Lawyer’s view: A brief discussion on the company equity registration system on the blockchain

About the author: Sun Ming, nicknamed "High-quality Blue Collar" online. Graduated from the Law School of Fudan University, he has worked as a senior lawyer and partner in several law firms. He has represented many banks and borrowers in various bank financing transactions such as project financing, off-balance sheet financing, acquisition financing, and commercial trust transactions. He has in-depth research on Bitcoin-related laws in many countries and is a leading digital currency legal expert in China.

Original title: A brief discussion on the company equity registration system of "Xiaoyi"

As the earliest investor of the "Antcoin" system, I have had many in-depth discussions with the founder Da Hongfei on the design of Antcoin, especially those involving legal effectiveness. Using blockchain to register company equity is a great innovation. Although people have imagined this attempt before, I have never seen such a pursuit of compliance and connection with the real world as "Antcoin". This is reflected in the "down-to-earth" underlying logic and various details, especially the in-depth research and analysis of China's current legal environment, which makes "Antcoin" very potential to become a practical blockchain application product.

Taking into account that such a groundbreaking product is bound to cause friction or even conflict with the existing legal system, I would like to briefly write down my personal opinions on some related issues.

What is the definitive proof of equity (shares) in a company?

This is actually a purely legal issue that has nothing to do with blockchain. The cornerstone of a market economy is the certainty of property rights, which is the basis of transactions (of course, in turn, transactions are also constantly clarifying the boundaries of property rights in a positive feedback manner). Therefore, any company investor will inevitably face this ultimate question: "What is the final proof of the company's equity?" and need to get a definite answer.

In China, companies are divided into two categories: joint-stock companies and limited liability companies. Joint-stock companies correspond to shares, while limited liability companies correspond to equity. The basis for confirming the equity (shares) of these two types of companies is different.

Let's talk about joint-stock companies first. Joint-stock companies can be divided into "listed companies" and "unlisted joint-stock companies". The shares of listed companies (including the circulating shares traded in centralized bidding on the stock exchange) are registered with中国证券登记结算公司; and the shares of unlisted joint-stock companies, according to the provisions of the Company Law, are registered with stocks as rights certificates, and are accompanied by股东名册来记载持股人. It is worth noting that the issued shares of unlisted joint-stock companies do not need to be registered with any third-party institutions (such as the industrial and commercial department or the China Securities Depository and Clearing Corporation), but rely entirely on the company's own issuance of stocks and maintenance of shareholder registers to confirm ownership (although in practice some joint-stock companies use local share custody centers to provide third-party registration services for public disclosure, but this is not necessary). This is somewhat similar to the concept of "private chain" in blockchain.

As for the limited liability companies that most people are familiar with, since there is no certificate such as stock, the actual proof of the rights of its equity rights has become the "shareholder register" maintained by the company itself [Article 33 of the Company Law: "....... Shareholders recorded in the shareholder register may claim to exercise their shareholder rights based on the shareholder register."]. As for the registration of the company's equity with the industrial and commercial department, it only serves as a public announcement to the outside world to confront bona fide third parties, and is not the final proof of equity as most people usually imagine [Article 33 of the Company Law: "....... The company shall register the name or title of the shareholder and the amount of capital contribution with the company registration authority; if there is any change in the registered matters, the change registration shall be handled. If it is not registered or the registration is changed, it shall not be used against third parties."]

It can be seen from this that, with the exception of listed companies, the Company Law gives each company greater autonomy in confirming the ownership of its equity (shares), regardless of the type of company. That is, the company itself is required to provide the final proof of its equity (shares) (including issuing stock certificates and preparing shareholder registers), rather than relying mainly on third-party public registration agencies. Even the well-known Industrial and Commercial Bureau has become a merely auxiliary role.

What is the effectiveness of Xiaoyi's equity (share) registration?

As mentioned above, Chinese companies have been given greater autonomy by law自行确立股权（股份） rights. Considering that "blockchain" is essentially a ledger that records information, does the equity (share) ledger maintained by the company itself have any intersection with the concept of "blockchain"?

If we want to provide a concise answer, we can say that not only do the two have overlaps, but blockchain is even a technology that can very well meet the relevant registration requirements and can well assume the role of company equity (shares).

First, neither the Company Law, the Company Registration Management Regulations nor other laws and regulations impose any specific restrictions on the form of shareholder registers maintained by companies. In other words (leaving aside special types of companies such as listed companies), companies can choose to create and maintain shareholder registers in any form that has written records.

Traditionally, most companies have chosen paper shareholder registers (rather than electronic documents) because paper registers are a public information record that is not easily tampered with once prepared. Therefore, in the absence of third-party credibility providers such as the Industrial and Commercial Bureau, paper physical documents are more credible; but from another perspective, it is not because the law requires only paper forms. Based on this point, blockchain, as a specific form of electronic ledger, has no reason to be excluded from the optional methods, but can be spontaneously chosen by companies as the place to prepare their shareholder registers.

