Also in the news...
How to claim preferential rates of duty on goods covered in the UK's deal with the EU and how to declare goods imported into the UK on your import declaration.
Forex Market is also known as Foreign Exchange Market or Currency Trading Market.
Obtaining a business license in Italy: what you need to know
The UK has introduced a points-based immigration system.
Find out what you need to do to prepare for making declarations on the Customs Declaration Service.
Future of Corporate Governance Through Blockchain-powered Smart Companies
Sitting in the same room of thousands of entrepreneurs and business owners across the world over the past few days, one persisting topic that kept popping up is our ability to adapt to digital disruption. In the era when everything seems to be ripe enough for disruption left and right, existing businesses are righteously concerned about the never-ending quest for ‘what next?’ and more importantly, ‘how?’
Robotics, AI, coming age of this and that. But one of the underlying aspects I rarely find entrepreneurs discuss is the structure on how their businesses are built upon to make these advancements happen. The foundational pillars on which your castle is built upon, the rules for the game you’re playing and legal frame within which your teams makes the most complex decisions in: corporate governance, none else.
Corporate Governance Today
Regardless of the size, industry and model of your business, corporate governance determines your ability to move. It is the system comprising rules, policies and processes to direct and control your organization. One of the most important roles it plays is aligning its stakeholders such as shareholders, owners, financiers and the regulators, just to mention a few. Essentially, corporate governance provides the framework for reaching company’s projections and practically covers every sphere of company management.
Manual paperwork and bureaucracy, the infamous characteristics of corporate governance, means your key decision making process is exactly that. Lengthy and heavy processes means that’s where you, or your hired workforce, will spend their mindspace on. Intuitively, you’d think there must be more innovation in the space - but there really isn’t that much. And so this is where alternative solutions come in.
Blockchain in corporate governance
An established school of studies has been conducted over the past decade in an attempt to understand board performance better. Research shows that the main reasons behind board failures is ‘invisible barriers’ such as meeting infrequency, miscommunication and misalignment and conflict of interests. Many of these are directly linked to misinterpretation and lack of trust. Most of which can be directly solved through blockchain technology and specifically, Smart Company model.
I will go more into detail about Smart Companies further down this text but to understand why blockchain has tremendous potential in the space of corporate governance lies in its ability to govern transactions without trust.
The ability to execute transfers automated through smart contracts may just be the key component solving many longstanding problems related to misalignment of the board of directors. Blockchain’s DNA features lowering the costs of operation, unlocking greater liquidity, more accurate record-keeping and transparency of ownership are not to be undermined. As Harvard Law argues, these characteristics “have the potential to change corporate governance as much as any event since the 1933 and 1934 securities acts in the United States”
It is no surprise that decision makers from jurisdictions to stock exchanges are exploring the use of blockchains to apply to their own models. In this light, although blockchain has been criticized for not being useful in any real-world implications yet, I must say in the world of corporate governance it proves out to be different.
I had the privilege to listen to Pascal Finette from Singularity University talk about emerging technologies the past weekend and couldn’t agree more with his view: a technology may meet all the market conditions of being the perfect solution for solving xyz, but as long as there is no regulation around it, nothing real will happen.
And so has been the case with blockchain. With no regulations, the bridge between the tech and real-world applications are just that far away. Therefore, ventures looking to make practical use of their emerging technology need to be mindful of this. And this brings me to Korporatio’s Smart Company model, a legal blockchain-powered entity.
Smart Companies Paving The Way
In essence, Smart Company is an entirely new form of business type (LTD., IBC) except it rivals all traditional models by being fully automated by blockchain.
And certainly, it makes just that big of a difference. When you have the ability to run your business in a structure that is legally compliant yet all its transactions happen in real-time and are verified directly on the blockchain, this changes the game.
What this means for business owners is that managerial ownership structures become more transparent. Corporate voting is easier, more accurate and secret strategies such as ‘empty voting’ become more difficult to execute. The ability to have corporate shares as ERC-20 tokens modified for security laws offers the means to assert and transfer ownership and liabilities of real-world assets with actual value. Just to give you a rough understanding of the magnitude of this untapped potential, it has been estimated that the total value of illiquid assets, including real estate, gold., is no less than $11 Trillion. Roughly the nominal GDP of China, the world’s second largest economy today.
