The Digital Notary use-case accelerates digitising Dutch notary services

As the European Parliament just passed new legislation stating that from August 1st, 2021 every European country has to offer full digital incorporation of limited companies, the Netherlands feels the pressure. In the Netherlands we currently have rigid notary structure  used to incorporate limited liability businesses (Dutch: BVs) and to trade its shares. With this  new legislation the European Parliament has set a timetable on the digital incorporation of  companies, digital shareholder registers and digital transfer of shares. 

The Digital Notary use-case has been established to find a way to change the standard on  corporate structuring and the trading of private shares. In the future, those wishing to  establish a new company will now be able to do so in a fully digital and affordable way.  Various partners have come together acknowledging the same problems that exist today:  the process of incorporation and transfer of shares of private limited companies is too  cumbersome, expensive, and time-consuming (in the Netherlands). 

As described, current legislation is on the side of this Digital Notary use-case, as the  European Parliament has set a timetable on the digital incorporation of companies. The new  directive requires European member states to allow private limited companies to be formed  by digital means before the 1st of August 2021. Thanks to this directive, a digital deed,  digital identification, and digital signature can be provided, without the time and money  consuming process of manually getting a notary involved. The Royal Dutch Association of 

Civil-law Notaries (KNB) has developed a central digital filing platform, aiming to be ready  on August 1st, 2021. However, the Dutch Ministry of Justice and Security has recently  requested a postponement of up to one year as it needs more time to carefully complete  the legislative process. 

2Tokens, The Share Council, Nxchange and Bondex realised that they all were faced with  having the same problems around the process of digital incorporation and they discovered  there were many other like-minded people wanting to change the paradigm. This created the incentive to create a use-case called Digital Notary. Supported by government, private  companies and semi-public organisations, focusing on digitising the complete incorporation  journey of a start-up, limited liability company (a BV in the Netherlands). Supported by  some of the best notary firms in the Netherlands such as FieldFisher and Westerdok  Notariaat. 

The first step of the Digital Notary project was to start with the question, why? Why do we  need the Digital Notary? Next to the demanding position of the European Parliament there  are at least three other mentionable reasons to execute this project: 

• First of all, we see a transition in ways of funding and owning new companies and  new initiatives which puts more and more strains on our legal system.  • Secondly, we see a stronger focus on community funding and co-ownership of all  stakeholders which is creating the demand for different corporate structures in  comparison to the mainstream constructs we have currently. 

• Thirdly, the current incorporation practices and share transfer methods create  bottlenecks and inefficiencies in this transition, largely influenced by notary  practices.  

There are a number of factors that lead to such inefficiencies in terms of the day-to-day activities on behalf of notaries: 

• the notaries have typically been slow to embrace new digital solutions • the notary practice is extremely standardised and rigid 

• the incorporation and transaction of shares process is heavily regulated • the market of incorporation has a lack of transparency 

One key factor is process and workflow for incorporation, in other words the entrepreneur’s journey, is very standardised. Next to that, a lot of separate pieces have been digitised.  Therefore, by creating a digital solution that has a standardised process to enable  incorporation, shareholder registration, share trade and even public funding, could improve  the process immensely. It was believed by the cohort of organisations that established the  Digital Notary case study that blockchain technology offered a great solution to bring  greater transparency and efficiencies for notaries and all those involved in incorporating  new companies and trading shares in private limited businesses.

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So, what is this Digital Notary project going to focus on? To summarise all key elements, we  can state that the Digital Notary project focuses on creating one digital journey for  entrepreneurs, using transparent tokenised structures. 

For the execution of this project, it was agreed to focus and address the following: 

• Tokenise current notary structure (be accepted) 

• Create a fully legalised digital register 

• Fully implement tokenised share depot structure 

Once the above had been achieved the objective was to create and test a Minimal Viable  Product (MVP) and then validate the MVP using real life examples. It was decided to sketch  out the journey of an entrepreneur from incorporation to shareholder registries and  exchanges. These sketches were created to identify where there were gaps and how, and  where, tokenomics could, if at all, assist to make the process smoother. 

Is the legal/technical framework there? 

The apparent legal framework that is needed is to be able to register capitalisation tables  on-line, followed by being able to pass a notary deed on-line in order to transfer limited  shares. Technically, we have found that there are no boundaries nor compromises to be  made. The first test with the digital shareholder register has been executed, while the  transfer of limited shares is within reach. 

Do the current regulations suffice? 

Together with notaries and official bodies (DBC) we will need to research any possible  regulatory objection to this path. So far, we have yet to discover any legal reason why it is  not possible to fully digitise the incorporation work of the notary. 

Does the token strategy work? 

There are proven minimal viable business cases of a digital notary to deliver greater  transparency while reducing the time it takes to incorporate a company. The overarching  tokenisation of the notary framework still needs to be proven. 

In the midst of the challenges such as personal notary deeds to impersonal digital signing of  statutory articles, there is clearly a path forward. Seemingly, it is a ‘no brainer’ to focus on  digital assets to guide the digital notary. Even more so because great parts of this journey  have already been digitised. The intention of the Digital Notary case study is to work with  various stakeholders to determine a way to chain all actions together! 

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Each week on the Digital Bytes show Pierre Bourque, CEO of Blockchain Radio in Ottawa,  Canada, talks to Jonny Fry from TeamBlockchain reviewing the latest Digital Bytes. They  explore how, where and why Blockchain technology and/or Digital Assets are being used in  various industries and jurisdictions globally.  

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