Delaware Senate Advances “Distributed Ledger Shares” Bill
On June 6, 2017, the Delaware Senate passed SB 69, an Act to Amend Title 8 of the Delaware Code Relating to the General Corporation Law, by a vote of 20-0 (with one abstention). According to public records, on June 14, the bill was reported out of the House Judiciary committee and placed on the ready list. The bill still needs to be approved by Delaware’s House of Representatives and signed by Governor Jack Carney before it can become law.
SB 69 would legalize corporate authorization, issuance, transfer, and redemption of shares through a distributed ledger. In addition, the amendment of the DGCL would protect companies from lawsuits alleging breach of fiduciary duty for utilizing blockchain technology. The bill represents a major achievement for the Delaware Blockchain Initiative (DBI), started by former Governor Jack Markell.
Andrea Tinianow, a Delaware state official, and Caitlin Long, president of Symbiont, noted the importance of this legislation on the Harvard Law School Forum on Corporate Governance and Financial Regulation. “By being the first to adopt the technology, the State will maintain its leadership in corporate registry services,” they wrote.
By providing regulatory certainty and amending existing policy, Delaware retains its position as the preferred state for incorporation. At present, slightly more than two-thirds of Fortune 500 companies are incorporated in Delaware. According to the Delaware Division of Corporations’ 2012 Annual Report, a stunning 90% of all US companies launched their IPOs as Delaware entities in 2012.
Yesterday, at the Blockchain + Digital Currencies Conference in New York, DBI member and partner at Cooley Marco Santori spoke alongside Tinianow on a panel entitled “Legally-recognized Blockchain Securities: An Update on the Delaware Blockchain Initiative.”
“To Delaware’s credit, they have been tremendously forwarding-thinking,” said Santori. Of the legislation, he expressed, “That is what we’ve been trying to achieve, this whole T+0 settlement time. This gets us there.”
For companies, SB 69 will drastically reduce the time and cost associated with internal record-keeping. Furthermore, the bill could remove middlemen, such as transfer agents, auditors, traditional stock exchanges (i.e., NASDAQ, NYSE), and central security depositories (DTCC), from the process. Perhaps, the most impressive step forward is the potential for instantaneous transfer of share ownership.
Delaware’s legalization of blockchain technology will facilitate adoption across corporate America. As Santori and the state of Delaware confer with the US Securities and Exchange Commission, it seems only a matter of time before publically traded stock is transacted through a distributed ledger.