Gov. Phil Murphy recently signed legislation into law authorizing corporations to utilize electronic networks, including distributed electronic networks or databases that utilize blockchain technology…
Gov. Phil Murphy recently signed legislation into law authorizing corporations to utilize electronic networks, including distributed electronic networks or databases that utilize blockchain technology, administered by or on the behalf of the corporation, in order to meet recordkeeping requirements. The provisions of the legislation (A-1178/S-898) took effect immediately.
“We need to use the technology at our disposal to ensure our information is safe,” said Assemblyman Christopher DePhillips (R-40), a co-sponsor of the legislation. “Permitting companies to use blockchain not only helps protect the company’s data but allows for full transparency of that data. Large companies like Microsoft and Walmart have embraced this technology and we need to make this available to all companies, not just big box stores.”
Blockchain 101
In basic terms, blockchain is a type of database that maintains a continuously-growing list of transactions. Due to the method in which a blockchain is structured when operated in a decentralized nature, the system creates an irreversible timeline of data. Thus, it is protected against revision by publicly-verifiable open-source cryptographic algorithms and immune to data loss through distributed records sharing.
While blockchain gained notoriety as the backbone of Bitcoin, its potential uses extend to numerous financial and commercial transactions. Proponents of blockchain technology maintain that, compared to a traditional, centralized database, it can result in lower risk, decreased operational costs, and greater efficiency.
Using Blockchain to Store Corporate Records
With regard to corporate records, blockchain technology can simplify the process of storing records and managing revisions, while also protecting against the hacking of sensitive information. It also establishes a clear audit trail without the need for any intermediaries.
New Jersey is not the first state to allow corporations to take advantage of blockchain technology. Delaware was one of the first states in the country to adopt blockchain-friendly corporate laws. The state authorizes corporations to use the technology to maintain shareholder lists, as well as other corporate records. Delaware has also launched several pilot projects that are testing how to use blockchain to collect, record, and store corporate and government filings.
New Jersey’s Blockchain Law
Under New Jersey law, corporations are required to keep records containing the names and addresses of all shareholders, the number, class and series of shares held by each and the dates when they respectively became the owners of the shares. The new law provides that these corporate records of shares may be kept on an electronic network, which is defined as “one or more electronic networks or databases, including one or more distributed electronic networks or databases that utilize blockchain technology, administered by or on the behalf of the corporation.” A-1178/S-898 also provides that corporations may use electronic transmissions from electronic networks to meet with certain notice provisions of existing law.
Key Takeaway
States like New Jersey are beginning to recognize that blockchain’s utility is not restricted to cryptocurrency. However, before utilizing blockchain technology for business purposes, we encourage corporations to consult with experienced legal counsel who can help weigh all of the potential risks and benefits and legal requirements.
If you have questions, please contact us
If you have any questions or if you would like to discuss the matter further, please contact me, Zachary Klein, or the Scarinci Hollenbeck attorney with whom you work, at 201-896-4100.
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