Wyoming Becomes First State to Provide Legal Framework for Blockchain-Based Nonprofit Organizations

Wyoming Becomes First State to Provide Legal Framework for Blockchain-Based Nonprofit Organizations

The Wyoming State Legislature has passed groundbreaking legislation that establishes a legal framework for the formation and operation of Decentralized Unincorporated Nonprofit Associations (DUNAs) in the state. The Wyoming Decentralized Unincorporated Nonprofit Association Act, which will take effect on July 1, 2024, positions Wyoming as the first U.S. state to legally recognize decentralized autonomous organizations (DAOs).

Under the new law, a DUNA is defined as an unincorporated nonprofit association with at least 100 members that is formed under the act and not any other Wyoming statute. DUNAs are permitted to engage in profit-making activities to further their nonprofit purposes.

One of the key features of the act is that it allows DUNAs to utilize blockchain technology, including smart contracts, for their governance and operations. The governing principles of a DUNA may be contained in smart contracts on a blockchain.

The act grants DUNAs legal entity status separate from their members for purposes of contracts, property ownership, and legal claims. This provides liability protection for DUNA members and administrators.

DUNAs have perpetual existence under the law unless otherwise specified in their governing principles. The act outlines specific methods for dissolving a DUNA, including through provisions in the governing principles, member approval, or court order.

Membership in a DUNA is based on ownership of a membership interest that grants voting rights. A member's voting power is proportional to their membership interest. The act allows membership interests to be freely transferable.

Major decisions of a DUNA, such as selecting or dismissing administrators, amending governing principles, and dissolving the organization, require majority approval of membership interests. The governing principles may specify additional matters requiring member approval.

DUNAs have the flexibility to appoint administrators to handle operational tasks but are not required to do so. The act allows the governing principles to limit or eliminate the liability of administrators in certain circumstances.

The act also provides for the merger of DUNAs with other organizations and the conversion of DUNAs to other legal entity types by following specified procedures. It ensures that charitable assets of a DUNA are protected in a merger.

Blockchain industry advocates have praised Wyoming's DUNA Act as a significant step forward in providing legal clarity and certainty for DAOs. They believe it will attract DAO formation and innovation to the state.

With the act not taking effect until July 1, 2024, legal experts anticipate that other states may introduce similar DAO-enabling legislation in the coming year. This could potentially spark a race among states to create the most welcoming legal environments for decentralized organizations.

Wyoming has a history of being at the forefront of blockchain and cryptocurrency regulation in the United States. The state has previously passed laws recognizing digital assets and allowing for the formation of blockchain-based limited liability companies.

The enactment of the Wyoming Decentralized Unincorporated Nonprofit Association Act further cements the state's position as a leader in creating a comprehensive legal framework for the blockchain and cryptocurrency industry. As more organizations explore the DAO model, Wyoming's first-mover advantage could prove significant in attracting cutting-edge projects to the state.

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