What Is a DAO, and What Legal Structure Can It Use?

A DAO (decentralised autonomous organisation) is a group that manages shared funds and decisions through smart contracts on a blockchain, usually by letting holders of a governance token propose and vote on changes. It has no CEO or board in the usual sense, but it is not automatically a company either. Unless it adopts a legal structure, a DAO can be treated as a general partnership, which can make its members personally liable. A few places, including Wyoming, Utah and the Cayman Islands, offer structures that give a DAO legal personality and limited liability.

What is a DAO in crypto?

A DAO is an organisation whose rules and treasury are run, at least partly, by code on a blockchain. The US Securities and Exchange Commission described it in 2017 as a “virtual” organisation “embodied in computer code and executed on a distributed ledger or blockchain” (SEC, Report of Investigation: The DAO).

Most DAOs have three parts:

• Smart contracts that hold the rules: who can propose, how votes are counted, what happens when a vote passes.
• A treasury of crypto-assets controlled by those contracts or by a multi-signature wallet.
• Governance tokens that give voting rights, usually in proportion to the number held.

The term covers very different arrangements. The Law Commission of England and Wales noted that “DAO” does not refer to any one type of arrangement and that commentators disagree on what characteristics an arrangement must have to be called one (Law Commission).

How does a DAO make decisions?

A token holder submits a proposal, other holders vote during a set period, and if the vote meets the quorum and majority set in the rules, the decision is carried out. In some DAOs the smart contract executes the result directly; in many, a small group of signers (a multi-signature wallet) or a service company carries it out, which means people still hold practical control.

Two consequences matter legally:

• Token-weighted voting concentrates power in large holders, including early investors and the founding team.
• Code can fail. In The DAO, an attacker used a flaw in the code to take roughly one-third of its assets shortly after the token sale (SEC). A vote cannot undo an exploit; security review of the contracts is part of governance.

Is a DAO a legal entity, and who is liable?

Not by default. A DAO that has not adopted a legal structure is not recognised as a company, but courts and regulators have still found ways to hold it, and the people behind it, responsible.

Decision	What it found	Jurisdiction
SEC Report of Investigation, 25 July 2017	DAO Tokens were securities; automating functions through a DAO does not remove the obligation to comply with US securities laws	US federal
CFTC v. Ooki DAO, default judgment, June 2023	The court held that Ooki DAO is a “person” under the Commodity Exchange Act that can be held liable; it ordered a civil penalty of US$643,542 and trading and registration bans. In a related administrative order, the founders were found liable as members of the DAO (CFTC)	US federal
Samuels v. Lido DAO, order of 18 November 2024	At the motion-to-dismiss stage, the court held that the plaintiff had adequately alleged that Lido DAO is a general partnership under California law, and that three of four large institutional investors were general partners (N.D. Cal.)	US federal court applying California law

The Lido order is not a final judgment, but it shows the risk: in a general partnership, partners can be liable for the partnership’s obligations, and the court looked at what the participants actually did, not at how the DAO described itself.

Which legal structures (wrappers) can a DAO use?

A “legal wrapper” is an entity under a specific law that holds the DAO’s assets, signs contracts and limits members’ liability. The main purpose-built options:

Structure	Law and effective date	Key features
Wyoming DAO LLC	Wyoming DAO Supplement, W.S. 17-31-101 to 17-31-116, effective 1 July 2021 (SF0038); amended 2022 (SF0068)	A limited liability company under the Wyoming LLC Act; the name must include “DAO”, “LAO” or “DAO LLC”; the articles must give a publicly available identifier of the smart contracts used to run it; it must keep a registered agent in Wyoming; it can be member-managed or algorithmically managed
Wyoming DUNA (decentralised unincorporated nonprofit association)	W.S. 17-32-101 to 17-32-129, effective 1 July 2024 (SF0050)	At least 100 members with a common non-profit purpose; a legal entity separate from its members for contract and tort; a person is not liable for its contracts or torts merely because they are a member
Utah DAO	Utah Code Title 48, Chapter 5, enacted by H.B. 357 (2023), in force 1 January 2024 (Utah Legislature)	A legal entity separate from its members; members are generally liable only for their on-chain contributions, but members who vote against complying with an enforceable judgment can become liable for it; it must run on a permissionless blockchain with public, quality-assured code, a public interface and a dispute-resolution mechanism; at least one organiser must be an individual
Cayman Islands foundation company	Foundation Companies Act, originally Law 29 of 2017, now the 2025 Revision (CIMA)	A Cayman limited company whose memorandum prohibits dividends to members; it can cease to have members if it keeps at least one supervisor; it must always have a qualified person as secretary

The Marshall Islands also passed DAO legislation in 2022. We could not open the official text when we checked on 28 October 2026, so we do not summarise it here.

In England and Wales, the Law Commission concluded in its scoping paper of 11 July 2024 that there is no current need for a DAO-specific legal entity, and suggested further work on a limited liability not-for-profit association and on how company law handles technology in governance (Law Commission).

Does a legal wrapper make a DAO’s tokens legal to sell?

No. A wrapper deals with legal personality and liability; it does not decide how the DAO’s tokens or activities are regulated. The SEC’s 2017 report concluded that DAO Tokens were securities and reminded anyone using a DAO for capital raising that securities offered in the US must be registered or exempt, and that operating an exchange requires registration or an exemption (SEC). The Ooki DAO case concerned unregistered trading and anti-money-laundering obligations, not the DAO form itself (CFTC).

Token classification depends on the rights the token gives and on each country’s rules. Treat it as a separate question from the choice of wrapper.

What should you decide before launching a DAO?

Work through these with your advisers before tokens are issued or a treasury is funded:

1. Purpose: profit-making or non-profit. This narrows the options (a DUNA, for example, requires a non-profit purpose).
2. Who is involved and where: founders, core contributors, token holders and the service providers that run the front end.
3. Wrapper and jurisdiction: which entity holds assets, signs contracts, pays contributors, files tax returns and opens a bank account.
4. Token rights and regulation: whether the token could be a security or another regulated product in the markets you target.
5. Governance rules: quorum, majority, emergency powers, upgrades, and how off-chain decisions are taken and recorded.
6. Security: independent review of the smart contracts before launch and before each upgrade.

We help founders compare entity options and jurisdictions in our company formation service.

Frequently asked questions

Can a DAO open a bank account?

Generally only through a legal entity, because banks must identify their customer and the people who control it. That is one practical reason DAOs adopt a wrapper.

Are DAO token holders personally liable?

It depends on the structure and the facts. Without a wrapper, a court may treat the DAO as a general partnership, as the Lido order shows. With a wrapper such as a Wyoming DAO LLC, DUNA or Utah DAO, members’ liability is limited by statute, subject to exceptions such as Utah’s rule for members who vote against complying with a judgment.

Which jurisdiction should a DAO use?

There is no single answer. Compare where the founders and contributors are, whether the DAO is for profit, what each statute requires (for example a registered agent, an individual organiser or a minimum number of members) and how the jurisdiction taxes the entity.