Canada: Practical Application Of Distributed Ledger Technology: Maintaining Corporate Records On The Blockchain

Last Updated: October 3 2018
Article by Tracy Molino

Distributed ledger technology (DLT) has attracted widespread interest because of its potential as a transformative force across diverse industries. While there are a number of practical uses for DLT, (see our recent on DLT and smart contracts, and their general application to varied industries), broad adoption of this technology will take time; its transformational nature may seem daunting. However, businesses may want to explore implementing DLT-based platforms; we believe they can increase efficiency, accuracy, transparency and security in record management and finance while minimizing cost, providing significant competitive advantages to companies that adopt this technology.

"If it ain't broke, don't fix it" – unfortunately, it's broken.

Generally, substantive legal areas are quite slow to adapt to the modern world, and corporate governance is no exception. While we have slowly moved away from handwritten shareholder registries, opportunities for human error remain rampant, and repercussions can be costly and serious.

Currently, shareholder registries are commonly maintained by corporations in software spreadsheets. Maintenance of the registry is susceptible to errors because it relies on manual entry. Registries are usually updated on the issuance of new shares or options, if they are updated at all. Early-stage companies often make use of convertible notes, which convert into equity on a predetermined date or the occurrence of a particular event. Unfortunately, these notes aren't always registered correctly. Larger companies might have professional advisors to maintain a separate registry to help prevent this problem, but regardless of company's size, any time there's a discrepancy in the corporate records, it's costly and time-consuming to reconcile.

Clearly, shareholder registries can be the source of confusion for companies. Given that their primary purpose is to provide a true record of ownership, this confusion is troubling. If the information is inaccurate or out of date, it becomes difficult for the issuer to contact shareholders if they need to vote on a major acquisition, arrangement or sale process. In some instances, companies might resort to what seems like extreme measures to track down "missing shares" – using third parties like private investigators. Or the company might go forward with the transaction, but risk missing shareholders screaming oppression if they emerge later from the weeds. In either case, the process is less than desirable.

Note that the majority of public company shares are actually registered with brokers. Therefore, when issuer information is disseminated, it is the brokers that receive the information and not the beneficial owners, because they aren't necessarily known to the issuer. This streamlined dissemination isn't without its problems.

For example, following Dell's going-private transaction in 2013, beneficial shareholders sought to exercise their appraisal rights. Because of a series of legislative changes beginning in the 1970s, Dell shares were titled in the name of custodial banks, rather than their nominees' names. However, under Delaware law, to exercise a right to appraisal, the nominees had to demonstrate they had continuously held the shares for a specific period of time. The Court held that, because the record holder had technically changed during the required time, the beneficial owners no longer met the continuous ownership requirement needed to seek appraisal rights.1

Also, as a result of a 2013 going-private transaction, Dole Food Company was subjected to a class action lawsuit. When the parties settled the case in the shareholders' favour, beneficial owners filed claims for 49.2 million shares when only 36.8 million shares had been issued. The discrepancy arose because the depository, which held Dole Food Co.'s ledger, took three days to settle trades, so both buyers and sellers claimed ownership at the time of the ruling.

Results of a close shareholder vote have also been questioned, partly because of issues certifying the election. In 2017, Procter & Gamble initially claimed to have successfully fought off a challenge from Nelson Peltz, an activist investor who had been aggressively pursuing a seat on the company's board. However, preliminary recount results showed that Peltz won by a slim 0.0016 percent margin. While Peltz was eventually appointed to the Board, the vote count was an arduous, manual process. Shareholders could vote as many times as they liked, without only their last vote counting, and it is estimated that more than 200,000 paper ballots were individually reviewed.

Other problems that may plague corporate-record maintenance include:

  • The administrative burden when share certificates are lost. For example, 1.3 million share certificates were jeopardized when a vault flooded following Hurricane Sandy in 2012.
  • Forgotten, unclaimed or disputed share certificates when individuals pass away. Updating share registries is made more complicated when an executor cannot verify that a deceased person rightfully owned shares.
  • Investors may not track their share ownership percentage. New issuances, buy-backs, conversions or splits can complicate things, potentially putting an investor offside securities regulation should they exceed certain disclosure thresholds.

How DLT could "fix it"

At the core of many of the issues described above is what is known as the "agency problem," meaning management (the agent) may not always be inclined to act in the best interests of the shareholders (the principals). The costly and inefficient solutions that have evolved to address that agency problem have resulted in associated agency costs. DLT has been proposed as a way to bring down those costs.2

Cryptocurrencies originally introduced DLT to address the "double-spend problem" inherent in virtual currencies, but DLT platforms (or blockchains) have emerged as an alternative mechanism for storing and transmitting all kinds of data by giving DLT platform users access to a decentralized, synchronized record of transactions. DLT platforms are constructed as networks of computer nodes in a way that, once a transaction is verified by the network nodes, it is combined with other transactions to create a new block of data for the ledger, which is then added to the existing blockchain in a way that is permanent and immutable. The ledger is replicated across the DLT network nodes, and is simultaneously updated as new blocks are added to the ledger, providing all DLT platform users with a single, immutable source of truth. These two attributes—decentralized trust and transparency—are vital to corporate governance and addressing the agency problem.

