A group of people writes the code (smart contracts).

There´s an initial funding period in which the people adds funds to the DAO by purchasing tokens that represent ownership. This is called a crowdsale or ICO, and its designed to give it the resources it needs.

When funding period is over, the DAO starts to operate.

People then can make proposals to the DAO on how to spend the money, and the members who have bought it can vote and approve this proposals.

The Split Function

Problem: What if some decision gets approved that someone not liked, how does
he opt out of the DAO then?. Solution: An exit door was created called the “Split Function”. Using this Split function, user would get back the ether that he had invested and, if
he so desires, he could even create his own “Child DAO”.

In fact, user can split off with multiple DAO token holders and create his own Child DAO and start accepting proposals. However, there is one condition that after splitting off from the DAO user will have to hold on to his ether for 28 days before he can spend them.

Samples of DAOs

The DAO HUB aka ‘The DAO‘: Has raised $150 million in crowdfunding. Known because of the attack who splitted ETH in 2 chains. Others: Dash Coin, DigixDAO, MakerDAO.

THE DAO is the name of a particular DAO, conceived of and programmed by the
German startup Slock.it. Launched on 30th April, 2016, with a 28-day funding window, and raised over $150m from more than 11,000 enthusiastic members. At that time, it had 14% of all ether tokens issued to date.