Wyoming, Tennessee and Utah DAO Laws Compared After California Ruling

Wyoming, Tennessee and Utah have each enacted statutes that let decentralized autonomous organizations form a legal “wrapper” – typically an LLC – to protect members from personal liability, a contrast to a California district court that recently treated token holders of the bZx DAO as partners liable for a phishing loss [2].

Wyoming’s DAO Supplement, signed by Governor Mark Gordon in 2022, classifies a DAO as a subtype of LLC and applies the state’s LLC code except where the DAO law conflicts. The law permits either member‑managed or “member and any applicable smart contract” management, after an amendment removed the earlier “algorithmically managed” language. Tennessee’s parallel statute (HB2645/SB2854) mirrors Wyoming’s approach, defining a “decentralized organization” and explicitly describing smart contracts as event‑driven programs that can manage the entity. Both states restrict the wrapper to entities formed within their borders, excluding foreign DAOs.

Utah takes a different route. Its Decentralized Autonomous Organizations Act creates a distinct legal form – the limited‑liability decentralized autonomous organization (LLD) – rather than wrapping a DAO inside an LLC. Under Utah law, members are only liable for the on‑chain contributions they made, and they cannot be held personally responsible for debts once the DAO’s assets are exhausted. The statute also outlines liability for members who vote against using treasury funds to satisfy a judgment, tying exposure to each member’s share of governance rights. Moreover, Utah expressly denies fiduciary duties among members unless specific actions create such obligations, and it requires a legal representative for tasks that cannot be performed on‑chain.

The California decision underscores why these state‑level wrappers matter. In Sarcuni v. bZx DAO, the court found that governance‑token holders could be deemed members of a general partnership, exposing them to joint and several liability for the DAO’s torts. The ruling is the first U.S. judgment to grapple with a DAO’s legal status, and it highlights the risk that token holders face when no corporate entity shields them. While the bZx DAO’s founders could have avoided such exposure by forming a DAO LLC under Wyoming or Tennessee law, the case shows that without a wrapper, traditional partnership principles may apply.

As more jurisdictions craft DAO‑specific statutes, the key question is whether the emerging legal forms will provide enough certainty to protect participants while preserving the decentralized ethos that fuels web3 projects.