Wyoming passes law to give DAOs a nonprofit legal framework

Starting this summer, Wyoming will have a new system for managing and incorporating decentralized autonomous organizations as nonprofits (DAOs).

Wyoming Governor Mark Gordon signed the Decentralized Unincorporated Nonprofit Association Act on Thursday. This provides a framework for DAOs of at least 100 members to become unincorporated nonprofit associations. The new law will go into effect July 1, 2024.

The bill passed with bipartisan support in the Wyoming House Monday in a 50-10 vote. Four Democratic Representatives moved to advance the measure.

The Decentralized Unincorporated Nonprofit Association Act, first introduced in February, passed the Senate last month in a 23-7 vote with four Democrats voting in favor.

Under the law, DAOs registered as nonprofits are permitted to “engage in profit-making activities” so long as all proceeds are directed back to achieving the nonprofit’s “purpose.” The entities are also allowed to acquire and transfer property, including tokens.

“Wyoming’s new law will enable blockchain projects to operate within the bounds of applicable laws without compromising their decentralization,” Miles Jennings, general counsel at a16z crypto, wrote on X Friday. “It also keeps them permissionless.”

Back in 2021, the state passed the Wyoming Decentralized Autonomous Organization Supplement Act, which added DAOs to Wyoming’s existing limited liability corporation (LLC) laws. The bill gave DAOs the first legal framework to be created and managed in the state.

In 2022, Governor Gordon signed amendments to the Supplement Act, which sought to clarify some of the aspects of DAOs that did not initially fit clearly into LLC policy. The amendments specified that DAOs could be “member managed,” “algorithmically managed,” or otherwise operate and require “any smart contract utilized by a DAO to be capable of being updated, modified or otherwise upgraded,” among other things.

Preston Byrne, partner at Brown Rudnick, said Wyoming’s latest law is a significant improvement from past legislation in the state, which he says were inapplicable to crypto-native entities.

“The DUNA looks like it fixes most of this,” Byrne said Friday on X. “The DUNA introduces a few new concepts by e.g. permitting the conferral of membership automatically if someone ‘becomes a member in accordance with the governing principles’ of the organization — not articles, but ‘principles’ — and acknowledging that the purchase of such interests can be conferred through the transfer of property [like] a token.”

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