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Crypto Law/Level V · Builders and launchers/5.3 Promotion and liability/Lesson 4

DAOs, partnerships and personal liability

Why a DAO with no legal entity can be treated as a general partnership or association, and what the Ooki, bZx and Lido cases say about who pays.

Education, not legal, tax or investment advice. Crypto law differs between countries and states and changes often. Check the current rules where you live with a qualified lawyer or tax adviser before you act.

The lean path

The cheapest, lowest-tax, simplest and most private route the law allows, best first. Each step names the rule it rests on and the condition that keeps it lawful.

  1. Stay a passive holder: hold and do not vote, propose or run anything. In Lido (N.D. Cal. 2024) a merely passive investor was dismissed, while active governance participants faced partnership claims.
  2. Wrap the DAO in a legal entity. A Wyoming DUNA needs no state filing and protects members from liability merely for being members, but it requires at least 100 members.
  3. Personal jurisdiction can protect someone with few links to the forum state, as in bZx, where Tom Bean was dismissed. This is a defence, not a shield for active participants.
  4. Do not market a DAO as ‘enforcement-proof’. The CFTC used bZeroX’s claim against its founders and won a $643,542 default judgment against Ooki DAO.
  5. A wrapper does not protect anyone from liability for their own wrongful acts. Keep records of your votes and proposals, since courts look at who governed fees, treasury and profit.

MaterialsCalifornia Corporations Code sections 16202(a) (formation of a partnership) and 16306(a) (partners’ liability)The CFTC’s press releases on bZeroX and Ooki DAO (22 September 2022 and 9 June 2023)Judge Chhabria’s order on the motions to dismiss in Samuels v. Lido DAO, No. 3:23-cv-06492 (N.D. Cal., 18 November 2024)Your own on-chain governance voting history, from a block explorer or the DAO’s voting interface

Wonder

  1. Can holding or voting a governance token make someone personally liable for a DAO’s debts?
  2. Does it matter whether the token holder is a founder, a fund or an ordinary user?
  3. Can a DAO be sued at all if it has no office, officers or legal form?

Explore

  1. A decentralised autonomous organisation, or DAO, is a group that governs a protocol or treasury through token voting. Without a legal ‘wrapper’ such as a company, the law still has to classify it. Under California Corporations Code section 16202(a), ‘the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership’. Under section 16306(a), partners are generally ‘liable jointly and severally for all obligations of the partnership’, meaning a claimant may pursue any one partner for the whole debt.
  2. Regulators have used a related idea. On 22 September 2022 the CFTC settled with bZeroX LLC and its founders Tom Bean and Kyle Kistner for $250,000, finding that the Ooki DAO, which had taken over their trading protocol, was an unincorporated association of which they were active members. The CFTC said the founders had touted the move to a DAO as making operations ‘enforcement-proof’. It then sued the DAO itself in the Northern District of California. On 9 June 2023 Judge William Orrick held that the DAO was a ‘person’ under the Commodity Exchange Act and entered a default judgment with a $643,542 penalty and trading bans.
  3. Private plaintiffs have argued the partnership theory. In Sarcuni v. bZx DAO, users sued after a phishing attack on a developer on 5 November 2021 led to the theft of about $55 million. On 27 March 2023 Judge Roger Benitez of the Southern District of California held that the plaintiffs had plausibly alleged that the bZx DAO was a general partnership and that holders of its BZRX governance token were partners. He dismissed founder Tom Bean for lack of personal jurisdiction, because his contacts with California were too thin. The case settled and was dismissed in November 2023.
  4. In Samuels v. Lido DAO, an investor sued the Lido DAO and several investment firms. On 18 November 2024 Judge Vince Chhabria of the Northern District of California held that Lido DAO was plausibly a general partnership. He refused to dismiss claims against Paradigm, Andreessen Horowitz (through AH Capital Management) and Dragonfly, because the complaint alleged active participation in governance. He dismissed Robot Ventures, because merely buying tokens and being called a ‘strategic partner’ was not enough. A default was entered against the DAO in December 2024. As of October 2026 the case was still pending, with an appeal on arbitration before the Ninth Circuit.
  5. These rulings were made at the pleading stage, where a court assumes the complaint’s allegations are true; none is a final finding that token holders owe money. They still show a pattern. Courts asked whether a DAO carried on a business for profit, who took part in governance, and who could be reached. Plaintiffs named identifiable founders and well-funded firms rather than thousands of anonymous holders. The Lido order drew a line between active governance and passive holding, and the bZx order showed that personal jurisdiction can protect someone with few links to the forum state.
  6. For builders, the practical risk is that by default the law may fill the gap with a general partnership and unlimited personal liability. The usual responses are a legal entity (lesson 5.3.7), clear terms (lesson 5.3.6) and care about who controls what. None of these removes liability for one’s own wrongful acts (lesson 5.2.7). A practical check: list every governance proposal you have voted on or made in a DAO, note whether it concerned fees, treasury spending or profit, and note where you live, since both facts mattered to the courts above.

Key facts

  • California Corporations Code section 16202(a) says an association of two or more persons carrying on as co-owners a business for profit forms a partnership whether or not they intend to.
  • Under California Corporations Code section 16306(a), partners are generally liable jointly and severally for all partnership obligations.
  • On 9 June 2023 a federal court held Ooki DAO to be a ‘person’ under the Commodity Exchange Act and ordered it to pay a $643,542 civil penalty.
  • In Sarcuni v. bZx DAO (S.D. Cal., 27 March 2023) the court found it plausibly alleged that the DAO was a general partnership and its token holders were partners.
  • In Samuels v. Lido DAO (N.D. Cal., 18 November 2024) claims against Paradigm, a16z and Dragonfly survived dismissal, while Robot Ventures was dismissed.
  • The bZx, Ooki and Lido rulings were default or pleading-stage decisions, not final judgments that token holders personally owe damages.

Exercise nine, six, three, one

9CollectList up to 9 things you have done in a DAO, such as buying its token, voting, drafting proposals, receiving treasury payments or speaking for it (some lists are shorter).
6ClusterSort them into 6 groups: passive holding, voting, proposing, receiving value from the treasury, public representation, and technical control such as keys or upgrades.
3DistillReduce the 6 groups to 3: activities that look like passive holding, activities that look like active governance, and activities that look like running the business.
1CrystallizeWrite 1 sentence explaining why the Lido court treated some investors differently from others.

Fact check

Dates, figures and claims checked against the published sources listed below.

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