Marshall Islands Adopt Law Recognizing DAOs As LLCs

The Marshall Islands enacted new legislation that recognized decentralized autonomous organizations (DAOs) as limited liability companies (LLCs). The jurisdiction passed a law that recognizes all non-profit and for-profit DAOs as limited liability companies (LLCs), the government confirmed on December 22. This move comes barely a few months after the Marshall Islands became the first nation to recognize DAOs as legal entities.

DAO Act Of 2022 Underpins Investment And Exploration Into Decentralized Ledger Technology (DLT)

The Republic of the Marshall Islands (RMI) confirmed that it passed legislation recognizing Decentralized Autonomous Organizations (DAOs) as limited liability companies (LLCs). This new law applies to the nonprofit and for-profit versions of DAOs, based on the official announcement. This move comes barely a few months after the Marshall Islands passed the DAO Act of 2022 and became the first nation to recognize DAOs as legal entities.

This legislation will enable DAOs to become incorporated into the independent island nation.

“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 was awarded facilitation of the DAO Registry Process by the government of the Marshall Islands.

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

Furthermore, the act will recognize framework, governance, voting processes, and tokenization. Marshall Island will also create an investment fund to offer education and training around DAOs, and 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 described as blockchain-based organizations without any central leadership and are managed by their members.

DAO’s Quick Growth And Calls For Consumer Protection Exerted Pressure On Global Regulators

The DAO Act, which comes amid a critical period for digital assets and their regulation, strives to tackle the quickly-growing DAO market. Notably, it coincides with calls for tighter scrutiny of crypto and digital assets projects that have intensified greatly since the collapse of FTX in early November.

Earlier in 2022, US Senators introduced the Responsible Financial Innovation Act – a bill that strives to find a balance between consumer protection and protecting the digital asset innovation industry. One section of that bill was dedicated to DAOs, suggesting some of the organizations need to be taxed like businesses.

This bill also needs a majority of the DAOs to get incorporated under established laws of an identifiable jurisdiction, like an LLC or partnership. This would mean that DAOs would be taxed as partnerships or corporations, despite the notable differences between decentralized and centralized organizations.