At its core, the amendment gives Delaware corporations statutory authority to use blockchain or distributed ledger technology to fulfill certain requirements of Delaware General Corporate Law for creating and maintaining corporate records. This sounds a lot less impressive than it is, but having uncertificated blockchain securities will, in the short term, create more efficient processes for companies with larger volumes of shareholders and trading activity. Companies have been issuing blockchain securities (see Overstock’s recent offering on t0), however the amendment provides regulatory certainty and clear minimum requirements.
In the long term, the amendment paves the way for cutting out middlemen in securities transactions, such as transfer agents and clearing houses. This means lower transaction costs and possibly instantaneous clearing and settlement. Hopefully, this initiates similar innovation on the part of the SEC and other government agencies. BUT, Delaware’s amendments are only the first step in recognizing these long term benefits.
Specifically, the amendment allows:
1. §219(a) requirements for maintenance and preparation of stockholder lists in connection with shareholder meeting to be fulfilled using distributed ledgers and blockchain, shares provided that the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with § 224.
2. § 224 requirements regarding any books, records, or stock ledgers to be kept by the corporation to be fulfilled by keeping these on a distributed ledger, as long as they: a. can be converted into paper form within a reasonable time, b. can be used to prepare the list of stockholders as required by §§219 and 220, c. record information as required in § 156 (info on class, series, rights, restrictions, restrictive legends), § 159 (transfers for collateral security), § 217(a) (fiduciaries' voting rights) and § 218 (voting trusts/agreements).
3. Electronic transmission (§232) by means of distributed ledgers.
Delaware’s blockchain amendment is a step in the right direction as we implement blockchain and start making changes to our financial infrastructure. However, much of the perceived benefits here will come in the long term as federal agencies hopefully follow suit.