DAO gets legal recognition in the US as Utah DAO Act passes

The Utah State Legislature passed Act HB 357, the Utah Decentralized Autonomous Organizations Act (Utah DAO Act).

This new law provides legal recognition and limited liability to DAOs, legally framing them as “Utah LLDs.“ The act resulted from combined efforts between the Digital Innovation Taskforce and the Utah Blockchain Legislature.

The Utah DAO Act was approved on March 1, 2023, after passing through the Senate and House committees. It defines ownership of DAOs and protects DAO-compliant anonymity through bylaws. Quality assurance DAO protocols are also introduced to ensure clear nuances in tax treatment and updated DAO functionalities.

Joni Pirovich, a blockchain and digital assets tax adviser who worked with the Digital Innovation Taskforce, tweeted:

“This is a huge step for DAO innovation as the Act is based on the @coalaglobal DAO Model Law, and will become effective from January 2024.”

The DAO law strives to allow utmost flexibility for innovation, recognizing that DAOs are transnational entities. It can provide technological guarantees equivalent to the protections that laws seek to protect through requiring manual reporting processes.

There were some significant concerns by the Utah Blockchain Legislature, and compromises were reached to pass the act. One concern was the anonymity and unaccountability of DAOs, which was addressed through a compromise requiring DAOs to divulge an incorporator while still maintaining anonymity.

Additionally, the original tax language used was found by the Utah Blockchain Legislature to be incompatible with federal and state tax realities, so a compatible tax language was proposed by the Utah Tax Commissioner’s office.

Finally, there was a concern about the lack of ramp-up time for the Utah Division of Corporations to handle new applications. To address this concern, the implementation date of the bill was set for 2024, giving more time to adjust and edit practical implementations toward the bill.

The Republic of the Marshall Islands approved similar legislation last year, identifying DAOs as limited liability companies and ensuring formal DAO structure adoption in the state’s legal units.