Blockchain technology promises to transform how companies do business. The State of Delaware, an early proponent of blockchain technology and the preeminent jurisdiction for entity formation, is leading the way.
Launch of the Delaware Blockchain Initiative
In the spring of 2016, then Governor Jack Markell launched the Delaware Blockchain Initiative to bring blockchain innovation to the State. Since that time, the State of Delaware’s legislature passed “blockchain amendments” to the Delaware General Corporate Law (DGCL) which permit Delaware corporations to issue and transfer shares on a distributed ledger.
Delaware’s new blockchain amendments have outsize implications due to the large number of companies that are incorporated here. More than one million business entities have made Delaware their legal home. Plus, more than 60 percent of the Fortune 500 companies are incorporated in Delaware.
Delaware’s Blockchain Amendments
The Delaware blockchain legislation allows corporations to convert their paper-based shares to distributed ledger shares. New corporations can elect to use electronic records from the start, and never hold paper records. Corporate records on a blockchain will be easy to track and verify, which will allow corporations to save time, reduce errors and avoid litigation.
Moreover, when investors own their shares directly on a blockchain, there would be no over-issuance of shares, which happens on occasion. Further, by trading stock on a blockchain, intermediaries that profit by serving as brokers between buyers and sellers of stocks could be cut out of the process, resulting in significantly faster settlement times, reduced cost and greater efficiencies.
Why does Delaware — the second smallest state in the U.S. — attract so many companies to incorporate here? It is not what most people think. Delaware is not a tax haven, and it is usually not the least expensive option for incorporation.
To the contrary, companies select Delaware as their corporate home for these primary reasons:
Predictable Body of Law Delaware is considered the preeminent authority on corporate law, a reputation earned through the development of more than a century of jurisprudence. Most of the relevant Delaware statutes affecting corporate affairs have been litigated thoroughly, resulting in a predictable and detailed body of law that increases certainty in corporate decision-making.
Experienced Jurists Established in 1792, the Delaware Court of Chancery is the oldest business court in the United States, and is widely recognized as the nation’s leading forum for the resolution of corporate disputes. All cases that come before the Court of Chancery are heard by experienced jurists, rather than by potentially inexpert judges or unpredictable juries.
Neutral Forum Plaintiff and defense attorneys alike prefer Delaware because the State enjoys a reputation as a neutral forum for litigation.
Speed and Responsiveness Speedy resolution of lawsuits is standard in Delaware — most judges issue opinions in 90 days or less. The Court of Chancery does not hear criminal cases or routine civil cases that seek money damages, enabling it to focus on corporate law disputes and significant business cases.
Innovative Arbitration The Delaware Rapid Arbitration Act (DRAA) provides companies around the world with a fast-track arbitration option to resolve business disputes in 120 days — and it is tailor made for blockchain disputes. The Act offers the ability to have disputes resolved promptly and cost-effectively, with the parties foregoing costly and time-consuming pre-hearing evidence gathering in exchange for a prompt resolution of their dispute.
“More than 65 percent of Fortune 500 companies are incorporated in Delaware. The new blockchain amendments will have an outsize impact on the use of blockchain in corporate governance.”
It is hard to say what will come next in Delaware. The State collaborated with Symbiont, the smart securities blockchain company to launch the State’s Blockchain Initiative, and likely we will see new high value offerings for its corporate and individual citizens from that collaboration.
Symbiont’s permissioned blockchain was created for the financial sector, so it meets all security requirements. It does not use cryptocurrency, which means that it’s more efficient and faster than public blockchains like Bitcoin and Ethereum. Plus, it was designed so that all participants to a transaction can upload documents right onto the blockchain.
The opportunities for innovative organizations seeking to deploy blockchain technology in Delaware (and elsewhere) are boundless. No doubt organizations in the private and public sectors will work together to deliver new services across myriad sectors enabled by blockchain technology.