New State Law Allows Use of Blockchain Technology in Corporate Record-keeping

BlockchainMaintaining accurate records is one of a corporation’s most important responsibilities. New Jersey business and corporate laws give shareholders the right to examine a corporation’s books at almost any time. State courts have the authority to compel production by a corporation if it fails to make the books available. For many years, a corporation’s books were kept in literal book format at a corporation’s headquarters. Inspection required a shareholder to visit the corporate office, or to request photocopies of relevant records. Digital technologies have enabled corporations to experiment with new methods of corporate record-keeping. A new Delaware law allows corporations to use blockchain technology, which is mostly associated with “cryptocurrencies” like Bitcoin, to maintain corporate records. The law does not directly affect New Jersey or New York businesses, but Delaware’s corporate laws often serve as a model for new laws around the country.

New Jersey requires corporations to keep records, including minutes, of all official meetings of shareholders and the board of directors, as well as all formally established executive committees. Corporations must also maintain a current list of all shareholders that identifies the number and class of shares that they hold and the dates that they acquired the shares. The statute does not require any specific format for the corporation’s books, except that the records must be “capable of being converted into readable form within a reasonable time.” N.J. Rev. Stat. § 14A:5-28(1). Shareholders who meet a minimum standard for how many shares they hold and for how long may inspect the corporation’s books “for any proper purpose” with at least five days’ notice. Id. at § 14A:5-28(3).

Blockchain technology is rather notoriously complex and difficult to describe, which is part of its appeal for uses like cryptocurrency. It consists of individual digital records, known as “blocks,” that are connected, or “chained,” to other records across multiple devices on a shared network. Each block has unique identifiers, including timestamps and links to earlier blocks in the chain. The distribution of the blocks across a network, along with the identifying information associated with each block, makes it extremely difficult to alter or falsify information. In the context of corporate records, blockchains are known as “distributed ledger” technology. The chain of interconnected records, none of which can be altered without altering multiple other records, bears many similarities to a traditional corporate ledger system.

The new Delaware statute originated with the Delaware Blockchain Initiative, a partnership between the state and a private technology company launched in 2016. The state tested the concept of using distributed ledger technology on the Delaware Public Archives, intending to demonstrate that it would make compliance with state public records laws easier. The Governor of Delaware signed Senate Bill 69 in July 2017, and it took effect on August 1. The bill amends multiple provisions of Title 8 of the Delaware Code to allow the use of distributed ledgers in corporate record-keeping.

Corporate transaction lawyer Samuel C. Berger represents businesses, business owners, and entrepreneurs in the New York and Northern New Jersey regions. We offer a variety of fixed-fee legal-service packages crafted to meet our clients’ legal needs. Contact us today online, at (201) 587-1500, or at (212) 380-8117 to schedule a confidential consultation to see how we can help you and your business.

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Photo credit: deavmi (Own work) [CC BY-SA 4.0], via Wikimedia Commons.