- The UK Law Commission has suggested that DAOs do not require special legal treatment
- The Commission has published a paper to inform the Government on potential law reforms for DAOs
- The summary has found no current need for a DAO-specific legal entity in England and Wales, but made several recommendations
The UK Law Commission has suggested that decentralised autonomous organisations (DAOs) do not need special legal treatment, arguing that their operation falls within existing corporate laws. The Commission published a paper yesterday to inform the Government on potential law reforms and innovations necessary to accommodate DAOs within the existing legal framework of England and Wales. In its summary, the Law Commission found that there is “no current need to develop a DAO-specific legal entity for England and Wales.”
DAOs Can be Governed Under Companies Act
The UK Government tasked the Law Commission with conducting a scoping study to clarify what DAOs are and how they might be legally categorised. The resultant study also aimed to identify potential legal reforms or innovations needed to integrate DAOs into the existing company law and other legislation in England and Wales.
In its report, the Law Commission found that DAOs pose various legal challenges, including the risk of significant liabilities for participants. It also found that the term “DAO” itself is somewhat ambiguous, as it does not refer to a single, uniform type of arrangement, leading to disagreements among commentators about their defining characteristics.
The Commission highlighted several key findings and areas for further study:
- The Companies Act 2006 should be reviewed to determine whether reforms are needed to facilitate the increased use of technology in governance. Similar reviews should be conducted for other business organisations, such as limited liability partnerships.
- Further exploration could be undertaken to assess the introduction of a limited liability not-for-profit association with flexible governance options, which could benefit non-profit DAOs.
- The Law Commission should proceed with its planned review of trust law in England and Wales to consider more flexible trust structures, though not specifically in the DAO context.
- The Government should consider reviewing anti-money laundering regulations to ensure they align with the use of distributed ledger and other technologies.
Crucially, the Commission found that “There is currently no need to develop a DAO-specific legal entity for England and Wales” and that existing corporate laws are sufficient to cover the activities of DAOs.
Future Legislation Possible
The Law Commission stated that its aims to provide a foundation for understanding DAOs and their regulatory needs, potentially guiding future legislative developments and fostering greater certainty for market participants and advisors.
Its findings do not preclude future legislation targeting DAOs specifically, but for the time being, DAOs will be governed under existing laws.
