Interpreting Utah's Passage of the Innovative DAO Bill: DAOs Are Now Truly DAOs
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Interpreting Utah's Passage of the Innovative DAO Bill: DAOs Are Now Truly DAOs
On March 1, U.S. time, after intense debate, the Utah State Legislature narrowly passed H.B. 357—the Decentralized Autonomous Organization Amendments.
Navigating Web3 tides with focused insightsOn the afternoon of March 1, U.S. time, after intense debate, the Utah State Legislature narrowly passed H.B. 357—the Decentralized Autonomous Organization Amendments—marking a milestone in which DAOs gain independent legal status as an organizational form in the United States.
It is quite common for DAOs to adopt existing legal entities, and an increasing number of DAOs are pursuing this path (see the article "Legal Structures of DAOs" for details). I personally have participated in establishing a Venture DAO registered as an LLC in Delaware. Beyond LLCs, non-investment-focused DAOs often choose foundations, LCA (Low-Profit Limited Liability Companies), UNA (Unincorporated Nonprofit Associations), special-purpose trusts, cooperatives, or other forms to represent the DAO legally, enabling operations while providing legal protection for members. The DAO law passed by Wyoming in 2021 also incorporated DAOs into the LLC framework.
Therefore, regardless of which of these structures is used, essentially they all involve wrapping the DAO within an existing legal entity. In other words, there was no such thing as a DAO in legal terms—what existed was an LLC, a corporation, a cooperative, a foundation, or a trust, merely choosing to operate using a DAO organizational model.
This new legislation signifies that a DAO no longer needs to be wrapped in another legal entity; a DAO itself has now become a distinct organizational form recognized under Utah state law. Furthermore, the bill clarifies and protects members' legal and tax liabilities, and supports distributing profits to members under a partnership structure.
After thoroughly reading through the bill yesterday, here are the key highlights:
Organizational Status and Liability
1. A DAO has legal personhood and the right to conduct any lawful activity.
2. A DAO has limited liability, with liability capped at the total assets of the DAO.
3. Individual members are not liable, but if a DAO fails to comply with a court judgment, members who voted against compliance may be personally responsible for the damages awarded, apportioned according to their voting power.
Formation of a DAO
1. A natural person must serve as the filer for registration, and a public contact must be designated.
2. A DAO must have organizing documents (articles of organization).
3. A DAO must be deployed on a permissionless blockchain (public chain), have a decentralized governance system, open-source code, and publicly verifiable addresses.
4. A DAO must appoint an authorized legal representative to handle matters that cannot be executed on-chain. The legal representative bears no personal joint liability.
Member Rights and Responsibilities
1. A DAO has no managers; all members are considered co-managers.
2. Token holders are recognized as DAO members, effective under two conditions: a) upon acquiring tokens (active holding), or b) upon first engaging in an on-chain interaction with the DAO (passive holding via airdrop, gift, etc.)
3. Members cannot demand dissolution of the DAO on grounds that their contributed funds cannot be refunded.
4. For tax purposes, the default treatment is as a partnership, though the DAO may declare via public vote to be taxed as a corporation.
5. Under the default partnership model, the DAO may distribute proceeds to members, who will pay individual income tax as partners.
Overall, the bill appears professionally drafted, even including a dedicated section addressing hard forks in blockchain networks, demonstrating strong practicality. As time progresses and more DAOs move into complex operational territories, Utah has provided a robust compliance framework for others to follow.
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