Marshall Islands Further Strengthen's Law That Made DAOs Legal Entities

The parliament of the Republic of the Marshall Islands passed legislation last week that takes its already advanced law for decentralized autonomous organizations (DAOs) a step further, according to the two authors of the bill, Member of Parliament David Paul and Adam Miller, the CEO & Co-Founder of MIDAO.

MIDAO is a public-private partnership between the Marshall Islands and MIDAO Directory Services, a Marshall Islands corporation. MIDAO act as an extension of the registrar's office for DAOs and Web 3.

The amended Decentralized Autonomous Organization Act of 2023 is different from the Act of 2022 because it's the "most comprehensive law for DAOs globally" and it will be a "blueprint for the rest of the world for regulating DAOs," Miller told CoinDesk.

In February 2022, the group of tiny islands, a close ally to the U.S., and geographically between Hawaii and Australia, became the first nation to recognize DAOs as legal entities. Since 2021, under the previous act, the Marshall Islands has incorporated almost 100 DAOs.

The original law stated that DAOs would not need a board of directors, written or paper records wouldn't be required if they were on the blockchain, and, except for one person, every member of the DAO could be anonymous. The person who wouldn't be anonymous wouldn't need to be in the Marshall Islands but would need to provide KYC details.

The amended law strengthens the benefits of the original law by providing a faster registration time – a maximum of 30 days instead of 30-60 days. It also provides that DAOs will not be held responsible for the use of open-source software just because they created it. Additionally, the law provides that most governance tokens are explicitly not securities "if they don't confer any economic rights, which is different from possible financial gain," Miller said.

To open a DAO in the nation, you need to go to MIDAO.org and hire MIDAO as a registered agent to complete the process. DAOs or the specified member of the DAO would not need to open a local office or hire a local law firm.

The move also makes the Marshall Islands the first to bring into law Series DAO LLCs. It is common practice for DAOs to have a DAO within a DAO, also known as a sub-DAO. The Series DAO LLCs allow for the sub-DAO to have separate assets and liabilities.

"This one is the truly groundbreaking crypto law because it addresses every major issue that lawyers from around the world have brought up related to Web 3 and in particular, DAOs," Miller said.

The Marshall Islands, unlike individual U.S. states, is not subject to U.S. federal laws while still having access to the U.S. Postal Services, Federal Aviation Administration (FAA) and the U.S. Military.

Read More: How the Marshall Islands Is Trying to Become a Global Hub for DAO Incorporation