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The Law Commission of England and Wales, which reviews laws and recommends changes to the UK government, said it was not recommending the creation of a new legal framework for decentralised autonomous organisations (DAOs) as they could fall under existing rules that require authorisation for companies to operate in the UK.

DAO could fall under the Financial Services and Markets Act 2000 if they carry out “certain activities” in relation to “certain investments”, the independent statutory body wrote in an article published on Thursday. If governance tokens look like stocks, grant voting rights, and are issued in exchange for investments in a DAO, they are considered certain investments.

Promotion of the tokens may be subject to advertising rules that prevent unauthorised companies from reaching UK customers.

The legal status of DAOs has recently been put to the test and Courts in the USA are already working out how to deal with them. According to the Commission, differences between DAOs mean that they may each be subject to different laws and a one-size-fits-all legislative approach may not be appropriate.

“At least at this relatively early stage in the development of DAOs, we do not recommend the development of a bespoke legal framework for DAOs in England and Wales,” the report says. “This is primarily because there is no consensus on what a DAO is, how it should be structured, or what a DAO-specific entity could or should look like.”

Which public law applies to a DAO depends on the type of DAO, the report says. Some could be characterized as unincorporated associations whose participants interact according to established rules. The individuals would be liable only for their own actions.

In some cases, a DAO must pay corporate tax. An international tax framework for DAOs should be considered, the Commission said.

From a legal perspective, a “pure” and fully decentralized DAO could still be subject to a civil lawsuit by a third party, an enforcement action by a regulator, or criminal prosecution, the report's summary states. “A smart contract can constitute a legally valid contract,” the report's summary continues.

The report also found that it would be helpful if a body such as the Jurisdiction Taskforce, which brings together members of the judiciary, the Law Commission, regulators and other legal experts, carried out a more comprehensive analysis of when Loyalty duties could be applied to Software developer.

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