What could possibly go wrong?
When a company has multiple shareholders, its ownership structure is decentralized by design. Furthermore, each company has various stakeholders. However, ownership records are managed in siloed databases. Though it is a distributed system of sorts, it is not in sync. Instead, the majority of these are updated inconsistently. Stakeholders cannot tell if they are the first or last to know about the latest ownership changes. Everyone is waiting for a report from the past — trust is absent in the system.
A decentralized, distributed ledger system is a perfect remedy for this issue. It can categorically solve most of the above problems. Everyone can have their working copies of data, but always have a direct link to the newest available information in real time. A new system gives everyone a seat at the same table; it will drive ecosystem value up and significantly lower costs.
The current system is born out of applied new technologies that were retrofitted to older ones. It is logical; the current system is much more efficient than the older ones it has replaced. However, there are constraints and hidden costs throughout the system due to technological limitations. The primary limitation is isolated data siloes and multiple versions of the data. But, this can change with new technology.
First, let us start by examining the history of how shares were held.
A company is an organic idea — an idea in which people with shared interests or missions group together, create a formalized structure, develop a shared mission, and share (or limit) responsibilities. The group delegates control over a venture to a central entity. Furthermore, a company has an ownership structure. There must be a governance structure (rules) that the owners agree to adhere to. That way, each owner has rights and responsibilities. But in the 1600s, the idea of shares and limited liability companies took hold. Suddenly, ownership became fractional and transferrable. (https://en.wikipedia.org/wiki/Dutch_East_India_Company).
Before computers, if you wanted to buy a share in a company, you would buy a physical, printed share. You would probably buy it directly from the previous shareholder or his representative, then physically take hold of the actual share.
Depending on the articles and laws, you were required to report the purchase to the appropriate authorities. In many jurisdictions, the same basic rules still apply.
Share ownership was recorded in a share ledger managed by the company board — a centralized ledger in which the transactions and ownership changes were recorded. You might have had auditors involved as well as witnesses, legal agreements, and lawyers.
Having physical shares in the shareholder’s custody and a central registry recording the shares’ history was a robust system. Undeniably, it has an element of decentralization. Together, it was like having two pieces of a broken heart necklace locked together. When the physical share and the central ledger “fit together,” ownership was undeniable.
This system took time to develop. It was a slower time — people rode horses, and most companies dealt with physical products. However, this setup was not ideal because it was very slow.
When things started moving faster, traders and trading accounts were developed. The shareholder deposited the physical shares and permitted the traders to trade on their behalf.
When things started moving faster, traders and trading accounts were developed. The shareholder deposited the physical shares and permitted the traders to trade on their behalf.
Increased speed called for a new method of doing things. Computers and spreadsheets were introduced, then SQL databases and the internet. Physical shares faded over time, being replaced by digital representations safeguarded in trading accounts.
The current state of things fragments and obscures the ownership structure, contributing to a centralized design.
The current state of things fragments and obscures the ownership structure, contributing to a centralized design.
The system is spinning out of control.
The increased complexities in the current system call for increased regulations and reporting. AML standards, FATF, beneficial ownership reporting, SEC filings, shareholder meetings, competition authorities, financial institutions, KYC, and KYB processes are on the rise. Everything is in a state of flux while we are waiting for static reports. The dog runs in circles, chasing its tail and spinning out of control.
What if we could mend this situation with a new methodology that enables us to make the technology finally fit the original design? Well, we can; we at Mojoflower are building this system.
Our system builds on the simple assumption that a shareholder wants to take possession of his shares. We assume that he or she is the stakeholder that has the most incentive to keep the ownership record up-to-date because it is in his or her best interest.
We can efficiently do this using decentralized ledger technology and the blockchain, getting everyone on the same page and re-aligning everyone’s interests with real-time data, and stopping waiting for reports from the past.
Sign up for early access at -> www.mojoflower.io
Sources:
https://ipi.academy/files/products/edition/745/Company_Articles_sam_chp.pdf
https://upload.wikimedia.org/wikipedia/commons/d/d9/Mississippi_and_Missouri_RR_1856.jpg
