Utah Innovation Legislation: DAO Becomes an Independent Legal Entity

Recently, the Utah State Legislature passed the "Decentralized Autonomous Organization Amendment" (H.B. 357) after intense discussions and by a narrow margin. This move marks the first time that Decentralized Autonomous Organizations (DAO) have gained independent legal status in the United States, no longer needing to be packaged under other entity forms.

Traditionally, DAOs typically achieve legal recognition through forms such as Limited Liability Companies (LLC), foundations, special purpose trusts, or cooperatives. For example, the DAO bill passed in Wyoming in 2021 incorporated DAOs into the LLC framework. However, this new bill in Utah grants DAOs an independent legal status, no longer requiring affiliation with other organizational forms.

The main contents of the bill include:

1. Organizational Status and Responsibilities:

   • The DAO is granted legal entity status and can engage in any lawful business.
   • The DAO adopts a limited liability system, with the liability cap being all of its assets.
   • Individual members typically are not liable unless the DAO refuses to comply with a legal judgment.

2. Requirements for the establishment of a DAO:

   • A natural person is required as the registrant, and a public contact must be set.
   • Must establish the organization's constitution.
   • Must be deployed on a public chain to achieve decentralized governance and open source the code.
   • Designated authorized legal representative to handle off-chain matters.

3. Definition of Members and Responsibilities:

   • DAO has no managers; all members are considered co-managers.
   • Governance token holders are recognized as DAO members.
   • Members shall not request the dissolution of the DAO on the grounds of non-refundable funds.
   • Taxation is defaulted to a partnership system, but the corporate tax form can be chosen through voting.
   • Under the partnership system, DAOs can distribute profits to members, who pay individual income tax as partners.

It is worth noting that the bill also specifically provides detailed regulations regarding hard forks in blockchain networks, reflecting its consideration of practical applications. This innovative legislation offers a clear compliance framework for DAOs and is expected to promote the further development of decentralized organizations.

The bill will officially take effect on January 1, 2024. As more DAO businesses enter the deep water, this bill in Utah provides important legal protection for related organizations.