On 11 July 2024, the Law Commission published Scoping Paper: Decentralised Autonomous Organisations (DAOs) (Law Commission Press Release and DAOs Scoping Paper Summary). The paper discusses the key features of DAOs, their current treatment under the law of England and Wales and the main options for the future reform of existing company law to clarify their legal status and support the growth of digitalised organisations.
The paper explains that DAOs are a new type of internet collaborative organisation often associated with decentralised finance (DeFi), which deploys emerging technology to deliver financial products and services without using traditional intermediaries. A DAO will generally bring together participants with a common goal (commercial or otherwise), with some control over governance matters shared through distributed ledger technology (DLT) and smart contracts. The paper discusses the possible legal characterisation of DAOs, including how liability might be attributed to a DAO or its participants where legal entities are not used in its structure.
In the Law Commission's view, it is not currently necessary to develop a specific legal entity for DAOs. Although the paper does not make formal recommendations to the government, it identifies a number of areas where further work might be useful to accommodate DAOs and ensure their activities are within reach of the regulatory regime. These include a review of the Companies Act 2006 to determine whether reform is needed to make it easier for organisations to leverage DLT and other technology at the governance level of a legal structure, as well as a review of the anti-money laundering framework.
