DealLawyers.com Blog

July 28, 2017

Blockchain: DGCL Amendments Open the Door

Earlier this week, Delaware Governor John Carney signed into law the 2017 amendments to the DGCL. Over at TheCorporateCounsel.net, we’ve previously blogged about the most potentially significant aspect of this year’s amendments – new provisions that permit Delaware corporations to use blockchain technology for corporate records.

So what’s the big deal? This Nasdaq article speculates about what blockchain technology might mean for equity markets. Here’s an excerpt:

The biggest impact is that businesses and enterprises around the world will have the option of issuing, executing and settling shares via a blockchain. It is also likely to fuel other related activities on blockchains tied to custodianship, trading, shareholder communication and redemption. This could lead to a fundamental reshaping of the prevailing global securities model, a key element in fostering global free enterprise and business investments.

By utilizing a decentralized model, blockchains will allow both investors and issuers to interact directly with each other, eliminating the need for third-party intermediaries like brokers, custodians and clearinghouses, thereby reducing transaction costs. Settlement can occur within a few short moments, as opposed to days, with funds being released and fees being reduced.

Legal ownership and control would be given back to investors and companies, and the system would allow for proxy voting to become more transparent and accurate. Dividends and stock splits can be easily facilitated, virtually mitigating costs and errors. Further, concerns around the single-point-of-failure risk with the prevailing system would be eliminated.

On a more mundane level, the use of blockchain technologies may help alleviate the mess that the current stock transfer system has become – a problem that hasn’t gone unnoticed by the Delaware Chancery Court.

John Jenkins