Wyoming passes law granting DAOs legal status

Wyoming Governor Mark Gordon has signed into law a bill establishing a legal framework for the formation and management of decentralized autonomous organizations (DAOs). 

The bill was sponsored by the legislature’s special committee on blockchain, financial technology and digital innovation, and introduces a legal status for decentralized unincorporated nonprofit associations (DUNAs) based in the state.

This is huge news for DAOs.

Registering as a DUNA legal entity will enable DAOs to engage in legal contracts with other entities and provide legal protection to individual DAO members. Other legal entities available to DAOs fall short on these metrics.

Learn more from… https://t.co/j16Zr3xkw1

— Ross Shuel | shuel.eth (@0xShuel) March 8, 2024

The document enacted on March 7 outlines the requirements for forming a DUNA, covers the roles of smart contracts, and offers provisions over the legal responsibilities of the association and its members. According to the new law, a DUNA is a separate legal entity from its members, which means that the DAO itself can be held liable without implicating its individual members. 

“A person is not liable for a breach of a decentralized unincorporated nonprofit association’s contract merely because the person is a member, administrator, authorized to participate in the management of the affairs of the nonprofit association or considered as a member by the nonprofit association.”

A DAO is an entity with no central leadership. The decision-making process is bottom-up, with a community governed by a set of rules enforced by a blockchain. Giving a DAO legal existence enables a decentralized entity to establish contracts with third parties, open bank accounts, pay taxes and meet informational reporting requirements.

Nonprofit Status

In an analysis on March 8, venture capital firm a16zcrypto asserted that there is a “fundamental misunderstanding of the “nonprofit” designation provided by the new law.

According to Miles Jennings, a16z’s general counsel, and David Kerr, principal at Cowrie LLC, a Wyoming-based DAO is not prohibited from engaging in for-profit activities.

“Under Wyoming law, both the UNA and the DUNA are able to engage in for-profit activities. This would include the operation of a decentralized exchange protocol, a decentralized social media protocol, you name it.”

DAOs are also allowed to pay compensation to their members, including in exchange for participation in the governance process, reads the analysis. “Wyoming’s approach supports the web3 ethos, while still enabling cash flows to digital asset holders. This is a significant breakthrough.”

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