The proposal raises a number of questions, and for this reason the subject has been divided into a number of articles. This article discusses the general rules for functioning of a PSA list, and the potential for use of blockchain technology for the list. Further articles discuss tokenisation of shares and corporate issues that this might solve.

Dematerialising and registering shares

The solutions presented in the proposal are intended as a means of complete dematerialisation of shares in a new kind of company. No PSA will be able to issue shares in document form. This is the correct approach for modern trading, considering that advances in digitisation are permeating all areas of life, and use of documents is becoming less and less economical. It also gives rise to a range of dangers related among other things to the risk of counterfeiting or obstruction of the process of sale. The introduction of a rule of dematerialisation could meanwhile cause practical problems relating to cybersecurity issues and the actual organisation of registering shares. In light of this, the proposal provides for an obligation to hand over the keeping of the company list of shares to authorised bodies that ensure that the list is organised properly and professionally.

The proposal for the new Art. 300³¹(2) of the Commercial Companies Code specifies the bodies that will be able to keep the list, and these include domestic banks and investment firms, and foreign credit institutions that conduct brokerage or banking activity in Poland. Krajowy Depozyt Papierów Wartościowych S.A. (the Polish stock exchange) will also be able to keep the list, as will notaries. Firms that are PSAs will be required to conclude an agreement for the keeping of the list. Above all, the body keeping the list will have to enter data and check that the data are complete (Art. 300²¹(1) also for instance requires rightholders under shares to be named, and any restrictions on disposal to be specified, or information that the shares have not been fully paid up to be given). It will also have to make sure that the number of shares listed matches the number of shares actually issued. It will be especially important for the list to be kept properly and for the data in it to be kept up to date due to Art. 300³⁰(1) of the Commercial Companies Code. This provision says that a person entered on the list is considered a shareholder in the company. This means that a particular person will have to be named on the list before they can exercise corporate rights. This standpoint is also confirmed in Art. 300⁸⁸ of the Commercial Companies Code. This provision says that the right to attend the shareholders’ meeting is afforded a person entered on the list as at the end of the day before the shareholders’ meeting is held.

New entries will be recorded at the initiative of the entity that has a legal interest (for example parties to a share sale or the company itself), and any shareholder will have access to the data on the list. It is hard to imagine the list being kept in any manner other than electronically. Art. 300³²(2) of the Commercial Companies Code provides for one other option – the register may be kept in a dispersed and decentralised database ensuring security of the data within it and proper compliance with the obligations of the body keeping the list.

List of shares on a blockchain

The provision mentioned above is the only provision in the entire legislative proposal that directly concerns a decentralised database. Of course, any provisions that also apply to more traditional organisation of the list will govern keeping of the list using a blockchain as well, which means the provisions described above in this article as well. A serious doubt therefore arises as to whether the list can be on a public blockchain, or only on a private blockchain.

In the statement of reasons (p.28) for the proposed amendment there is a sentence that mentions a “decentralised database with restricted access”, but this is not elaborated upon, and there is no such requirement in the provisions themselves. Presumably therefore the list can be kept on a public blockchain provided that, in line with those provisions, the adequate safeguards are in place for the data within it and the obligations of the entity keeping the list are duly fulfilled. Naturally, the term “keeping” is an oversimplification used for convenience. A list on a public blockchain would be maintained in a decentralised manner by entities dispersed around the world. These entities would provide the computing power for the dispersed network. In this sense, the entities entitled to keep the list using a blockchain system will not maintain and monitor the infrastructure for the list.

Even though the requirements under Art. 300³²(2) could have been formulated in any way with respect to keeping the list, particular attention needs to be paid to the second of these requirements. This second requirement suggests that in fact “keeping the list” means that intervention in the entries on the list is possible where appropriate. The entity keeping the list will have to be assured, as a minimum, that it is able to review new entries and prevent new entries in cases where the shares would be transferred in circumvention of the sale restrictions or without legal grounds. The entity keeping the list will have the option of intervention of course also with respect to the entries already in the database – for example when performing a final and binding court judgment or enabling enforcement activities. It will be possible to create a list that operates in this way using the relevant smart contracts. To have the option of using blockchain technology in a PSA, a universally understood definition of the term “keeping” in the described manner is needed.

Similar doubts would be dispelled if the proposed provisions included authorisation to issue a regulation laying down the technical requirements and general manner in which the electronic list and list in the dispersed register function. This would help mitigate unclear legal issues, and thus the economic risks as well. This would be an incentive for many firms to organise the list in this particular form.

Is a provision on a decentralised register necessary?

It is certainly good that the list can be kept on a blockchain. On the one hand, this accommodates firms at which the legislation is directly aimed, i.e. start-ups. It is predominantly companies of this kind that are responsible for development of dispersed register technology. This provision was inserted when work on the proposal was coming to an end, and as a result some other provisions are not properly aligned with it.

Under the proposal in its current form, it certainly allows the list to be kept on a private blockchain under the complete control of the body keeping it. On the other hand, this approach significantly limits application of technology and calls into question whether truly using it is economical. To change this, the provisions need to be amended so that trade in shares in a PSA on a public blockchain is secure and can be monitored.

Only if it is regulated in this way would this be a truly avant-garde solution giving the Polish legal system a major competitive advantage. This possibility would mean that shares in Polish companies could be traded legally on a global scale in an easily scalable manner. Also, trading on a blockchain means that many processes can be automated and costs can be reduced. Ultimately, this could lead to tokenisation of rights under PSA shares, leading in turn to them becoming a permanent feature in the worldwide reality of a dispersed register (this is discussed further in this article).

To ensure that similar solutions are implemented, a provision will be needed concerning the option of selling or encumbering shares in document form via a database (Giełda Papierów Wartościowych w Warszawie S.A. (the Polish Stock Exchange) took a similar view). In addition, FinTech institutions, for example payment institutions and electronic money institutions, should be added to the list of entities entitled to keep the list. It also has to be stated directly that organised trading and holding of a public offer of PSA shares via a dispersed and decentralised database is possible without special requirements and limitations applying under financial instrument trading laws and without operating through an investment firm. PSA subscription warrant issue and trade should be permitted according to similar rules.

The proposed solutions might also have a positive effect on development of share crowdfunding, and thus permit real use of the recently increased prospectus obligation threshold.

Adam Polanowski