blockchain

Maryland now allows corporations to keep their records and transmit corporation communications through blockchain. Its Big Law drafter said the amendments should allow for quicker transactions and shareholder communication.

The amendments to Maryland's General Corporation Law were passed on April 30 and are set to go into effect Oct. 1. Maryland joins Delaware and Wyoming in authorizing incorporated companies to use blockchain-backed corporate records and communication.

Specifically, the amendments allow Maryland-incorporated companies to use “electronic networks or databases”—such as blockchain—to maintain its bylaws, ledgers, shareholder listings and notices, financial statements, corporate's consent and requests submissions and other corporate records and communications.

To be sure, businesses incorporated in Maryland won't have to find the latest blockchain technology to be in accordance to this new law, as the measure still allows corporations to maintain their records and conduct corporate communications through conventional forms. The law also allows its records to be maintained by the corporation or “on behalf of the corporation” by a third-party vendor.

However, Tracy Bacigalupo, a drafter of the amendments and a D.C.- and New York-based Morrison Foerster partner, said the new law provides corporations with new ways to enhance their operations and should be leveraged.

“Maryland companies can issue and track shares electronically on a real-time basis, meaning that delays, inconsistencies and uncertainty caused by manually recording an issuance or a transfer of shares would be drastically reduced or eliminated,” Bacigalupo wrote in an email. “The distinction between record holder and beneficial owner can be eliminated.”

She also added blockchain technology will allow for instantaneous transaction settlements and stockholders and issuers can interact directly and possibly diminish the need for third parties including brokers, custodians and clearinghouses and their related costs.

Asset managers, in particular, that leverage blockchain technology can streamline the “client onboarding process” by significantly reducing the traditional time required to collect and verify data and increase the speed of trade settlements, Bacigalupo explained.

Maryland's law comes two years after Delaware, home of the most incorporated companies, passed a law allowing corporations to maintain corporate records through blockchain. The 2017 passage of the Delaware law sparked Bacigalupo's initiative to bring a similar but a “preferably more flexib[le]” measure to Maryland, noting Maryland is the second-most popular state for incorporations and is the preferred forum for real-estate investment trusts (REITs) and investment companies.

Bacigalupo said she contacted the Maryland State Bar Association's committee on corporation law chair in July 2017 and was tasked with drafting the first proposed bill. The committee went through a “rigorous” review process of her draft and after extensive discussions and explanations it was submitted to the then-sponsoring delegate in Maryland's Senate. However, the bill languished, before being resubmitted last fall and signed into law last week.