Wyoming is looking to compete with Delaware as a corporate-friendly destination by creating a specialized court that offers lower fees and speedy dispute resolutions.
The proposals are part of a broader push by Wyoming lawmakers to make the state that invented the limited liability company (LLC) into a fintech friendly “Delaware of the West.”
Separate bills planned for the Wyoming state legislative session that started this week would use blockchain technology for commercial filings and business registrations and create a special purpose state-chartered depository bank intended to serve the blockchain industry.
Wyoming legislators last year passed a package of bills designed to make the state more appealing to digital asset businesses, after a lobbying effort led by Caitlin Long, co-founder of the Wyoming Blockchain Coalition and former managing director at Morgan Stanley.
Wyoming has often been runner-up in a legal entity’s search for a home due to the fact that “when you go to other competing jurisdictions, a lot of times they have specialty courts that can deal with those specific issues,” Sen. Drew Perkins (R), president of the Wyoming Senate, told Bloomberg Law in a Jan. 8 interview.
The legislative changes would give businesses a low-cost jurisdiction with the expertise to handle trusts and commercial disputes, he said.
“We want on-point and efficient discovery, and we want to grant the court broad power” to accomplish that, Perkins said.
If enacted, the court would have its own set of civil procedure rules that may, at a future date, look to Delaware case law as precedent, he said.
The legislation also proposes lower fees compared to Delaware, Perkins said. The bill proposes an initial filing fee that may range from $1,000 to $2,000, but does away with the multiple smaller fees entities registering or submitting additional filings in Delaware often have to pay, he said. “We thought we’d charge a higher entry fee and not worry about charging lots of specific fees,” Perkins said.
Perkins said he has discussed the issue with Wyoming’s secretary of state, speaker of the House, chief justice and district judges. “Not everybody has been unanimous, but the support has been pretty much overwhelming,” Perkins said.
Another bill (H.B. 70) set to be introduced during the 2019 legislative session would allow the secretary of state to use a commercial filing system reliant on distributed ledger technology and an application programming interface.
Legal documents required to register business entities, liens, property and secured transactions, and Uniform Commercial Code filings would all be able to use the system.
Both bills could work together to “dispose of cases more quickly and more cheaply” by automating corporate filings, Long said.
“You would always be able to look back to the original genesis moment of the formation of the business at the secretary of state to know whether the shares they’re purchasing were validly issued,” Long said.
In cases of LLC operating agreement disputes, registering those agreement on a blockchain would allow parties to verify which versions of an agreement were in effect at the moment of formation, she added.
“It’s basically designed to prevent disputes and facilitate corporate administration more efficiently,” Long said.
Long was one of the primary advocates for the Utility Token Act, enacted in 2018. The bill made Wyoming the first government to distinguish between securities and “digital consumer tokens.”
An amendment to that bill slated for 2019 would create a new asset class for digital tokens. The amendment would clarify how non-securities digital assets are treated during bankruptcy and corporate unwinding.
“The SEC has told us in our conversations with them that this is one of the things they think needs to be clarified before the industry is ready for prime time,” she said.
Banking the Blockchain Industry
The legislature is also expected to consider at least six blockchain- or fintech-related bills during its 2019 session.
One of these (H.B. 74) would create a special purpose state-chartered depository bank intended to serve the blockchain industry or other companies in industries that have been dropped by financial institutions in recent years for being “high risk”, such as gun manufacturers, gaming companies and the coal industry.
“If you don’t have a bank in the U.S., you can’t operate a business,” and many blockchain startups have been derisked by mainstream financial institutions, Long said.
Under the bill, “blockchain banks” wouldn’t be able to make loans but would comply with federal anti-money laundering and beneficial ownership disclosures.
Deposit insurance from the Federal Deposit Insurance Corporation would be optional. That provision is in response to the FDIC’s “Operation Chokepoint” which encouraged banks to drop high risk customers.
“We’ve had dozens of Wyoming startups lose bank accounts,” Long said. “To the extent that the FDIC is going to crack down on unfavored, politically incorrect industries, Wyoming is giving these industries a home so that they can make sure they don’t lose their banking services,” Long said.
Another bill (H.B. 57) would create a “regulatory sandbox.” Sandboxes generally allow companies to test new financial products or services without first obtaining a license and without fear of enforcement, typically with regulatory oversight and for a defined period of time.
If passed, that bill would set Wyoming up to follow in Arizona’s 2018 lead in becoming the first state-level “fintech” sandbox. Wyoming’s version would require a minimum $10,000 bond for consumer restitution in the case of harm, and mandate consumer disclosures.
Blockchain initiatives could also get a boost from Wyoming’s new governor. In his Jan. 7 inauguration speech, Gov. Mark Gordon, touted two Wyoming-based blockchain startups BeefChain and Sheepchain, which track the supply chains for the ranching sector, one of Wyoming’s primary industries.
Gordon called for the state to “do more” to attract similar companies.