On July 21, 2017, Delaware Governor John C. Carney Jr. signed into law, effective August 1, 2017, Senate Bill 69 (“SB 69”), amending Delaware’s General Corporation Law (“DGCL”) to, among other things, allow corporations to utilize electronic databases and blockchain technology to maintain and distribute certain corporate records. The passage of SB 69 further solidifies Delaware’s position as the leader in corporate regulatory innovation by demonstrating the state’s readiness to embrace new and innovative technologies being utilized by the corporate market.
SB 69’s most notable changes involve how corporations may create and distribute corporate stock ledgers and stockholder communications. Where stock ledgers previously needed to be written or recorded by an officer of the corporation, the newly amended DGCL Sections 219 and 224 allow corporate stock ledgers, as well as books of accounts and minute books, to be “administered by or on behalf of the corporation” by means of “one or more electronic networks or databases (including one or more distributed electronic networks or databases).” Though this may give the impression that Delaware corporations can go completely digital with such records, any records kept in electronic form under DGCL Section 224 must still be convertible into clearly legible paper form within reasonable time. What’s more, electronic stock ledgers must also be able do the following:
- Prepare the corporation’s list of stockholders as required by DGCL Sections 219 and 220, which deal with stockholder demands to inspect books and records;
- Record certain information specified in DGCL Sections 156 (regarding consideration for partly paid for shares), 159 (regarding transfer of shares for collateral security), 217(a) (regarding pledged shares) and 218 (regarding voting trusts); and
- Record transfers of stock governed by Article 8 of the Delaware Uniform Commercial Code.
Additionally, SB 69 amended the definition of “electronic transmission” in DGCL Section 232 such that the many stockholder communications that a corporation makes pursuant to the DGCL, its certificate of incorporation and bylaws may also be made via electronic networks and databases, in addition to more traditional means of electronic transmission such as email.
SB 69 marks a historic move towards the recognition and adoption of blockchain and distributed ledger technologies by regulators.
Thanks to Nicolas Dumont in New York and Sean O'Neill in Los Angeles for this update.