Enter blockchains

Blockchains are generally recognized as superior ledgers for recording transactions in a tamperproof and traceable way. Smart contracts add to legal certainty by giving those transactions finality and by adding extra authentication.

Nonetheless, despite declarations of intent, no Government is currently using blockchains for their Company Registry or has embarked on a project that looks to do so.

Consequently, any blockchain service provider in the company formation and corporate secretarial space can only ever duplicate, rather than replace, existing processes: any transaction that originates on blockchains will eventually need mirroring on an official ledger.(*)

Only recently did certain States in the United States, most prominently Wyoming and Delaware, pass legislation that recognizes “decentralized ledger technologies” as the ledger of truth of a company’s records and actions, subject to a number of State requirements as to the contents of the smart contracts to safeguard compatibility with State Registry requirements.

This allows for companies in these States to be formed natively on blockchain, with shares as tokens: basic or advanced smart contracts that let users transact with legal validity in the real world, without the need for wholesale syncing with State Registries.

It is primarily for these reasons that OtoCo started with the Delaware and Wyoming LLC as its first product, but we’re looking at some other States and also examining if we can make this work outside the US.

(*) Common to all Registries is that they essentially remain passive recorders of data: they do not verify that due process was followed in any corporate action (e.g. did a sufficient number of Directors sign the resolution that is being lodged?), nor do they authenticate if those who signed have the authority to sign or are who they claim to be. Smart contracts represent a very significant improvement on this and show how they have the potential to increase legal certainty by preventing litigation, whilst traditional process typically deal with conflicts post-factum via the court system.