CHAPTER 5: PRACTICAL REQUIREMENTS FOR UTAH DAO APPROVAL
The Utah DAO Act opens the door for decentralized organizations to gain legal recognition and protection, but it also establishes clear guidelines for DAOs seeking approval. This chapter outlines the practical steps needed to navigate the registration process, ensuring your DAO meets the necessary standards for compliance and operation.
Step 1: Filing the Application
The first step to register a DAO under the Utah DAO Act is to file an application with the Utah Division of Corporations and Commercial Code. The application must include:
The DAO’s unique name and public blockchain address.
Information about the organizer of record and legal representative.
Details of the registered agent responsible for legal communications.
Evidence of technical compliance, including links to smart contract repositories and blockchain explorers.
Step 2: Creating By-Laws
By-laws serve as the operational foundation of the DAO, outlining its governance and decision-making processes. These by-laws must include:
Voting mechanisms and member participation rights.
Proxy representation details for members unable to participate directly.
Provisions for administrators, if applicable.
The by-laws ensure transparency and provide a clear framework for member engagement and operational consistency.
Step 3: Demonstrating Technical Compliance
A critical component of the application is proving that the DAO operates on a permissionless blockchain. This involves:
Providing a publicly accessible blockchain address.
Sharing links to the smart contract source code repository (e.g., GitHub).
Demonstrating transparency through transaction records and community engagement.
Step 4: Choosing a Tax Structure
Utah allows DAOs to select their preferred tax status. By default, DAOs are treated as pass-through entities, with income distributed to members based on their participation. Alternatively, DAOs can elect corporate tax status, a choice often beneficial for larger organizations or those with international members.
Step 5: Complying with Federal Laws
While the Utah DAO Act provides state-level recognition, DAOs must also navigate federal compliance requirements, such as:
Adhering to Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations, if applicable to the DAO's purpose and tokenomics.
Ensuring that tokens or governance mechanisms do not classify the DAO as a security under federal laws.
FinCEN’s Beneficial Ownership Information (BOI) reporting. As of this writing, this requirement is temporarily stayed pending a federal lawsuit challenging the consitutionality of the requirement.
Step 6: Paying Fees
The application process requires a filing fee of $300, payable to the Utah Division of Corporations and Commercial Code.
Quality Assurance and Best Practices
Regular Code Audits: To maintain operational integrity, DAOs must ensure their smart contracts are secure and functional. Third-party audits are highly recommended to identify and mitigate vulnerabilities.
Transparency and Documentation: Transparency builds trust. DAOs should maintain clear and accessible records of governance rules, financial processes, and operational activities.
Dispute Resolution Mechanisms: On-chain systems for resolving disputes can reduce conflicts and enhance member confidence in the DAO’s governance.
A Clear Path to Recognition: By meeting these requirements, DAOs can achieve legal recognition under Utah’s framework, gaining the protections and credibility necessary to thrive in a decentralized world. The process balances the innovative ethos of blockchain technology with the practical need for accountability and compliance.
For detailed guidance, visit the official Utah DAO page.
Chapter 5 Key Takeaways:
Registration requires by-laws, a permissionless blockchain, tax structure selection, and compliance with federal laws (e.g., AML/KYC).
A filing fee of a mere $300 is required, and DAOs are encouraged to ensure regular code audits and transparent documentation for sustained compliance.