Maryland Passes Bill to Allow Blockchain Technology to Record Stock Issuance, Transfer, and Management

On April 30th 2019, Maryland Governor Larry Hogan signed Senate Bill 136 into law. The bill embraces the use of blockchain technology by amending Maryland’s General Corporation Law. Now, companies can record stock ledgers and accompanying information through “distributed electronic networks”, including blockchain technology.

Maryland’s Blockchain Bill Explained

The state of Maryland is officially embracing blockchain technology.

With the passing of Bipartisan Senate Bill 136, the following can now be maintained by or on behalf of a corporation, through the use of a “distributed electronic network or database”:

• Stock ledgers (to include the name, address, and number of shares of each stockholder)
• Records of issuances, transfers, and cancellations of shares of stock
• Voting trust agreements
• Bylaws
• Minutes of the proceedings of the stockholders
• Annual statements of affairs

The new amendments to Maryland’s General Corporation Law will take effect October 1, 2019.

Importantly, the bill allows for companies to have their records maintained by another entity, while the previous statute required companies to maintain their own records. Now, a stock ledger does not need to be administered directly by an individual— such as a corporate officer or transfer agent— thereby enabling the use of blockchain technology to perform such tasks.

The bill also allows for companies to transmit certain communication, such as annual statements and stockholder notices, through a “distributed electronic network or database”, including blockchain technology.

Maryland isn’t alone in the push for blockchain friendly legislation in the United States. The states of Wyoming and Rhode Island have also pushed for laws which embrace the innovative technology. US Congressman Warren Davidson (R-OH) also recently submitted the Token Taxonomy Act of 2019.

Stocks Recorded through Blockchain Technology Explained

The integration of stock ledgers and blockchain technology include the highly anticipated implementation of security tokens.

Security tokens entail the tokenization of numerous existing, real-world asset classes in traditional finance. The majority of these asset classes currently utilize legacy systems with unnecessary middlemen, settlement cycles, and extra costs.

Already, equity, real estate, investment funds, and even fine art have undergone tokenization.

Due to the highly regulated nature of such asset classes, security tokens incorporate the world’s existing securities laws to algorithmically enforce— and transparently demonstrate— regulatory compliance. Such is the case at least in the US, where Securities and Exchange (SEC) Chairman Jay Clayton has said nearly every Initial Coin Offering (ICO) he has seen, constitutes a securities offering.

The result been the emergence of the Security Token Offering (STO).

While ICOs currently raise 58 times less than they did at this time last year, STOs saw a 130% increase in Q1 2019.

What do you think of Maryland’s approval of Senate Bill 136? Will other states draft similar legislation? Let us know what you think in the comments section below.

Image courtesy of Maryland.gov.