Blockchain Stock Ledgers

Abstract

American corporate law contains a seemingly innocuous mandate. Corporations must maintain appropriate books and records, including a stock ledger with the corporation's shareholders and stock ownership. The importance of accurate stock ownership records is obvious. Corporations must know who owns each of its outstanding shares at any point in time. Among other things, this allows corporations to determine who receives dividends and who is entitled to vote. In theory, keeping accurate records of stock ownership should be a simple matter. But despite diligent efforts, serious share discrepancies plague corporations, and reconciliation is often functionally impossible. Doing so may require the examination of records from millions of trades, including records from hundreds of participant brokers and custodial banks (not to mention records from their individual clients). So, when disputes arise, there is frequently no easy answer.

This Article charts the use of blockchain technology as a potential solution to the systemic issues hindering efforts to maintain accurate records of stock transactions. In doing so, this Article accomplishes three goals. First, it establishes that federal efforts to resolve the “paperwork crisis” of the 1970's created a concomitant problem--the lack of reliable records of stock ownership, which now threatens the exercise of shareholder rights. Second, it demonstrates that practical constraints, not legal barriers, stand as the most significant impediment to the application of blockchain technology to corporate recordkeeping and capital markets. Third, it argues that despite reasons for skepticism, states should proactively amend corporate codes to authorize the use of blockchain technology because it enables corporate choice and facilitates efforts by private actors to assess the viability of innovative solutions. This Article concludes by drawing transferable lessons to improve law and policy as new applications of blockchain technology continue to emerge.

Keywords: blockchain, corporations, stock ledger, business associations, stock