A bill

 

TO AMEND THE SOUTH CAROLINA CODE OF LAWS BY ENACTING THE "SOUTH CAROLINA DECENTRALIZED AUTONOMOUS ORGANIZATION ACT" BY ADDING CHAPTER 58 TO TITLE 33 SO AS TO PROVIDE REQUIREMENTS FOR DECENTRALIZED AUTONOMOUS ORGANIZATIONS, INCLUDING ORGANIZATION, GOVERNANCE, LIABILITY FOR MEMBERS, AND DISSOLUTION.

 

Be it enacted by the General Assembly of the State of South Carolina:

 

SECTION 1.  This act may be cited as the "South Carolina Decentralized Autonomous Organization Act."

 

SECTION 2.  Title 33 of the S.C. Code is amended by adding:

 

CHAPTER 58

 

Decentralized Autonomous Organization

 

    Section 33-58-10.  As used in this chapter:

    (1) "Algorithmically managed decentralized autonomous organization" or "algorithmically managed DAO" means a decentralized autonomous organization where governance is primarily conducted by smart contracts with minimal or no human involvement, provided that a fallback mechanism exists for human intervention in cases of system failure or vulnerability.

    (2) "Articles of organization" means the initial formation document required to establish a decentralized autonomous organization pursuant to South Carolina law.

    (3) "Blockchain" means a decentralized, distributed ledger technology that securely records transactions in a verifiable and immutable manner.

    (4) "Decentralized autonomous organization" or "DAO" means a blockchain-based organization, recognized as a limited liability company pursuant to South Carolina law, whose governance is primarily maintained through smart contracts deployed on a blockchain or other distributed-ledger technology. DAOs enable decentralized decision-making and operations without centralized intermediaries, often using governance tokens to grant voting rights to participants in order to facilitate transparent and community-driven governance. Governance models include member-managed DAOs and algorithmically managed DAOs.

    (5) "Member-managed DAO" means a DAO in which governance and decision-making are executed through direct member participation and voting.

    (6) "Operating agreement" means the agreement that governs the internal affairs of a DAO, including member rights, governance, and operational procedures.

    (7) "Smart contract" means an automated transaction executed on a blockchain-based system that facilitates, verifies, or enforces contract terms without intermediary involvement.

 

    Section 33-58-20.  (A) A DAO in South Carolina must be created by filing articles of organization with the Secretary of State, specifying that the organization is a DAO and electing either member-managed or algorithmically managed governance.

    (B) A DAO shall have the same rights, privileges, duties, and obligations as a traditional limited liability company, except as inconsistent with this chapter.

    (C) The name of a DAO must include the designation "DAO," "LAO," or "LLC" to distinguish it from other business entities. "LAO" means a limited autonomous organization.

 

    Section 33-58-30.  (A) A DAO must adopt an operating agreement that must include, but is not limited to:

        (1) the governance structure;

        (2) rights and duties of members, including voting mechanisms;

        (3) the role and functionality of smart contracts in decision-making, including a method for upgrading or amending as necessary to allow for adaptability as blockchain technology evolves;

       (4) procedures for amending smart contracts and governance; and

       (5) a protocol for handling technical failures, including potential manual overrides where necessary to protect DAO assets and members.

    (B) A DAO shall be governed by its operating agreement and the provisions of this chapter. In cases of conflict, the provisions of this chapter shall prevail.

 

    Section 33-58-40.  (A) Members of a DAO shall not be personally liable for the debts, obligations, or liabilities of the DAO, except in cases of fraud, knowing violations of law, or wilful misconduct. However, members who exert significant control over DAO decisions beyond smart contract execution may be subject to traditional fiduciary duties under corporate governance principles.

    (B) A DAO shall have the capacity to sue and be sued in its own name.

 

    Section 33-58-50.  (A) A DAO may be dissolved voluntarily through the procedures described in its operating agreement, which must include provisions for handling smart contract assets and obligations.

    (B) The Secretary of State may dissolve a DAO for failure to comply with reporting requirements, failure to maintain smart contract functionality, or other material breaches of this chapter.

 

    Section 33-58-60.  A DAO must file an annual report with the Secretary of State including, but not limited to:

    (1) confirmation of its continued operations;

    (2) any material updates to its governance structure or smart contracts; and

    (3) information regarding major security incidents, if applicable.

 

    Section 33-58-70.  Any issuance of DAO tokens:

    (1) may be subject to applicable federal securities and commodities laws; and

    (2) must maintain compliance with all applicable state and federal laws including, but not limited to, anti-money laundering and know-your-customer requirements when applicable.

 

    Section 33-58-80.  The courts of this State shall have jurisdiction over DAOs formed pursuant to this chapter.

 

    Section 33-58-90.  Nothing in this chapter shall be construed to limit the application of securities, taxation, or other regulatory laws applicable to DAOs.

 

SECTION 3.  If any section, subsection, paragraph, subparagraph, sentence, clause, phrase, or word of this act is for any reason held to be unconstitutional or invalid, such holding shall not affect the constitutionality or validity of the remaining portions of this act, the General Assembly hereby declaring that it would have passed this act, and each and every section, subsection, paragraph, subparagraph, sentence, clause, phrase, and word thereof, irrespective of the fact that any one or more other sections, subsections, paragraphs, subparagraphs, sentences, clauses, phrases, or words hereof may be declared to be unconstitutional, invalid, or otherwise ineffective.

 

SECTION 4.  This act takes effect upon approval by the Governor.

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