We see now the end of the whole era of share registries kept by private companies on the excel spreadsheets. And this is good news for investors, who will now benefit from greater security and transferability of private securities.

All public companies keep the register of shareholders in electronic form with the local registrars, while the vast majority of small and medium enterprises have traditionally been maintained manually on spreadsheets or even on paper-based records. Nevertheless, thousands of private companies have already started to use electronic registry services provided by the Shareworks (formerly CapShare), Carta (formerly eShares) and few others. Spreadsheets used for registry services vulnerable from a cybersecurity perspective and corporate actions can not be automated. Moreover, changes to the register of shareholders (members), can be done by the company representatives on their full authority and desire anytime. Unlike the spreadsheets and traditional electronic databases, a new type of digital share registers allow changes to be made only through the allotment or transfer of securities electronically, otherwise, any manual changes to the cap table and register have to be validated by the shareholder, once he has registered online.

The most important, the digital ledger can work smoothly with the programmable algorithms, known as \u201csmart contracts\u201d, enabling automation of securities transfer restrictions, execution of pre-emption rights, dividend payments and other corporate actions.

\u201cThe notion of introducing digital ledger is to ensure the flattened business process across various entities and a shared ledger that ensures the basic tenets of asset transfer\u200a\u2014\u200atrade, trust and ownership. Essentially removing the hurdles and inefficiencies posed by business processes (systems) of individual entities and batched processing of assets transfer to a synchronous (digital) asset and transaction system. The security and trust is a balanced approach where we ensure we have the right incentive structure and appropriate gates between participating entities to ensure checks and balances as the assets and their respective ownership is recorded or finalized in a transaction.\u201d\u2013 said Nitin Gaur, Director, IBM WW Digital Asset Labs at\u00a0IBM

Even though there are still not many digital shares registers empowered by the smart contracts on the market, already dozen of companies started to hold their company records at Europe\u2019s first programmable digital share register provided by Quoroom. At the beginning of 2019, Quoroom has released a new infrastructure product, Quoroom Digital Share Registry, to provide companies with a secure and programmable digital ledger to keep company records in electronic form, which ultimately simplifies shareholder management and share transfers. Quoroom\u2019s digital share registry makes transfers of private equity and debt easier, more efficient, more secure and less expensive.

\u201cWe have decided to do digital issuance of Openbrix\u2019s shares to provide our shareholders and investors with more liquidity opportunities and maintain the shareholding records in a cryptographically secured form\u201d\u200a\u2014\u200asaid John Reilly, Director and Chief Strategist at Openbrix, London-based property portal connecting estate agents and customers.

The corporate law in the majority of countries requires only majority shareholders to be disclosed on the country public company register, while during the year companies are required to keep a full register of shareholders on their own. According to the UK Companies House information, the UK Monzo Bank Limited since 10 July 2019 has moved all four main company registers to the private electronic register: Register of directors, Register of secretaries, Register of the persons with significant control (PSCs), Register of Members, Register of Debentures. Other UK unicorns and some of the biggest companies, such as Ovo Energy Ltd, Transferwise Ltd, SeedLegals Ltd, Funding Circle Ltd, Opengamma Limited also have their company records moved to the private registers.

The UK Companies Act 2006 requires that company records be maintained by the company at its registered office or at any other place in the United Kingdom designated by the directors. It allows registers to be entered or recorded by any system of mechanical or electronic data processing or any other information storage device that is capable of reproducing any required information in intelligible written form within a reasonable time.

According to the UK Companies Act 2006 Section 1135, company records may be kept in hard copy or electronic form, and maybe arranged in such manner as the directors of the company think fit, provided the information in question is adequately recorded for future reference. Where the records are kept in electronic form, they must be capable of being reproduced in hard copy\u00a0form.

The European law also confirms that use of different types of digital ledgers, including Distributed Ledger Technology (DLT as an electronic system for keeping the company records and issuance of securities in book-entry form fall under the existing regulatory framework and doesn\u2019t generate a legal\u00a0novelty.

