DAO Obtains Independent Legal Status: Utah Passes Decentralized Autonomous Organization Bill

Starting January 1, 2024, the state of Utah in the United States will officially implement a landmark bill that provides independent legal status for Decentralized Autonomous Organizations (DAO). The bill, known as the H.B. 357 Decentralized Autonomous Organization Amendment, was narrowly passed after intense discussions in the Utah legislature on March 1.

Previously, DAOs typically needed to operate through existing legal entity forms such as limited liability companies (LLCs), foundations, special purpose trusts, or cooperatives. In 2021, Wyoming integrated DAOs into the LLC framework for governance. However, the new legislation in Utah marks that DAOs no longer need to be "packaged" into other forms of legal entities, but are recognized as a distinct organizational form under the law.

The new legislation clearly defines the organizational status, responsibilities, and member rights of the DAO.

1. Organizational Status and Responsibilities:

   • The DAO is granted legal person status and can engage in any legal affairs.
   • The DAO adopts a limited liability system, with the liability capped at its total assets.
   • Individual members generally do not bear liability unless the DAO refuses to enforce a legal judgment.

2. Requirements for the formation of a DAO:

   • A natural person must be the registrant and public contact.
   • Must establish organizational bylaws.
   • Must be deployed on a public chain, equipped with a Decentralized Governance System, with open-source code and a public address.
   • Establish an authorized legal representative to handle off-chain matters.

3. Definition of Members and Responsibilities:

   • All members are regarded as co-managers, with no separate manager appointed.
   • Governance token holders are recognized as DAO members.
   • Members may not request the dissolution of the DAO on the grounds of non-refundable funds.
   • Taxation is defaulted to partnership structure, but can be selected as corporation structure through voting.
   • Under the partnership system, the DAO can distribute profits to members, who pay personal income tax as partners.

It is worth noting that the bill also provides detailed provisions for technical special cases such as hard forks in blockchain networks, reflecting a strong practicality. As more and more DAOs venture into complex business areas, this bill in Utah provides a forward-looking compliance framework for them.

This legislative initiative will undoubtedly have a profound impact on the development of DAOs, providing a clearer legal basis for their operation in the real world. However, given the cross-border nature of DAOs, it may be necessary for more jurisdictions to follow suit with similar legislation in the future to create a more comprehensive global legal environment.