

That seems contradictory. The selected part I mean, not the nomination. Not sure whether you could percieve selected as the actual vote outcome

Comment: Not completely sure what you mean, but we did change “selected” to “elected.” Does that resolve the issue?


Also this really shows I am not a lawyer, but it got me wondering whether bylaws are specific enough

1. A director may be removed with or without cause by the Factom Community. To initiate the removal process, the members of the Factom Community shall call a special meeting of the Board in accordance with the procedure set forth in Article IV Section 5 to request that the Board conduct a vote in the Factom Community to remove the subject director. The Board or a committee of the Board shall then conduct the vote in the manner set forth in Article V Section 2, within forty-eight (48) hours after the conclusion of the special meeting. An affirmative vote by the number of the members of the Factom Community that would have been required for approving any amendment made to the Factom Governance Doc 001 at the time of the vote shall be required for removing the subject director.

This shows the community holds all powers. But in the end they are no party in the foundation as it has no members. What if a director fights this? How is that handled from a legal perspective. He/She is a director of a company. What if the respective director just ignores the "wishes" of the outside parties?


Comment: In general, there are certain standards and duties that are imposed on directors by statutory and case law. In addition to all duties prescribed by the proposed bylaws, directors will be bound by section 17-16-830 of the Wyoming Business Corporations Act (General standards for directors. ) The section goes into more detail, but the very first lines are as follows: (a) Each member of the board of directors, when discharging the duties of a director, shall act: (i) In good faith; and (ii) In a manner he reasonably believes to be in or at least not opposed to the best interests of the corporation. In the easiest situation, a rogue Director could be reasoned with; in a more serious situation the other Directors could remove the rogue Director after the Community calls a special meeting (Section 3(b) of the bylaws). In the most extreme case, the entire Board could go rogue and the Community might enforce compliance with the bylaws and state law through the judicial system. Obviously, this would be a very complex scenario.


Special meetings of the Board of Directors may be called by or at the request of the President, the chairperson of the Board, any two (2) directors, or any [ten (10)//five (5)] members in the Factom Community.

Any spam protection? (talking about the community of course). What happens if several people register using aliases. According to the definition they are part of the community. That means they can tie up the board

Comment: David asked the same question above. We will change this section. Any substantive feedback is welcome.


I get that the board should be in charge of their own compensation as the non-profit is a company that has to make sure it is funded anyway, which probably means they have to be pretty open about it to 3rd parties anyway.

What does strike me is that it allows the same for them to participate in committees. First of I think it would be beneficial to make clear that this is a committee in the non-profit itself and has nothing to do with committees in the protocol. Second, why have additional pay for committees they are in charge of creating themselves anyway?

Comment: It is probably unnecessary, but we could add a sentence making it explicitly clear that Board committees are different from committees in the protocol. The Board is not in charge of their own compensation. Any decision related to payment to a Board member or a committee member will be subject to community approval under Article V, Section 2.


What is also really interesting is that Dutch law means the officers form the board and that they actually appoint any directors, whilst it is the other way around here. I trust you guys being the legal representatives of our community. Just making sure everything is in order according to US law as well?

Comment: Yes, things are in order with regard to directors electing or appointing officers. We appreciate the trust, and it’s kind of positively ironic that we are all involved with a trustless technology, and yet, there is a kind of trust we have for each other’s work that is irreplaceable by blockchain. But this is a good point to remind everyone about the disclaimer that the LRWG is not a legal representative of our community and it never offers legal or any other advice. Every member of the ecosystem should only ‘trust’ their own attorney. In this instance, the LRWG does the leg work, so that the community could save money when it hires a WY-licensed attorney to do the incorporation and potentially review the bylaws.


@Benjamin Dufty

Thank you for all the work on the protocol’s non-profit bylaws. We are very lucky to have lawyers in this ecosystem, as well as dedicated members in this working group. My comments from first glance:


ARTICLE I

SECTION 3. The purpose of this nonprofit corporation is not to provide essential managerial efforts for the Factom Protocol or governance efforts for the Factom Community.

The wording here could be construed as “The purpose of the non-profit is to provide non-essential managerial efforts for the Factom Protocol.”, which I don’t think is intended. Suggest losing the word ‘essential’.

