Delaware Eyeing Blockchain to Improve Corporate Processes
Legislature is poised to consider proposed
that would facilitate the use of blockchain technology under the
state’s corporate law, a move that may help companies keep better
track of who owns their stock.
If adopted, the
amendments would clarify that companies incorporated in the state can
use blockchain, or “distributed ledger” technology, for legally
required corporate record keeping.
Blockchain is a
shared online ledger system with multiple potential uses in the
securities industry. The use of the technology for issuing and
tracking shares of stock and other securities could lead to its
application to trades and money transfers, potentially executing them
within minutes rather than days. Blockchain could help companies lower
transactional costs, in part by reducing bookkeeping errors.
More than half of
Fortune 500 companies, about 85 percent of U.S. initial public
offerings and over a million other entities call Delaware their home
and are subject to its corporate requirements. Delaware officials and
other stakeholders hope their legislative proposal will create the
right environment for developing the technology in the state and for
encouraging blockchain developers to locate there.
amendments are a step toward making distributed ledger shares a viable
option for companies, Marco Santori, a New York-based partner at
Cooley LLP who is advising Delaware on its blockchain initiative, told
counsels have looked at implementing blockchain technology, but have
decided to wait for more guidance on how to do so, Santori said. That
guidance could be provided if the proposal becomes law, he
said.However, many public companies may be wary of moving to
distributed ledger shares until the Securities and Exchange Commission
clarifies its rules as well, Santori said. Under the current federal
securities laws, it is not clear what is required, he said.
amendments would outline what is required for a Delaware corporation
to implement a distributed stock ledger, Matthew J. O’Toole, a
Wilmington, Del.-based partner at Potter Anderson & Corroon LLP, told
Bloomberg BNA. O’Toole is chair of the state bar’s Corporation Law
Council, which drafted the amendments.
The proposed changes
must still be introduced and voted on by Delaware’s General Assembly
to become law. The endorsement of the changes by the state bar makes
“We’re excited about
the proposed legislation put forth by the Delaware Bar; they’ve been
great partners in our efforts to explore the possibilities blockchain
technology could hold for the state of Delaware and our corporate
franchise,” Delaware Deputy Secretary of State Kris Knight, who
oversees the state’s Division of Corporations, told Bloomberg BNA in
“We’re hopeful that
these statutory changes broaden our ability to seamlessly manage
entity formations and filings, as well as the issuance and transfer of
shares,” he said.
governor Jack Markell announced in 2016 that the state is working with
blockchain services provider Symbiont on a distributed ledger system
for the state’s archives.
and ‘Dell’ Litigation
errors surfaced in high-profile litigation that might have been
avoided through the use of blockchain technology.
Investors in public
companies generally own their shares indirectly. The Depository Trust
Company’s nominee Cede & Co. is the record holder who owns shares on
behalf of broker/dealers, which in turn hold shares on behalf of
In a May 2016 ruling,
the Delaware Chancery Court concluded that several Dell Inc. investors
couldn’t pursue their appraisal rights in the company’s management
buyout because a mix-up caused their shares to be inadvertently voted
in favor of the transaction.
More recently, the
chancery court in February had to modify a merger-related class
settlement after Dole Food Co. investors submitted “facially valid”
claims for 49,164,415 shares, despite the class consisting of
A situation like Dole
wouldn’t occur under a blockchain system because companies would be
able to more effectively manage their capitalization tables and keep
track of who is a beneficial owner of their stock, Santori said.
technology is widely adopted by corporations, investors more often may
directly own their shares—which means that they could transfer or sell
their holdings to others without the use of multiple layers of
ownership, O’Toole said.
amendments, if adopted, will take effect in August.
there is a “network effect” where the benefits show only when there
are many companies and shareholders using the technology, Santori
“It may be that
companies at first slowly start to adopt this type of record keeping,
but then it quickly progresses,” he said.
To contact the
reporter on this story: Michael Greene in Washington at
contact the editor responsible for this story: Yin Wilczek at
For More Information
amendments are available at
Copyright © 2017
The Bureau of National Affairs, Inc. All Rights Reserved.
Copyright © 2017 The Bureau of National
Affairs, Inc.. All Rights Reserved