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

The Utah State Legislature approved HB 357, also known as the Utah Decentralized Autonomous Organizations (DAO) Act.

This new law provides legal recognition and limited liability to DAOs, legally framing them as "Utah LLDs." The Act was the result of combined efforts between the Digital Innovation Task Force and the Utah Blockchain Legislature.

The Utah DAO Act was passed on March 1, 2023, after passing through Senate and House committees. Defines ownership of DAOs and protects DAO-compliant anonymity through statutes. Quality assurance DAO protocols are also introduced to ensure clear nuances in tax treatment and up-to-date DAO functionalities.

Joni Pirovich, a blockchain and digital asset tax advisor who worked with the DIT, tweeted:

“This is a big step for DAO innovation since the Law is based on the @coalaglobal DAO Model Law, and will enter into force as of January 2024.”

The DAO Model Law strives to allow maximum flexibility for DAO innovation, recognizing that DAOs are transnational things and can provide technological guarantees that are equivalent to the protections the laws seek to protect by requiring manual reporting processes.

There were some significant concerns from the Utah Blockchain Legislature, and compromises were reached in passing the Act. One concern was DAO anonymity and lack of accountability, which was addressed through a compromise requiring DAOs to disclose an incorporator while maintaining anonymity.

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Additionally, the Utah Blockchain Legislature found the original tax language used to be inconsistent with federal and state tax realities, so the Utah Tax Commissioner's office proposed compatible tax language.

Finally, there was a concern about the lack of lead time for the Utah Division of Corporations to handle new applications. To address this concern, the bill's implementation date has been set for 2024, allowing more time to fine-tune and edit practical implementations of the bill.

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