Wyoming Enacts Trailblazing Blockchain and Cryptocurrency Legislation
During the week of March 5, 2018, Wyoming passed comprehensive legislation crafted to convince blockchain and cryptocurrency businesses to locate within its borders and avail themselves of what many consider favorable corporate and tax laws. The Wyoming Blockchain Legislation is significant as it represents the first comprehensive effort to address numerous nuances in securities law, corporate law, banking regulation and tax that have to date proven to be barriers to blockchain and cryptocurrency businesses flourishing in the United States. By being an early adopter, Wyoming may now become a jurisdiction of choice not only for sector-specific ventures in blockchain-related technology but also for exchanges of cryptocurrency and the issuance of non-securities “utility tokens” in arenas such as insurance and health care.
The Wyoming Blockchain Legislation comprises five separate bills:
HB 19 provides an exemption for virtual currency (e.g., Bitcoin, Ethereum, etc.) used within Wyoming from money transmitter laws and regulations, subject to providing “specified verification authority” to the Wyoming Secretary of State and the Wyoming Banking Commissioner. “Specified verification authority” entails representations and undertakings of the issuer of utility tokens to confirm beneficial ownership of virtual currency, as well as steps taken to prevent fraudulent duplication of those virtual currencies by unaffiliated third parties. Among other things, this bill permits Wyoming companies and trusts to conduct commerce with other Wyoming companies and trusts without being subject to money transmitter laws.
HB 70 provides that a person who develops, sells or facilitates the exchange of an open blockchain token (a utility token) is not subject to specified securities and money transmission laws, subject to providing “specified verification authority” to the Wyoming Secretary of State and the Wyoming Banking Commissioner. The primary purpose of this bill is to make clear that utility tokens issued for noninvestment purposes will generally be exempt from registration requirements under Wyoming’s securities laws.
SF 111 provides that virtual currency is not subject to taxation as “property” in Wyoming. While Wyoming does not impose income tax on its residents, this bill makes clear that virtual currency is personal property not subject to property tax in Wyoming. The choice of Wyoming corporations and trust structures to take custody of and hold virtual currency appears to be a primary objective of this bill.
HB 101 provides for the maintenance of corporate records of Wyoming entities via blockchain so long as electronic keys, network signatures and digital receipts are used. Lists of shareholders, nominee shareholders and attendant voting matters are intended to be encompassed through this legislation, thus paving the way for the development of transfer agencies and exchanges within Wyoming.
HB 126 modifies Wyoming’s corporate code to permit the formation of “Series LLCs.” Series LLCs often are used by hedge funds and private equity funds to create insulated “cells” within a corporate structure to limit liabilities of the parent LLC. This corporate structure is used frequently in the blockchain space as well. The intent of this legislation is to promote Wyoming as a jurisdiction of choice for securities formation and to compete with Delaware and Nevada for corporate registration revenue.
While the regulation of blockchain and cryptocurrency activities on a federal level remains uncertain, the Wyoming Blockchain Legislation aims to facilitate the development of business in these fast-emerging areas by providing a predictable legal and regulatory environment. Businesses that are considering implementation of blockchain and virtual currencies as part of their overall plans should review carefully the Wyoming Blockchain Legislation to ascertain whether its provisions provide value propositions for their enterprises compared with other jurisdictions within and outside of the United States. Likewise, those who invest in cryptocurrency should consider whether the Wyoming Blockchain Legislation provides a corporate harbor for their holdings that also may present transactional opportunities now and in the future.