On March 1st, 2023, the Utah Legislature approved HB 357, commonly known as the “Utah Decentralized Autonomous Organizations Act.” This act is the outcome of the efforts of the Utah Legislature’s Blockchain and Digital Innovation Task Group.
The Utah DAO Act provides an abstract definition of the DAO ownership/participant base that aligns with the diverse and intricate DAO community. The new law defines DAOs as “Utah LLDs,” and thus grants them limited liability and legal legitimacy.
The Utah DAO Act specifically, among other things:
- uses “Bylaws” to protect the anonymity of DAO owners and participants,
- introduces standards for DAO protocol quality control,
- creates a more precise tax treatment in line with current DAO features, and
- establishes that DAO participants do not have any implied fiduciary obligations unless those obligations are expressly stated to be applicable.
The State and the Blockchain and Digital Innovation Task Force have prioritized DAOs because Utah is a rapidly developing technology hub with a sophisticated approach to on-chain, decentralized, Web3 software and financial platforms.
According to Joni Pirovich, a blockchain and digital assets adviser with the Digital Innovation Taskforce, the act is based on the Coalition of Automated Legal Applications (COALA) and will go into effect in January 2024.
Utah DAO Act passed!
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.
— Joni Pirovich (@jonipirovich) March 2, 2023
Pirovich also stated that the DAO Model Law strives to allow utmost flexibility for DAO innovation, recognizing that DAOs are transnational and can provide technological guarantees equivalent to the protections that laws seek to provide through requiring manual and reporting processes.
The establishment of the law came with concerns from the Utah Blockchain Legislature regarding the anonymity and unaccountability of DAOs. However, compromises were made by requiring DAOs to disclose an incorporator while maintaining anonymity.
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