Legal Aspects of Blockchain Technology: Governance

Preamble

This article is the sixth publication of the series “legal aspects of blockchain technology” by the Frankfurt School Blockchain Center (FSBC), Datarella, and CMS Hasche Sigle. This research is part of the KOSMoS project, a research project funded by the German Federal Ministry of Education and Research (BMBF) under the funding code 02P17D020. The Frankfurt School Blockchain Center gGmbH and Datarella GmbH are part of the “KOSMoS” consortium. Together with partners from the industry (Schwäbische Werkzeugmaschinen GmbH, Alfred H. Schütte GmbH & Co. KG, ASYS Automatisierungssysteme GmbH), academia (Universität Stuttgart, Hochschule Furtwangen), and software development (inovex GmbH, Ondics GmbH), they create a blockchain-based solution allowing manufacturing companies to establish a DLT-based framework for producing machines in order to (a) execute dynamic leasing contracts, (b) provide transparent maintenance documentation and © ensure high-quality documentation of manufactured products.

Introduction

More and more companies use blockchain technology for their business models and operations, integrating blockchain technology into the core of their organisational structure. This raises the need for legal backing of increasingly complex organisational structures that include a blockchain, e.g., in terms of auditing, leasing, privacy questions, or consortial use. The current legislation around blockchain technology is getting clearer and provides the legal boundaries of possibilities and restrictions for the organisation of these business models.

Legal Organization of a Collaborative Consortium

Regardless of which of the two legal organizational structures is chosen, the governance of a collaborative consortium has the goal of protecting its consortial members. Disputes can arise either amongst members or with parties external to the consortium.

Source: Own illustration.

Contract Solution

The consortium members specify a multilateral contract to which all consortium members agree. This contract contains extensive provisions on governance. Instead of a multilateral contract, a contractual chain is also possible to be set up. In Figure 1, this is indicated by the lines that connect every consortium member with one another individually. Here, the consortium members enter into a bilateral contract and, if needed, can selectively assert rights against single members. However, the latter is likely more complex due to the mutual rights and obligations. In addition, it is also possible to accept service providers as contractual partners, for example, for the technical maintenance of the software necessary for the operation of the blockchain.

Legal Person Solution

As an alternative to the contract solution, the consortium members have the possibility to establish their own legal entity. This involves bilateral contracts between the legal entity and each consortium member as well as with the external service provider.

Cross-Border Governance

In principle, it is possible to admit foreign companies as “members” in both contractual and legal person solutions. Even if the contract (contractual solution) and the legal entity (legal person solution) may be subject to German law, the law of the country in which the foreign company has its registered office is generally applicable to the foreign companies. If the consortium operates a blockchain, this could indirectly affect the operation of the blockchain, for example, if individual aspects of the blockchain were regulated in the respective foreign legal system differently. In addition, special tax law questions may arise.

About KOSMoS

KOSMoS is a research project funded by the German Federal Ministry of Education and Research (BMBF) under the funding code 02P17D020. More information about the project can be found on the website.

Remarks

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Jonas Gross

Jonas Gross

Jonas Gross is Chairman of the Digital Euro Association (DEA) and Head of Digital Assets and Currencies at etonec. Further, Jonas holds a PhD in Economics.