Utah becomes one of the first states in the US to legally recognize DAOs.

The State Lawmakers in Utah have passed Utah DAO Act. The document legally recognizes Decentralized Autonomous Organizations (DAOs) and treats them as limited liability entities.

The Utah DAO Act passed on March 1st indicates that DAOs will not have to operate under existing traditional corporations to benefit from limited liability protection. The new law identifies DAOs as “Utah LLDs,” drawing a comparison to traditional limited liability companies (LLCS).

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However, the law will only offer legal recognition to DAOs that meet some requirements making them functionally comparable to traditional corporations. As such, the act provides guidelines for tax treatment and DAO functionalities.

The new law is inspired by the global COALA DAO Model Law, which offers legal certainty for DAOs and their users while considering the flexibilities resulting from the unique nature of these blockchain-based organizations.

The move has been seen as a positive step for the DAOs, which have been struggling with the lack of legal recognition by legal systems.

Weighing in on the issue, Joni Pirovich, a former digital tax advisor at the Digital Innovation Taskforce, stated:

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 Utah State Lawmakers approved the bill amidst concerns revolving around anonymity, accountability, and tax issues.

Although there are several types of DAOs, with different use cases, most of them exist as social and business organizations with decentralized management. They usually govern protocols, networks, or even human resources.

Recognizing these DAOs as legal entities will enable them to interact with authorities and governments.

Gile K. - Crypto Analyst

by Gile K. – Crypto Analyst, BitDegree

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