IMPLIED ORGANIZATIONS AND TECHNOLOGICAL GOVERNANCE.

• Author: Bayern, Shawn

Table of Contents Introduction 971 I. Implied Factual Organizations, Past and Present 973 A. Traditional Organizations 974 B. Blockchains, Cryptographic Technology, and Technology Neutrality 977 C. Implicit Modern Technological Organizations 982 II. Common Law Responses to Implicit Organizations 985 A. Lessons from Traditional Implied Organizations 988 B. Some Possibilities of the Common Law in Addressing Implied Technological Organizations 993 1. Legal Personhood for Implicit Organizations 994 2. Common Law Derivative Claims 998 3. Contract Claims by Implied Organizations 999 4. Tortious Interference with Blockchain 1002 III. Governing Governance: The Elusiveness of Decentralization and What (Possibly) to Do About It 1005 Conclusion 1009 INTRODUCTION

Common law has developed significant experience with implied organizations--that is, with informal factual patterns of human activity that give rise to legal rights, duties, or other legal relationships for individuals and groups even though neither the individuals nor the groups have ever formally registered the existence of a legal organization. (1) The clearest examples of what I call implied organizations are general partnerships (2) and unincorporated nonprofit associations. (3) In both cases, a legal organization--often a legal entity with legal personhood under today's statutory law--can be created without any formal registration with the state and, in some cases, without any intent to create a legally recognized organization. (4)

Whereas the number and types of formal registered organizations have proliferated in the last few decades, (5) the development of new types of implied organizations has stagnated. That is, there has been little new effort to classify factual patterns of organizations as having significance under organizational law--the law that provides for the governance, internal affairs, and legal interfaces of organizations. But the development of new practical modes of human organizations, such as blockchains and other decentralized online economic communities, suggests at least the possibility that the common law might recognize their existence and attach legal relationships to them. Drawing from existing principles of organizational law in the United States, this Article explores what an incrementally developed common law of implied organizations for blockchains and similar novel forms of organizational governance might begin to look like.

Part I briefly lays out some background about organizational law and the factual types of human organizations that modern technological mechanisms, such as blockchains, make possible, and it distinguishes those organizations from more traditional factual arrangements such as the classical general partnership. Part II lays out several examples in which bottom-up legal responses to new types of human organizations are within the power of common law judges, and then it provides reasons that these responses are likely to be superior to courts' failure or refusal to recognize changes in factual organizational forms and technological development. Part II is normative, but its goal is exploratory rather than definite; its purpose is to spark ideas and support the continual generativity of the common law, not to anticipate particulars in detail or to lay out a specific regulatory framework. In other words, it is focused on basic tools, not a comprehensive legal response.

Part III discusses potential common law solutions to what is likely to remain one of the most difficult problems in the law's response to blockchains: the governance of "off-chain" governance mechanisms and the relationship between technological and human features of the governance of novel organizations. Though Part III draws from specifics of the law of closely held organizations, it, too, is explorative rather than definite: it is too early to commit to particular regulatory solutions. Still, my hope is that highlighting how the common law doctrines governing business organizations have been useful in the past will help show ways that organizational law can be relevant and adaptive in the future.

1. IMPLIED FACTUAL ORGANIZATIONS, PAST AND PRESENT

   I use the term organizational law to refer generally to the law governing private organizations of any kind, including incorporated and unincorporated organizations set up for profit, not for profit, or in a manner ambivalent to profit. (6) As conceptual background, one clear division that organizational law can draw is between statutory and nonstatutory organizations; the trend has been toward statutory organizations (7) and toward codification of many details that were previously left to the common law. (8) A related conceptual division is between legal organizations that arise intentionally and explicitly and those that arise implicitly (and perhaps accidentally); for the purposes of this Article, an explicit organization involves formal registration with a legal jurisdiction (9) whereas an implicit organization does not. (10) The two categories cut across each other: there are implicit statutory organizations, (11) explicit statutory organizations, (12) and implicit common law organizations. (13)

   To be clear, a legal organization may exist even if no statute recognizes its particular form, (14) and one may exist even if the parties have not intended for it to exist. (15) This Article focuses on nonstatutory, implicit organizations. My argument is only that this type of organization may be helpful for courts and commentators to consider as a response to novel, decentralized modes of factual governance among humans (and among existing, conventional organizations). My argument is not that this type of organization should be the exclusive approach within organizational law to new modes of technological governance. For example, there are already explicit statutory organizations in the form of Vermont's "Block-chain-based Limited Liability Companies" (BBLLC) (16) or Wyoming's decentralized autonomous organization (DAO) statute. (17) The main question this Article aims to explore is how the legal system should respond to the presence, needs, potential rights, and potential obligations of novel, implicit (that is, legally informal and unregistered) decentralized communities.

   The rest of this Part (1) lays out background on traditional organizations in order to distinguish them from novel modes of technological governance; (2) describes those new forms of governance, with some comments on the role of technology and the role of other factual characteristics of the organizations; and (3) draws attention to the special problems of implicit modern technology-mediated organizations, such as DAOs.

   1. Traditional Organizations

      Most traditional legal organizations are relatively simple and, under one familiar analysis, fall into two patterns. First, closely held organizations involve a handful (or sometimes several handfuls) of people who act, to varying degrees, as managers or at least semi-knowledgeable owners. (18) The standard example of this type of entity is a family business. (19) The business may be large or small, but it has a handful of owners, most or all of whom probably know one another; (20) the factual and legal norms of governance are the norms of interpersonal relationships and individually reasonable expectations. (21) In these organizations, ownership is usually--though not exclusively--tightly associated with control and operation. (22) That is, the relatively small group of owners generally have some hand in the management and operation of the organization. (23)

      Second, publicly held organizations, typically corporations, have a widely distributed group of shareholders who have the right to elect a board of directors, which then appoints and oversees the executive managers of the organization. (24) Ownership does not directly confer control, but there are usually formal democratic governance norms--some of which have been eroded in the past few decades (25)--under which owners may vote for or against those in charge. (26) To put it differently, shares confer a variety of formal rights that are usually very distant from the control and operation of the entity, if they are connected to control and operation at all.

      Organizations (particularly public corporations) are often for profit, although precisely how and why are the subject of significant academic debate and the occasional court case. (27) In the general case, organizations may be nonprofit, for profit, or anything in between, such as "low-profit" organizations, (28) for-profit businesses with a social purpose or providing a public benefit, (29) and businesses that may legally be "for profit" but have arranged, as a matter of private agreement or interpersonal norm, to restrain their pursuit of profits. (30) Indeed, state limited liability company (LLC) statutes often take no particular interest in the economic or noneconomic goals of an organization, assuming they are legal. (31)

      Though some privately held businesses may have many owners and may factually take on some characteristics of public organizations, these two types of organizations reflect two traditional paradigms of factual and legal organizational governance. Despite their differences, they have many features in common: operational management is centralized, and the group of managers is usually relatively small (even when elected by a large dispersed group); (32) management is in the hands of humans who act as fiduciaries; (33) the oversight of managers is vested in a group that is also usually relatively small; (34) and at least some interpersonal norms govern the managers. (35) An additional point to consider before proceeding is that while public general partnerships are not unheard of, all or at least the vast majority of public entities have been explicitly created by statute. (36) Accordingly, the only typical traditional examples of implicit...