Comment: Niels had a similar comment above. We will drop the word “essential.”


ARTICLE IV

SECTION 2. NUMBER, TENURE, QUALIFICATIONS, AND ELECTION.

(a) … No decrease shall have the effect of shortening the term of an incumbent director.

Suggest making the wording clearer here. “No decrease in the number of directors shall…”

Comment: Good point! Added.


(e) … For any successor directors, the Board of Directors shall nominate the candidates

I understand this makes the most sense for a traditional company with shareholders, but it’s at odds with our other election processes and would be akin to the Guides nominating their successors. Is there any reason we couldn’t just repeat the initial director election process?

Comment: Niels had a similar comment. We will draft a version repeating the initial election process.


(f) No director shall serve for more than [nine (9)] consecutive years. The term limit may be waived by the Board and approved by the Factom Community in accordance to the procedure set forth in Article V Section 2.

Seems unnecessary to have a term limit, especially if it’s only applicable for consecutive years and it can be waived by the Board.

Comment: We will draft an alternative version without limit and let the community decide. Seems like a personal preference - there are arguments for and against no limits or tighter limits. Either way, there are plenty of other checks on Board power in the text of the documet, most notably Community approval, so we have some flexibility here.


SECTION 3. RESIGNATION AND REMOVAL OF DIRECTORS.

(b) … A director may be removed with or without cause by the Factom Community.

Need to define 'Factom Community'

Comment: The “Factom Community” is defined in Article I, Section 1.


ARTICLE V

SECTION 2. APPROVAL PROCEDURE. An affirmative vote by the number of the members of the Factom Community that would have been required for approving any amendment made to the Factom Governance Doc 001 at the time of the vote shall be required for approving such action.

Suggest changing to “at the time of the vote was first initiated shall…” (in case Doc 001 changes mid-vote)

Comment: Great distinction! Changed.
 
Secured
#19
@Nikola Nikolov, we have a question:

SECTION 3. RESIGNATION AND REMOVAL OF DIRECTORS.
(b) … A director may be removed with or without cause by the Factom Community.

Comment by Benjamin Dufty: Need to define 'Factom Community'

Comment by you Nikola : The “Factom Community” is defined in Article I, Section 1.
You reference Article 1, section 1 for the definition of "The Factom Community":
SECTION 1. The purpose of this nonprofit corporation is to serve as a legal entity to house and manage certain assets and activities for the benefit of the users, developers, investors, traders, and any other individuals or organizations that have an interest in building, running, promoting, and using the Factom® Protocol (collectively the “Factom® Community”). (...)

Both in Article IV, Section 3B and Article V section 2 you references that the needed "community support" for removing director/taking "fundamental action" is the same that is required to amend doc001 at the given time of the motion/vote was first initiated (changed in accordrance with Benjamins comment).

our question/comment relates to this::
The bylaws defines the "Factom Community" as users, developers, investors, traders and "other individuals/organizations" that have an interest in building, running, promoting and using the Factom protocol. However, the wider "Factom community, as defined, are not directly able to influence these matters but have to do so through 001-amendment process which currently only recognizes guides/ANOs, a very small sub-set of the total community.

1) is this a problem from a legal POV? (defining the widerr community as general assembly(?), but only allowing a very small sub-set to vote?
2) process for amending doc001 require 4 out of 5 guides to be in agreement to make a change. With the current articles for non-profit this also applies to it (IV, Section 3B / V, section2). Is this too much control for guides? What if two guides are also board members (or members from affiliated companies), they could then block any board-member removals indefinitely. A better approach might be not to reference doc001 amendment procedure but instead let guides/ANOs vote together as one body and later include other standing parties when available.
 
Secured
#22
@CryptoLogic

1) This is a valid comment. We will add language describing the evolutionary process of adding more classes of Standing Parties to the voting process.

2) Also a valid comment and concern. The language is drafted to give flexibility to the community to change voting mechanisms through Doc001, instead of having to change the bylaws, which is a more complicated process. In that sense, the bylaws will automatically evolve together with the governance process. But we see the potential problem that you describe, so we will find a solution and present it in the next draft.

@DanG

Thanks, Dan! We'll mention the name to the incorporating attorney.
 
Status
Not open for further replies.