Delaware recently enacted an innovative law recently to allow an incorporated business in Delaware to keep track of its shares, often referred to as a stock ledger, on a blockchain platform.
You may be wondering why this is such a big deal. For starters, two-thirds of all U.S. listed companies call the state of Delaware home. The state officially has more registered legal entities than residents. Delaware also contains a flexible business legislation and tax framework, and has a reputation for being the catalytic yardstick in corporate law.
Now consider what a blockchain may do. Blockchain technology allows the creations of distributed ledgers. A “distributed ledger” is a mutual, shared ledger between any number of parties that create a single record of transactions, providing one unchangeable, “golden copy” of data that all can trust as valid.
The new law allows an incorporated business to use distributed ledger technology to maintain its stock ledger. The new law, however, does not overturn a number of current Delaware requirements regarding stockholder ledgers. Provisions concerning the ability of the corporation to prepare a stockholder list, and provisions concerning the type of information to be recorded, for example, still remain. The law also does not yet add provisions concerning smart contracts, an automated software program that self-executes when a specific trigger occurs. Smart contracts could be used in a stock ledger application to allow the stock ledger to adjust when it receives trading information.
The law is Delaware’s first step in implementing the Delaware Blockchain Initiative, an effort started by then-Governor Market to use blockchain technology and smart contracts to streamline financial services around Delaware corporations. The hope is that the combination of distributed ledgers and smart contracts can streamline many financial services by automating, among other things, clearing and settlement functions.
You can find the actual law here: https://legiscan.com/de/bill/sb69/2017 .
The information appearing in this blog does not constitute legal advice or opinion. Such advice and opinions are provided by the firm only upon engagement with respect to specific factual situations. Specific questions relating to this article should be addressed directly to Strategy Law, LLP.
