Firstly, there are the existing legal structures (inside triangle) which we can write bylaws with smart contract operative artifacts (eg voting) to be skeumorphic equivalents of unincorp non-profit assocs, discretionary mutual funds, or protected cell company (multi-stage treasury).
2. A-legality (xref COALA model DAO law) is everything at the circle perimeter (which expands with DLTs innovations) which is not yet accepted/recognised in a court of law, hence the various lawsuits which attempt to paint DevOps as business partnership and thus liable for DeFi hacks
3. if you only define a DAO as comparing with existing legal structures/entities you limit your imagination. For example by decoupling governance and economic tokens you can have non-linear participation, eg governance weight tied to say objective social metric (cf chess ranking) so active players have more say than mere sponsors.
Legal personality or judicial identity for a DAO solves 3 issues
- owner of record for collective works/contributions (eg IP such as trustmarks cf Chartered Accountant)
- sue and be sued, participating in existing dead-tree contracts enforcable in courts
- useful set of defaults in the tethered jurisdiction … caselaw is quite useful when arguing about how to dissolve a DAO (cf ConstitutionDAO)
Reasons for not getting legal personhood …
- you are subject to overarching nation-state legislation … see US sanctions leading to GitCoin dropping a Persian language proposal
- you accede to external authority (not self-sovereign) … cf why Bitcoin crypto-anarchists have refused to be recognised under a single jurisdiction as they believe they are competing with fiat
- working in the grey zone, compliance is unnecessary overhead or the value of anonymity is a key-component of the DAO (see assasination prediction market).
So entering the triangle from the circle means you are trading off creative expression (if using the communications analogy) for certainty.