Even it\u2019s more relevant for automation of payments and trade settlement through the Central Securities Depositories and Exchanges, the Luxembourg authorities have confirmed that securities can be held through DLT-like technologies: \u201eThe account keeper may hold securities accounts and register securities in securities accounts within or through secure electronic registration devices, including distributed electronic registers or databases. Successive transfers registered in such a secure electronic registration device are considered transfers between securities accounts. The holding of securities accounts within, or the registration of securities in securities accounts through, such a secure electronic registration device do not affect the fungibility of the securities concerned.\u201d

In Switzerland, the book-entry of self-issued uncertificated securities is unregulated. Swiss companies are free to use whatever registry they see fit. Consequently, most Swiss commercial or industrial companies are free to issue their own digital securities, provided that they observe applicable regulations, in particular, Anti-Money Laundering regulations.

Delaware\u2019s General Corporation Law has recently been amended to provide statutory authority for Delaware corporations to use blockchain, a type of distributed ledger technology or \u201cDLT,\u201d for creating and maintaining corporate records, including the corporation\u2019s securities register.

The UK Companies Act 2006 Section 769(2) allows a company to provide the conditions of issue of shares, debentures or debenture stock.

Such conditions about the digital or uncertificated form of issuance could be instructed in the company\u2019s Articles of Association, Prospectus or Subscription Agreement. Upon issuance of uncertificated transferable securities by a public or private company, they can be listed on the regulated trading venues, including European\u00a0MTFs.

A number of pre-IPO companies and scaleups are traded in secondary markets such as AssetMatch, OTC (over-the-counter) markets and privately, but the majority of private equity is still frozen in the illiquid form of paper securities. Digitisation of private securities and moving the registry of shareholders to the digital ledgers allow investors to transfer and trade private equity in the electronic form without loss of direct ownership in the asset. Digitisation changes a private securities market dramatically and provides an opportunity to leverage the benefits of the public market (liquidity, diversification, voting and shareholder management, automated compliance) with even greater efficiency.

Companies who choose to keep their registry on the digital d ledger in digital form are capable to provide their shareholders and investors with liquidity also available through private transfers and trading over-the-counter (OTC), this is a significant factor for investors to intensify investments in private business.

Digital Share Registry offers mutual benefits for businesses and shareholders:

SECURITY

Share and debt records are cryptographically secured on a digital ledger instead of spreadsheets.

TRANSFERABILITY

Shareholders can accept, sell and transfer securities electronically. The company can stay private\u00a0longer.

LIQUIDITY PREMIUM

The higher price of securities derived from higher liquidity

TRANSPARENCY

Companies can provide shareholders with real-time access to a share register, corporate actions and reporting.

LEGAL COMPLIANCE

Digital Share Registry platforms provide automation of the legal forms and compliant maintenance of company records. Preferences and restrictions of share classes are embedded into the deal\u00a0flow.

COST REDUCTION

Securities administration, shareholder management and communication are faster and cheaper due to automation.

In the next 5 years we will see a huge shift at the private equity market, more investors will choose to hold and transfer private securities from digital wallet-to-wallet, trade private securities OTC and trade them at the organised markets (MTFs) in a digital form. This will impact the private equity and private debts strategies: lower the risks of illiquidity and increase the investments volume in private equity and debt. Such digitisation of private securities will increase the most: transfers and trading volume of private funds (VC, Real Estate etc), private debt, and private equity of pre-IPO companies.

Maintaining a share register can sometimes feel like an annoying compliance burden, but for your shareholders, it\u2019s a vital record of their legal ownership in a company, therefore companies get understanding of the importance of registry services from a security perspective. Online share registry service allows shareholders to manage their own contact details and manage your shareholder communications. A programmable digital share register could be the most significant development for the equity crowdfunding industry in the last decade. Post-offering management of shareholders in a digital form will significantly simplify shareholder management for crowdfunded companies and will finally provide the infrastructure for direct ownership of shares in companies by investors, avoiding the nominee structures.

Visit quoroom.com and get started with a Digital Share Registry today.