Governor Jerry Brown signed Senate Bill 838 by State Senator Robert Hertzberg on September 28th as Chapter 889 and this bill authorizes corporations to include a provision in their articles of incorporation authorizing the use of blockchain technology to record and track the issuance and transfer of stock certificates.

The bill was, before reaching the Governor’s desk, revised to modify the definition of blockchain technology and the bill added a January 1, 2022 sunset date. So this bill, which takes effect on January 1, 2019, will be in effect for three years.

The author is the sponsor of the bill and his stated intent is to provide privately held corporations with a more secure means to protect their shareholders from fraud involving the issuance and transfer of stock certificates. According to his statement, “SB 838 is intended to authorize privately held corporations to issue and transfer share certificates through blockchain technology or distributed electronic networks. And by authorizing this technology to be used in this way, California is engaging in new technology that will protect consumers and corporations from cases of fraud and theft.”

California is the first state in the country to authorize the use of blockchain technology to record and track the issuance and transfer of stock certificates. Despite the theoretical value that blockchain technology holds for securely and accurately documenting stock transfers, no other state has approved this technology for this purpose so far. We’ll have to look forward to how it works over the next three years.

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