Wyoming: law is passed that recognizes Decentralized Autonomous Organizations as legal entities

Just over a month ago, the Wyoming (US) State Senate approved the bill sponsored by the Wyoming Committee on Blockchain, Fintech, and Digital Innovation Technology on Decentralized Autonomous Organizations (or “DAOs” for their acronym in English), noted DLA PIPER.

What are the famous DAOs? It could be said that these are organizations whose business structure does not concentrate power in a central body, but rather that this power is decentralized among its members. Its basis is a kind of "smart contract" of greater complexity. A better formed concept is found in a research of students of the Complutense University of Madrid: “an organization governed by hard-coded rules such as computer programs called smart contracts, in which the DAO's record of financial transactions and scheduled rules are kept on a chain of blocks, ostensibly increasing transparency at the expense of security"

In that sense, it is an organization with automated processes based on the fundamentals of the blockchain. The statutes of this organization are ascribed to the logic of smart contracts, with which, as long as any of the stipulations provided in the statute are fulfilled, the consequence, in the same way stipulated in this, will be fulfilled automatically.

A feature to highlight? Your organization is independent and cannot be changed. By having the blockchain as its base, all its transactions are registered in a transparent and unchangeable way, thus, it grants a higher level of confidence in terms of its handling.

What is the scope of human intervention? They need staff to write the codes on which the smart contracts will be based, among other necessary interventions. Similarly, its members (or a kind of general meeting of shareholders) may propose changes for the organization, which will be put to a vote, as commonly happens in any society.

One of the biggest problems of DAOs was their undefined legal status, since, like everything that is the product of a new way of conceiving traditional organizations and structures, it had no correlation with pre-established legal structures. However, now, with the recent law passed by the state of Wyoming, this has changed.

Now, this status has granted DAOs the category of limited liability companies (LLC). Category that will become applicable on July 1 of this year. In this way, these organizations may establish agreements with other entities, as well as hold state recognition.

The motivation behind this rule is to protect the collectives behind DAOs. It happens that, in the event of a possible lawsuit resulting from its activities, and in the absence of this legal recognition, those who make it up would be capable of responding individually. However, as long as they acquire the form of a legal person (LLC), their level of responsibility is limited to the capital of the LLC, but does not commit to personal capital.

Finally, this regulatory recognition is perfectible, since one of the requirements of these LLCs is the fact that they are domiciled in the state of Wyoming (in contrast to the globalized logic of these organizations). And on the other hand, the senator of the state of Wyoming, Chris Rothfuss, pointed out that they are still considering the possibility of adding "DAO corporate complements" hinting that perhaps the LLC corporate figure is not the ideal fit for this organization, that it was certainly to be expected.

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Marilú Lazo
Lawyer from the Pontificia Universidad Católica del Perú (PUCP). Director of The Crypto Legal Blog, she has experience in corporate advice, consumer protection, as well as in matters of personal data protection and new technologies.

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