Marshall Islands Adopt Law Recognizing DAOs as LLCs

The Marshall Islands passed a law that recognizes non-profit and for-profit DAOs as limited liability companies (LLCs), the government announced Thursday. The move comes just a few months after Marshall Island became the first nation to recognize DAOs as legal entities.

DAO Act of 2022 Underlines Investment and Exploration into Decentralized Ledger Technology

The Republic of the Marshall Islands (RMI) passed legislation recognizing Decentralized Autonomous Organizations (DAOs) as limited liability companies (LLCs). The new law applies to both nonprofit and for-profit versions of DAOs, according to the announcement.

The move comes after the Marshall Islands passed the Decentralized Autonomous Organizations Act of 2022, just several months after the Pacific Island country became the first nation to recognize DAOs as legal entities. The legislation will allow DAOs to become incorporated in the independent island country.

“With this adoption of the DAO Act of 2022, The Marshall Islands commits its courts and its resources to the burgeoning world of decentralization, and recognizes the unique place that decentralized autonomous organizations can hold not just in the blockchain space, but in the broader economy as well.”

MIDAO awarded Facilitation of DAO Registry Process by government of Marshall Islands

According to the announcement, the law will provide these organizations with a globally recognized LLC structure on condition that they identify as DAO LLCs. In other words, the Marshall Islands-based decentralized organizations will have to incorporate DAO LLC into their names.

In addition, the act will recognize DAO governance, framework, voting processes, and tokenization. Marshall Island will also establish an investment fund to provide education and training around DAOs, as well as how they can be integrated into the economy.

In February 2022, the RMI formally recognized DAOs as legal entities after the island nation passed the amended Non-Profit Entities Act 2021. DAOs are blockchain-based organizations with no central leadership and are managed by their members.

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DAO’s Rapid Growth and Calls for Consumer Protection Put Pressure on Global Regulators

The DAO Act, which comes amid a critical period for digital assets and their regulation, aims to tackle the rapidly growing DAO market. It also coincides with calls for tighter scrutiny of crypto and digital assets projects that have intensified since the collapse of FTX last month.

Earlier this year, US Senators introduced the Responsible Financial Innovation Act – a bill that aims to find a balance between consumer protection and protecting digital asset innovation. One section of the bill was dedicated to DAOs, suggesting some of these organizations should be taxed like businesses.

The bill also requires most DAOs to be incorporated under established laws of an identifiable jurisdiction, like an LLC or partnership. It would mean that DAOs would be taxed as corporations or partnerships, despite differences between decentralized and centralized organizations.

What do you think about this DAO regulatory framework on a global level? Let us know in the comments below.