On May 2, 2016 former Delaware Governor Jack Markell launched the Delaware Blockchain Initiative, which is intended to encourage the adoption of blockchain technology and attract blockchain businesses to the state of Delaware. Consistent with the aim of fostering blockchain technology, on March 13, 2017, proposed legislation to amend Title 8 of the Delaware General Corporation Law (DGCL) was released by the Corporate Council of the Corporation Law Section of the Delaware State Bar Association. Once approved by the Corporation Law Section, the proposed amendments are expected to be introduced to the Delaware General Assembly.
The proposed amendments would change three aspects of the DGCL that pertain to how corporations maintain important records. First, §224 of the DGCL, entitled “Form of records,” would be amended to allow for “any records administered by or on behalf of a corporation in the regular course of its business, including its stock ledger, books of account, and minute books to be kept on, or by means of, or be in the form of one or more electronic networks or databases (including one or more distributed electronic networks or databases) provided that the records can be converted into clearly legible paper form within a reasonable amount of time.” Among other things, this change would allow companies to record each share of stock, the share’s owner and all subsequent transfers of that share on a blockchain.
Second, an amendment to the definition of the term “stock ledger,” which is the list of all owners, issuances and transfers of a corporation’s stock, incorporates §224. This would allow for a corporation’s stock ledger to be administered automatically through a blockchain, as opposed to the current manual systems.
Third, an amendment to §232 of the DGCL allows for corporations to distribute notices for the issuance and transfer of uncertificated stock via “electronic transmission,” which includes “one or more distributed electronic networks or databases.” Currently, these notices can only be given in writing.
In considering these proposed amendments, Delaware lawmakers have made it clear that Delaware is prepared to be a leader in adapting its corporate laws to emerging technological trends. In addition, the continued adoption of laws like these will allow lawmakers, and the corporate fiduciaries who are impacted by them, to develop competence with blockchain technology as it pertains to corporate use cases. Further, Delaware is a very popular state for companies to incorporate and Delaware is a popular state for incorporation in large part due to the Delaware Court of Chancery, which is “widely recognized as the nation’s preeminent forum for the determination of disputes involving the internal affairs of Delaware corporations.” The Court has unique competence with issues of business law and the foregoing amendments would undoubtedly bring blockchain technology to the forefront in many cases in that Court. Moreover, the adoption of blockchain technology for corporate recordkeeping in Delaware is consistent with the Chancery Court’s stated preference to streamline many issues involving corporate disputes.
This legislative development reflects Delaware’s recognition that it will need to be proactive with respect to blockchain technology in order to maintain its leadership in corporate governance issues.