Secondly, from the trend of historical development, the shareholder register, like the ledgers that record other types of information data, will inevitably develop in the direction of无纸化and非人工化as long as the technical means allow. Old stock investors may still remember that the domestic stock exchanges used paper stocks and manual bookkeeping to trade, but it was not long before they were completely electronic. A more typical example is currency, which has now evolved from paper money to an era of almost fully electronic currency. Whether it is a ledger that records monetary information or a ledger that records the securities information of listed companies, there is a central clearing agency, which is the basic condition for them to be全面电子数据化. The central clearing agency ensures that the entire system can balance the accounts after the transaction without the problem of "double spending". (Note: Double spending - double spending, that is, repeatedly transferring the only share to two people)

As for the equity (shares) of non-listed companies, there was originally no such central clearing agency. Therefore, there has been no perfect technical infrastructure to ensure the uniqueness of each share or equity, and it can only rely on the credibility of state organs, that is, rely on administrative organs such as the Industrial and Commercial Bureau to "ex post facto" provide public disclosure of the uniqueness of rights. This expedient solution seems to be effective and solves the "double spending" problem. But in fact, it lacks efficiency (industrial and commercial registration is usually completed some time after the equity transaction), and does not conform to the principles of private law under the market economy (relying on the autonomy of the parties to complete the transfer of rights, rather than relying on the public authority to reconfirm the transaction). With technology so advanced today, it is a bit surprising to rely on this somewhat primitive method to complete the delayed confirmation of company equity.

In this regard, China's legislators have also realized this problem and have changed the role of the Administration for Industry and Commerce. Traditionally, the Administration for Industry and Commerce has concentrated several functions that were originally not directly related: first, it is the registration agency for the establishment of corporate legal persons, that is, it issues a "birth certificate" to corporate legal persons just like a hospital issues a birth certificate to a natural person; second, it is the licensee for corporate legal persons to conduct business operations, that is, after the corporate legal person is born, the Administration for Industry and Commerce allows them to conduct business activities. In practice, the first two functions are combined into one, and the business license is used as proof; third, the Administration for Industry and Commerce is also a rights registration agency similar to the real estate registration center, using its own credibility (government credit) to register the company's equity, confirm the ownership of the rights, and ensure that the company's equity is not "double-spending"; fourth, the Administration for Industry and Commerce also supervises the compliance of the company in the course of business operations, such as anti-monopoly and anti-unfair competition; fifth, if the company cannot continue to operate and needs to be dissolved, the Administration for Industry and Commerce will be responsible for its liquidation and cancellation. In addition, the Industry and Commerce Bureau also has businesses that are not directly related to the companies, such as trademark management, anti-MLM, and anti-intellectual property infringement... It can be seen that the entire Industry and Commerce Bureau is a hodgepodge that conducts one-stop supervision of commercial activities "from birth to death". It can be said that it is both a father and a mother, and it worries about the companies.

This problem has been improved in the market-oriented reforms in recent years. The Industrial and Commercial Bureau has begun to clarify its role positioning, weakening the management of company birth (reducing the number of establishment registration items) and equity confirmation registration (no longer responsible for providing the final proof of equity), while on the other hand, it is more focused on the supervision of companies during their operations. This can be seen from the fact that the Industrial and Commercial Bureaus in various places have integrated other departments and changed their names to "Market Supervision and Administration Bureaus."

Among them, the weakening of the registration of company equity by the Administration for Industry and Commerce must be mentioned. This is in line with the legislative spirit of the Company Law, and aims to去中心化式股权（股份）的确立登记工作to each company itself, and reduce the need to continue lending government credit on such matters (it seems that the landlord has no more food); in fact, compared with limited companies, the Administration for Industry and Commerce has delegated power to non-listed joint-stock companies more thoroughly, and the Administration for Industry and Commerce in most regions has completely stopped registering the shares of these companies. This practice is consistent with the business practices of many developed countries - in many countries, the equity (shares) of a company are not registered with state agencies, but with non-governmental autonomous organizations such as chambers of commerce and industrial and commercial associations, with third parties spontaneously recognized by the market providing proof of rights to equity (shares).

Blockchain seems to have emerged at the right time. It essentially decentralizes the third party that provides credibility more thoroughly, that is, it is no longer limited to a specific third party, but relies on all participants to jointly maintain a registration system. From the perspective of the functions achieved, on the one hand, blockchain gives the right to record to the company itself, reflecting the spirit of autonomy; on the other hand, it can also ensure the openness, transparency and authenticity of information records, minimizing rights disputes. In addition, blockchain registration has many advantages such及时性,低成本, and避免单点崩溃风险, not to mention that blockchain technology can be naturally embedded in the centralized bidding mechanism of securities trading (this has certain legal supervision issues, but it is not a built-in feature of "Ant", so this article will not expand on it).

Conclusion

As a bold attempt to use blockchain to register company equity (shares), the "Antcoin" system is completely legally tenable, regardless of its future commercial success. Once it is voluntarily selected by the company, it can become a legal record of the company's shareholder register and shareholding information, providing legally effective proof of the company's equity (shares). Of course, in terms of specific details, Antcoin must be compatible with the requirements of the current legal system.

Author: High-quality blue-collar
Editor: Meng Dada
Source: Babbitt Information