Alabama is joining the growing number of states creating legal frameworks specifically designed for decentralized organizations. Effective October 1, 2026, Senate Bill 277 establishes the state’s Decentralized Unincorporated Nonprofit Association law, offering qualifying blockchain-based communities a new option for legal recognition, governance, and liability protection.

What Is a DUNA?

A decentralized unincorporated nonprofit association, or DUNA, is a legal structure intended for decentralized communities that operate through digital assets, distributed ledger technology, smart contracts, and token-based governance.

Under Alabama’s new law, a DUNA must:

• Consist of at least 100 members participating by mutual consent in digital activity;

• Operate under an agreement—which may be written or inferred from conduct;

• Pursue a common nonprofit purpose, which may include administering a distributed ledger or network of smart contracts;

• Elect to be governed by Alabama’s DUNA law; and

• Not be organized under another law governing its organization or operation.

The law defines a nonprofit purpose as one for which a nonprofit corporation could be organized, provided that the organization’s income or profits are not distributable to its members or administrators. However, a DUNA may conduct profit-making activities if the proceeds are used to support or reserved for its nonprofit purpose.

Separate Legal Status and Liability Protection

One of the Act’s most significant features is its recognition of a DUNA as a legal entity separate from its members for purposes of contractual and tort rights, duties, and liabilities.

A person is not personally liable for the DUNA’s contractual obligations or tortious conduct merely because that person:

• Is a member or administrator;

• Participates in managing the organization;

• Has authority to participate in its affairs; or

• Is treated as a member by the organization.

Similarly, a judgment against the DUNA is not, by itself, a judgment against its members or administrators. These protections may help reduce a key risk faced by DAOs operating without a formal legal wrapper: the possibility that participants could be characterized as partners or otherwise exposed to collective liabilities.

The protection is not absolute. Members and administrators may still be responsible for their own conduct, contractual commitments, legal violations, or other actions that independently create liability.

Governance Can Live On-Chain

The Act expressly accommodates decentralized governance. A DUNA’s “governing principles” may include traditional agreements alongside:

• Smart contracts;

• Consensus algorithms;

• Enacted governance proposals;

• Established organizational practices; and

• Other records defining the rights and obligations of members and administrators.

These principles may specify whether the organization’s distributed ledger is public or private, whether its technology is immutable or capable of modification, and how members may propose and vote on protocol upgrades, software changes, or other governance matters.

A DUNA may also adopt algorithmic methods for establishing consensus, validating records, conducting operations, and making organizational decisions. This represents an important attempt to connect on-chain decision-making with an enforceable state-law framework.

Membership and Voting

Members may join, resign, transfer their interests, or be removed according to the DUNA’s governing principles. If the governing principles do not address a particular matter, the statute supplies default rules.

Unless the governing principles provide otherwise:

• A membership interest is generally transferable;

• Members must approve organizational action by a majority vote;

• A member does not owe fiduciary duties to the DUNA or other members merely because of membership; and

• A member acting on behalf of the DUNA must act in a manner the member reasonably believes is in the organization’s best interests.

Importantly, merely holding a membership interest does not automatically make a person an agent of the DUNA. This distinction may matter for token holders who participate in governance but do not exercise day-to-day operational authority.

Administrators Are Optional

The statute does not require every Alabama DUNA to appoint an administrator. If administrators are selected, their authority and responsibilities may be established through the organization’s governing principles.

This flexibility allows a DUNA to determine whether it will operate through designated administrators, entirely through member governance, or through some combination of human decision-makers and automated systems.

Organizations should nevertheless define authority carefully. Banks, vendors, regulators, courts, and other counterparties will often need to know which individuals can sign agreements, control assets, receive legal process, and act on behalf of the organization.

Holding Property, Entering Contracts, and Bringing Claims

An Alabama DUNA may hold, encumber, and transfer real or personal property in its own name, subject to its governing documents. It may also serve as a beneficiary under a trust or contract.

The entity may initiate or defend judicial and administrative proceedings, as well as participate in arbitration, mediation, and other dispute-resolution processes. A DUNA may also file a statement appointing an Alabama agent to receive service of process.

Special procedures apply when a DUNA owns Alabama real property, including the recording of a statement identifying the person authorized to transfer that property.

Records and Member Privacy

Members and administrators may generally obtain information concerning the DUNA’s activities, financial condition, and other matters relevant to their rights and responsibilities.

At the same time, the law recognizes the distinctive nature of blockchain-based organizations. A DUNA does not have to reproduce information that is already available through a medium accessible to the requesting member, including distributed ledger technology. It also is not obligated to collect or maintain a traditional list containing the names or addresses of individual members.

These provisions may help accommodate communities in which membership is represented primarily through wallet addresses or on-chain interests. They do not, however, eliminate recordkeeping, tax, compliance, or beneficial-ownership obligations that may arise under other laws.

Compensation and Distributions

Although a DUNA may engage in profit-making activity, it generally may not distribute profits to members or administrators. The organization may, however:

• Pay reasonable compensation for services;

• Reimburse reasonable expenses;

• Confer benefits consistent with its nonprofit purpose;

• Repurchase membership interests when authorized by its governing principles; and

• Distribute property during dissolution to the extent permitted by law.

Whether a particular payment constitutes permissible compensation or an impermissible profit distribution will depend on the organization’s purpose, governing documents, and surrounding facts.

Dissolution and the 100-Member Requirement

A DUNA generally has perpetual existence unless its governing principles provide otherwise. It may be dissolved under its governing rules, through member approval, or by court order.

The 100-member threshold remains relevant after formation. If membership falls below 100, the organization may automatically transition into an Alabama unincorporated nonprofit association if it satisfies the applicable statutory requirements; otherwise, dissolution may be required.

What the Act Does Not Resolve

Forming an Alabama DUNA does not automatically provide federal tax-exempt status, nor does the word “nonprofit” mean the organization has been recognized under Section 501(c)(3) or another provision of the Internal Revenue Code.

The structure also does not displace federal or state laws governing:

• Securities and digital-asset offerings;

• Commodities and derivatives;

• Money transmission;

• Taxation;

• Sanctions and anti-money-laundering compliance;

• Employment and independent contractors;

• Intellectual property;

• Consumer protection; or

• Data privacy and cybersecurity.

Token issuance, treasury management, member compensation, protocol revenue, governance rights, and cross-border participation may each create separate legal and regulatory considerations.

Practical Takeaways for DAOs

Before electing Alabama DUNA status, a decentralized organization should assess:

1. Whether it satisfies and can maintain the 100-member requirement.

2. Whether its purpose qualifies as nonprofit under the statute.

3. How its on-chain governance will interact with written legal documents.

4. Which persons, if any, will have authority to bind the organization.

5. How treasury assets, intellectual property, contracts, and liabilities will be held.

6. Whether token-related activities implicate securities, commodities, tax, or financial-regulatory requirements.

7. How disputes, emergencies, protocol upgrades, and dissolution will be handled.

Alabama’s DUNA Act provides decentralized communities with a potentially useful bridge between blockchain-native governance and conventional legal recognition. Its effectiveness, however, will depend heavily on thoughtful governing principles that align smart contracts, governance processes, operational practices, and applicable law.

Learn More

This blog post is for informational purposes only and is not legal advice. Please consult with a Launch Legal attorney regarding your specific situation.