Utah Legislature Passes Utah DAO Act, Granting DAO Legal Recognition and Limited Liability Protection

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

This new law provides legal recognition and limited liability to DAOs, legally defining them as "Utah LLDs." The bill is the result of a joint effort between the Digital Innovation Task Force and the Utah Blockchain Legislature.

The Utah DAO bill was approved on March 1, 2023, after passing through Senate and House committees. It defines the ownership of the DAO and protects the anonymity consistent with the DAO through the charter. A Quality Assurance DAO protocol has also been introduced to ensure clear nuances in tax handling and updated DAO functionality.

Joni Pirovich, a blockchain and digital asset tax advisor working with the Digital Innovation Working Group, tweeted:

“This is a big step for DAO innovation as the bill is based on the @coalaglobal DAO model law and will come into effect in January 2024.”

The DAO Law strives to provide maximum flexibility for innovation, recognizing that DAOs are transnational entities. It can provide the same technical assurances that the law seeks to protect by requiring manual reporting processes.

The Utah Blockchain Legislature had some significant concerns and a compromise was reached to pass the bill. One issue was the anonymity and unaccountability of the DAO, which was addressed through a compromise that required the DAO to reveal registrants while still remaining anonymous.

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

Finally, there is concern that the Utah Division of Corporations will not have enough time to process new applications. To address this issue, the bill's implementation date was set for 2024 to allow more time to adjust and edit the actual implementation of the bill.

The Republic of the Marshall Islands approved similar legislation last year, establishing DAOs as limited liability companies and ensuring that legal units in the state adopt a formal DAO structure.