DAOs get Legal Recognition in the State of Utah
Utah State Legislature passed the Utah DAO Act, providing legal recognition and limited liability protections to DAOs.
The Utah State Legislature has passed a new law called the Utah Decentralized Autonomous Organizations (DAOs) Act, granting DAOs legal recognition and limited liability protections.
The law defines ownership of DAOs and protects DAO-compliant anonymity through bylaws. It also introduces quality assurance DAO protocols to ensure clear nuances in tax treatment and updated DAO functionalities. After passing through Senate and House committees, the law was approved on March 1, 2023, and will be effective from January 2024.
The Act is based on the @coalaglobal DAO Model Law, which aims to provide utmost flexibility for DAO innovation, recognizing that DAOs are transnational entities and can provide technological guarantees equivalent to the protections that laws seek to protect through manual reporting processes. The Utah DAO Act provides a legal framework for DAOs, framing them as “Utah LLDs.”
Joni Pirovich, a blockchain and digital assets tax advisor who worked with the Digital Innovation Taskforce (DIT), tweeted that this is a significant step for DAO innovation, as the Act is based on the DAO Model Law.
Utah DAO Act passed!
— Joni Pirovich (@jonipirovich) March 2, 2023
The Utah Blockchain Legislature had some major concerns regarding the anonymity and unaccountability of DAOs, which were addressed through a compromise requiring DAOs to divulge an incorporator while maintaining anonymity. Additionally, the original tax language used was incompatible with federal and state tax realities, so the Utah Tax Commissioner’s office proposed a compatible alternative.
The Department of Marshal Islands approved a similar DAO Act last year, identifying DAOs as limited liability companies and ensuring formal DAO structure adoption in the state’s legal units.