Some possible benefits to implementation of a DLT-based solution:

Increased transparency: The blockchain can store all relevant corporate information (i.e., shareholder name, address, share series, quantity, percentage, options, etc.) within a digital, immutable ledger. The use of this type of technology would make it easier for shareholders to register their holdings directly with the company, rather than registering with a broker. Furthermore, DLT platforms can permit greater visibility into share ownership percentages, including that of management, allowing for more informed investor decisions.

Voting transparency and efficiency, and increased shareholder engagement: As illustrated above, voting today is an arduous, inefficient and opaque process. The current system of shareholder proxy voting has been called a "daisy-chained system of share ownership."3 DLT platforms can be leveraged to allow shareholders to more easily exercise their voting rights, transfer those rights to a proxy (if one is required), and verify that their voting instructions have been counted in the outcome. Vote tallying, in turn, is much more accurate. Additionally, making voting less complicated can increase shareholder engagement and help democratize shareholder participation.4

Compliance: The distributed ledger can address regulatory concerns, including early warning requirements and insider trading issues, because the ledger can be monitored in real time. Furthermore, the registry could be configured to provide comfort to regulators that shareholders have been through appropriate Know-Your-Customer procedures.

Efficiency: DLT eliminates the need for paper share certificates, and if there is ever a dispute in court regarding ownership or number of shares issued, the ledger provides indisputable evidence, saving courts time and money.

Capital markets: A blockchain-based solution could help streamline organizational processes, and improve the accuracy and efficiency of trades, reducing the three-day settlement time to minutes, because counterparties could potentially be eliminated altogether in some cases.  

Conversions: Smart contracts are applications that run on top of a blockchain. They are designed to bring about a particular outcome every time a specific set of conditions is fulfilled, using self-executable computer codes and data permission systems. Using a smart contract, preferred shares could automatically convert into common shares upon a subsequent financing round. Employee options will automatically terminate if they haven't been executed prior to a predetermined date. The execution of each smart contract is recorded on the distributed ledger, eliminating the need for manual updates to multiple copies of share registries.

Current progress in the field

It may take time for corporate management to get comfortable with DLT and for vendors to build the right platforms to solve specific corporate governance challenges. However, Delaware is helping to pave the way. On August 1, 2017, Delaware amended its General Corporation Law legislation, allowing corporations to use distributed ledger technology for record-keeping, including the creation and maintenance of their share registers, which may eventually lead to blockchain-based share trading. The amendment is significant, given that 85 percent of initial public offerings occur in Delaware, and one million corporate entities, including 64 percent of Fortune 500 companies, are incorporated in Delaware. Should Canada follow suit, provincial and federal laws (such as the Canada Business Corporations Act and the Québec Business Corporations Act), would have to be amended to eliminate the requirement for the maintenance of a central securities register.

There have also been other significant strides towards incorporating DLT in corporate governance, as summarized in Table 1 below. One company, Overstock, an online retail company, is a pioneer in the field with its recent distribution of more than 126,000 shares through the platform tZero. Overstock is looking to license the platform to other businesses, as well as exchanges, banks and other financial institutions.

Table 1 – Platforms using DLT in corporate governance.

Table 1 – Platforms using DLT in corporate governance.




Vote Room

Proxy voting service utilized by KAS BANK on April 25, 2018, at their Annual General Meeting

Scheduled to be released in 2018

TMX Group Ltd. in consultation with Accenture Plc

E-proxy voting system for electronic shareholder voting

Prototype released April 2017

The Ledger

Company share tracking on the blockchain

Prototype released November 2017


Distributed ledger platform for capital markets

Private offering for security token closed August 6, 2018


1. In re Appraisal of Dell Inc. (Dell Continuous Ownership), 2015 WL 4313206 (Del. Ch. July 30, 2015)

2. For a more detailed discussion of agency costs, see for example, A. Lafarre and C. Van der Elst:  Blockchain Technology for Corporate Governance and Shareholder Activism, European Corporate Governance Institute, Law Working Paper No. 390/2018.

3. Ibid. at 15, quoting Vice Chancellor Laster of the Delaware Court of Chancery.

4. See C. Van dee Elst and A. Lafarre: Blockchain Technology for Modernizing the Shareholder Dialogue, Working Paper, June 2018.

About Dentons

Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances. Specific Questions relating to this article should be addressed directly to the author.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions