Effective September 1, 2019, lawmakers in Texas passed legislation clarifying the ability of businesses organized under Texas law to incorporate blockchain technology into their entity recordkeeping and communications. In doing so, Texas joins the ranks of several other states that have similarly amended their corporate formation statutes.

Texas Senate Bill 1859 amends the Texas Business Organizations Code to add the concept of an “electronic data system,” which includes electronic databases or networks that employ blockchain or distributed ledger technology. The bill allows Texas business entities to use electronic data systems to keep the books, records, minutes and ownership or membership records of the entity, with the caveat that any records kept electronically must be convertible to “written paper form within a reasonable time.” By expanding the definition of “electronic transmission” to include the use of electronic data systems, the bill also allows certain member or shareholder notices and consents to be given via an electronic database or network using blockchain technology.

Texas Senate Bill 1971 also expands the ability of Texas corporations to utilize blockchain technology by allowing the use of electronic data systems to prepare required lists of shareholders entitled to vote at meetings. The bill specifies that any corporation using an electronic data system to prepare such a shareholder list must ensure the information included in the list is available only to the corporation’s shareholders.

While the Texas Business Organizations Code had not previously prohibited the use of electronic systems or blockchain technology in entity recordkeeping and communications, the TBOC also did not specifically allow the use of such technologies, which may have left some Texas businesses wondering if they were legally permitted to use new technologies to comply with statutory requirements. Other states, such as Delaware, have passed similar legislation specifically allowing the use of blockchain systems to maintain records and transmit notices to stockholders. The bills passed by the Texas legislature therefore help Texas keep pace with a growing national trend.