The proposal seeks that DAOs get legally recognized as unlimited liability entities, as Wyoming legislation already does in the United States of America.

A group of lawyers and developers from the decentralized finance ecosystem (DeFi) proposed a legal entity created in Australia representing decentralized autonomous organizations (DAO).

The Australian Digital Law Association and the global law firm Herbert Smith Freehills would be influencing an Australian Senate committee to encourage a new legal entity for DAOs to get recognition. This news came from news outlets CoinDesk, and Cointelegraph, and also cited an Australian Financial Review report.

Legal recognition for DAOs

DAO is an organization that runs through nodes that work with Blockchain code. This model, which appeared after the origin of Bitcoin and its underlying technology, allows organizations to function without hierarchical management. Members and nodes spot in various parts of the world and often play a role in decision-making by voting with governance tokens.

According to Cointelegraph, the initiative has the sole intention of allowing the ‘DAO Limited‘ project to have the chance to contract other legal entities through DeFi tools, which take advantage of Blockchain technology to eradicate traditional financial intermediaries like banks.

The boards of directors would meet their replacement by Internet communities, and DAOs would fall under the category of limited liability entity. This move would serve as a preventive measure for Australian members of a DAO from being responsible for any possible loss, which could appear due to decisions made by other community members.

According to the Australian Securities and Investments Commission, shareholders of limited liability entities will not be responsible for any company debt or loss unless they have brought personal guarantees.

According to what the lawyers think, the legalization of DAOs in Australia could transform the country into a more attractive alternative for global companies in the digital asset sector. A previous report noted that Australian DeFi entrepreneurs are moving en masse to jurisdictions with better regulations on the industry. One of these countries is Germany, which shows a solid regulatory system.

Australia Would Emulate Wyoming Ways

As DAOs are a new kind of organization and featuring a unique structure, there are a few laws in the world that recognize and define these organizations in the same way that there are laws for business structures such as limited liability companies (LLC) and other corporations.

In the United States of America, the state of Wyoming marked a milestone this year by becoming the first in that nation to pass legislation that brings legal recognition to DAOs. This legalization shares many similarities to the proposal in Australia; the Wyoming regulations recognize decentralized autonomous organizations as a new type of Limited Liability Company.

The intentions of lawyers in Australia arrive at a moment when DAOs seem to be acquiring popularity within the crypto-environment. In addition, the cryptocurrency exchange ShapeShift announced that it would dissolve its current corporate archetype to become a DAO. The plans of the company are part of its commitment to DeFi.

By: Jenson Nuñez


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