Good. As a stockholder, you have the right to insp
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Posted On: 09/24/2013 2:22:58 PM
Good. As a stockholder, you have the right to inspect the company books, but the request must follow certain protocol and prerequisites.
Books and Records Demands
What Governs a Shareholder’s Rights With Respect to Inspection of the Books and Records of the Company?
Section 220 of the Delaware General Corporation Law (DGCL) establishes:
the right of a shareholder or director to gain access to books and records of a Delaware corporation
the procedural requirements to properly make a request to inspect the corporation’s books and records; and
the right to file an expedited summary proceeding to compel the corporation to provide access to its books and records if it refuses to comply with its obligations.
What Are the Procedural Requirements for a Shareholder To Initiate a Demand for Books and Records?
Before bringing an action in the Court of Chancery, a shareholder must first make a demand to inspect the books and records of the company. The demand must be in writing, under oath and sent to the company by or on behalf of the shareholder. The shareholder must also include a power of attorney with the written demand if he or she wants someone to make the inspection on his or her behalf. The demand must state the purpose for which the stockholder seeks inspection. The shareholder must identify the type or category of documents that he or she is seeking.
What Are Some Common Purposes for Which Shareholders and Directors Seek Inspection of the Books and Records of a Company?
Some common and approved bases for which shareholders seek inspection of the books and records of the company are:
To value their stock
To communicate with other stockholders in the company
To investigate corporate mismanagement
To solicit proxies
When a director seeks to inspect the books and records of a company, it is usually because he or she is in the minority or has been precluded from information that is necessary to fulfill fiduciary duties to the company and its shareholders.
What Options Are Available to a Company That Receives a Shareholder’s Demand for Books and Records?
The company has several options when considering a demand:
It may refuse on the basis that the form of the demand did not comply with the prerequisites identified above.
It may refuse on the basis that the demand fails to state a proper purpose or the books and records sought are not necessary to fulfill the stated purpose.
It may agree to provide the inspection subject to the shareholder agreeing to sign a confidentiality agreement.
What Happens If the Corporation Refuses or Does Not Respond to the Demand?
The corporation has five days to respond to the demand. If the company refuses the shareholder’s demand or does not respond within five days, then the shareholder can initiate an action in the Court of Chancery seeking access to the company’s books and records.
What Can a Shareholder Expect in a Litigation for Inspection of Books and Records?
The suit brought by the shareholder can be tried on an expedited schedule, usually six to eight weeks. The trial generally lasts one day, and an oral ruling from the bench is not an atypical disposition of the case. The issues in the case are limited to whether the stockholder’s stated purpose for seeking the inspection of the books and records is proper and whether the books and records sought are germane to that stated purpose.
Books and Records Demands
What Governs a Shareholder’s Rights With Respect to Inspection of the Books and Records of the Company?
Section 220 of the Delaware General Corporation Law (DGCL) establishes:
the right of a shareholder or director to gain access to books and records of a Delaware corporation
the procedural requirements to properly make a request to inspect the corporation’s books and records; and
the right to file an expedited summary proceeding to compel the corporation to provide access to its books and records if it refuses to comply with its obligations.
What Are the Procedural Requirements for a Shareholder To Initiate a Demand for Books and Records?
Before bringing an action in the Court of Chancery, a shareholder must first make a demand to inspect the books and records of the company. The demand must be in writing, under oath and sent to the company by or on behalf of the shareholder. The shareholder must also include a power of attorney with the written demand if he or she wants someone to make the inspection on his or her behalf. The demand must state the purpose for which the stockholder seeks inspection. The shareholder must identify the type or category of documents that he or she is seeking.
What Are Some Common Purposes for Which Shareholders and Directors Seek Inspection of the Books and Records of a Company?
Some common and approved bases for which shareholders seek inspection of the books and records of the company are:
To value their stock
To communicate with other stockholders in the company
To investigate corporate mismanagement
To solicit proxies
When a director seeks to inspect the books and records of a company, it is usually because he or she is in the minority or has been precluded from information that is necessary to fulfill fiduciary duties to the company and its shareholders.
What Options Are Available to a Company That Receives a Shareholder’s Demand for Books and Records?
The company has several options when considering a demand:
It may refuse on the basis that the form of the demand did not comply with the prerequisites identified above.
It may refuse on the basis that the demand fails to state a proper purpose or the books and records sought are not necessary to fulfill the stated purpose.
It may agree to provide the inspection subject to the shareholder agreeing to sign a confidentiality agreement.
What Happens If the Corporation Refuses or Does Not Respond to the Demand?
The corporation has five days to respond to the demand. If the company refuses the shareholder’s demand or does not respond within five days, then the shareholder can initiate an action in the Court of Chancery seeking access to the company’s books and records.
What Can a Shareholder Expect in a Litigation for Inspection of Books and Records?
The suit brought by the shareholder can be tried on an expedited schedule, usually six to eight weeks. The trial generally lasts one day, and an oral ruling from the bench is not an atypical disposition of the case. The issues in the case are limited to whether the stockholder’s stated purpose for seeking the inspection of the books and records is proper and whether the books and records sought are germane to that stated purpose.
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