Legal Landscape of DAOs
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If someone wants to sue a DAO, whom do they serve process on? Where is a DAO, which is decentralized and exists solely on a blockchain with potentially thousands of members spread across the globe, domiciled? Are a DAO’s members personally responsible for a DAO’s liabilities? How does a DAO enter a legally binding contract?
Some lawyers think there “is a risk [a] DAO could be considered a general partnership or unincorporated association,” which “might expose its members to personal liability for any of the DAO’s actions and obligations, and discourage businesses, institutional investors, or other vulnerable or regulated entities from participating in DAOs.”
It’s unlikely that any one of a DAO’s potentially thousands of investors would intend to be jointly-and-severally liable for what could be millions-upon-millions of dollars in liabilities.
To get around this problem, some DAOs have adopted a “LLC Wrapper.” A limited liability company is a well-known business structure that shields its owners from personal liability and combines certain characteristics of corporations and partnerships. It tries to be the best of both worlds.
On March 9, 2022, Wyoming amended their laws to allow DAOs to incorporate and obtain legal status as liability companies.
Tennessee passed a similar law in an effort to make “Tennessee the Delaware of DAOs.”
And Vermont also had enacted a law , while not specific to DAOs, allows the creation and registration of a blockchain-based limited liability company, a “BBLLC.”
Other nations too, such as Australia and the Marshall Islands, are considering creating, or have created, new legal entities to accommodate the new business structure implemented by a DAO.