For shareholders, Smart Company model offers nearly free trading and transparency in ownership records while simultaneously showing real-time transfers of shares from one owner to another. Taking this further, if Smart Companies chose to keep their financial records on the blockchain, this unprecedented transparency would allow investors to identify ownership positions of debt and equity investors and maybe even overcome corruption on the part of regulators and exchanges.
But what about smaller enterprises these implications may not apply to?
Regardless of the size, type or life cycle of the business, one of the more powerful aspects of this model is that it allows stakeholders to access current and accurate information at any given time. An example I’d like to draw attention to is the outdated Annual General Meeting (AMG) of Shareholders. While it still plays an important theoretical role in the agency world, in practice this meeting is often considered a rigid, mandatory ritual, which remained unchanged for centuries.
Ethereum-powered Smart Companies have the ability to remove the ritual of AMGs by creating trust and transparency through its technology. For instance, in Korporatio’s Dashboard version 2.0, Smart Companies can directly present proposals, and shareholders can exercise their voting rights. As voting results become instantly available after the cut-off, the majority requirement is determined automatically coded in the governing body of smart contracts. After this, the result of the vote has immediate legal liability as soon as the blocks on the chain move.
Realizing what a complex set of processes this simple solution is able to stack up and streamline in seconds brings this whole topic into a new level. And since all of this can be virtually managed through a click of a button from a single laptop, Smart Companies are paving their way into minimizing the noise of outdated corporate governance and drastically simplifying the process of decision-making.
Smart Companies and Jurisdictions
A variety of governmental agencies and international bodies have shown interest in regulating blockchain-related activities, but so far, there is no global consensus on governing this emerging technology yet. Many countries are under negotiations and starting to pilot more relaxed regulations for blockchain-based companies. Against this backdrop, Korporatio’s journey to open and successfully deploy jurisdictions on its own has been nothing short of groundbreaking.
Speaking from a technical aspect, Korporatio already has the tech architecture designed to be automated on the blockchain and therefore the model is fully scalable. Although it is notable to mention that each new jurisdiction would require minor changes in the technology to be deployed and therefore the Smart Company model may slightly differ per country in order to fit the legal framework.
Launch of New Jurisdiction
Notably, the first Smart Company model started from the Seychelles. Last month we announced our new add to the portfolio which is St. Vincent and the Grenadines. And now, we are excited to announce our third jurisdiction: The Republic of Panama.
Nearly identical to the previous jurisdictions, Smart Companies incorporated in Panama are governed by the Corporation Law of Panama, the law no. 32. One of the more notable differences in this jurisdiction compared to the Seychelles and St. Vincent and the Grenadines is that instead of requiring minimum one shareholder and director, Panama incorporations require minimum 3 directors (President, Secretary, Treasurer).
For Smart Companies, this means deploying three ownership accounts on Ethereum instead of one. For users, this only means a few more lines to fill in at the incorporation stage. Adding Panama to the portfolio of Smart Companies opens up the doors to the second most popular jurisdiction in the world for founders and business owners.
In for the Long Play
Thinking a bit further down the road, blockchain as technology will fade into the background as user experience will lead the way into mass market adoption. With decentralized web or ‘web 3.0’ in the eyes of blockchain enthusiasts today, it is not hard to connect the dots in an economy where digital entities are controlled directly by their owner via blockchain in the so-called non-state-backed formality.
Not so far in the future, all business executions have the potential to run on codes. With automated dividends, stock options, bonuses and self-executive accounting, corporate governance will be converted into a digital ecosystem where transparency, immutability, accuracy and security will be defined as basic currency.
Creation of new processes will be streamlined through shared Application Programming Interfaces (API’s) across sectors and transactions sent out in digital currencies will be automatically converted into fiat currencies. Reaching decentralized consensus, conventional ownership models will be shaken up radically, just like today’s corporate governance.
And this is where Korporatio visions itself in the long-term: pioneering as an enabler for the next generation of entrepreneurs to create and innovate hassle-free, in a system that leverages every aspect of the blockchain technology. Invented by entrepreneurs to entrepreneurs. So that you, as an entrepreneur, can focus on what really matters.