The Corporate Council of the Delaware State Bar Association's Corporation Law Section has released a proposed piece of legislation that, amongst other things, would establish a legal basis for using DLT to create and manage corporate records. Delaware is a popular site for companies to base their headquarters, due to favourable tax treatment, accounting for more than half of all Fortune 500 companies.
The primary issue identified in implementing a DLT solution to manage corporate records was that a distributed ledger does not involve a central database. The current law is drafted based on corporate records being centralised. The proposed amendments are designed to facilitate a shift to decentralised record-keeping. In sum, the proposed amendments are to overcome the following legislative hurdles to implementation of DLT solutions:
- a definition of a stock ledger is proposed to be introduced to provide that it is “one or more records administered by or on behalf of the corporation” to reflect the decentralised nature of record-keeping using DLT;
- as DLT is accessible across many systems in real time, it is proposed that any records “administered by or on behalf of the corporation” may be kept on any information storage device “or one or more electronic networks or databases (including one or more distributed electronic networks or databases)”; and
- the proposed legislation also amends various sections which require written notices instead be given by “electronic transmission” (which is defined as “any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process”).
The legislation has limits, for example, it does not facilitate the implementation of a ledger for corporations which have certificated stock, as shares in those corporations remain represented by certificates. The current requirements that the ledger be convertible into paper form within a reasonable time and that certain information also be recorded in the ledger are both preserved. The proposed legislation, if approved by the Corporation Law Section, is expected to be introduced to the Delaware General Assembly.
The draft legislation is relevant to Australia as the proposed amendments reflect the difficulty associated with implementing decentralised solutions where the rights and interests of parties have been drafted on the basis that an intermediary facilitates transactions. Any arrangements, which may implement a DLT solution, should incorporate flexibility such that rights and interests are able to accommodate the decentralised nature of the DLT solution as opposed to relying on an intermediary.