Delaware New Company Law Green Lights Tokenization of Stocks and Shares

America’s most popular destination for company incorporation has updated its laws to allow for the tokenization of public or private stocks and shares.

Two-thirds of all members elected to each house in the state of Delaware have passed a number of amendments that legally allow for the use of blockchain technology to maintain corporate share registries. It says:

“Any records administered by or on behalf of the corporation in the regular course of its business, including its stock ledger, books of account, and minute books, may be kept on, or by means of, or be in the form of, any information storage device, method, or one or more electronic networks or databases (including one or more distributed electronic networks or databases)…

When records are kept in such manner, a clearly legible paper form prepared from or by means of the information storage device, method, or one or more electronic networks or databases (including one or more distributed electronic networks or databases) shall be valid and admissible in evidence, and accepted for all other purposes, to the same extent as an original paper record of the same information would have been, provided the paper form accurately portrays the record.”

In other words, any tokenized stock or share can legally be admissible in court as evidence of ownership, and any company can, in full compliance with the law, issue equity in the form of a token.

A new ethereum based token standard, ERC-884, has already been created to allow companies to take advantage of these new capabilities with Dave Sag, a blockchain developer, stating:

“ERC-884 tokens offer a mechanism by which a Delaware corporation can maintain an official share register using an Ethereum smart-contract, hosted on the Ethereum blockchain, rather than using a traditional mechanism.

By maintaining compatibility with ERC-20 tokens, ERC-884 tokens can be traded via any cryptocurrency exchange that supports the trading of ERC-20 tokens, thus allowing the company to sidestep the use of a traditional stock exchange, share registry, or transfer agent.”

Companies that wish to be fully compliant with the law, yet wish to take advantage of the new technology, can use the above standard to digitally issue shares without having to go through any intermediary.

As they would already be compliant with securities laws if they are publicly traded or otherwise have already registered with the SEC, there would be no regulatory uncertainty or gray area.

That’s because the token standard has been designed to in effect mimic a paper share, while getting rid of the paper. So digitizing equity.

In the process potentially removing intermediaries, reducing cost, increasing efficiency, and increasing participation to the entire global arena.