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Information Rights — A Survey
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Information Rights — A Survey
1
Allen Sparkman*
ABSTRACT
This paper traces the development of the rights of owners of entities to
examine and copy the entity’s books and records. The paper then surveys
the current state of the law for corporations, limited liability companies,
limited partnerships, and partnerships and makes recommendations.
* The author practices transactional law in Houston and Denver.
1.The author’s discussion of corporate cases relating to information rights is largely taken from the
commentary to the Revised Model Business Corporation Act. The author’s discussion of cases relating
to information rights in unincorporated entities is largely based on the excellent summaries of LLC
cases prepared as a tremendous service to the bar by Professor Elizabeth Miller of Baylor Law School.
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42 B.E.T.R. [Vol. 2 2018
I. INTRODUCTION
Information rights serve several purposes. They allow owners who are not in
management to obtain information relevant to their ownership. For those who are
in management, the majority of statutes and cases recognize that they need almost
unfettered access to information about the entity they are responsible for manag-
ing.
2
Information rights often do not receive the attention they should. Bill Calli-
son
3
observed that if a non-manager member is permitted access to important
business information of the LLC, the LLC may not have recourse if the member
uses that information for personal benefit, even if in competition with the LLC.
4
A decision of the bankruptcy court for the Eastern District of Pennsylvania il-
lustrates Callison’s concern. In re South Canaan Cellular Investments, LLC (South
Canaan Cellular Investments, LLC v. Lackawaxen Telecom, Inc.) involved two
Delaware LLCs, the debtors in bankruptcy, who sued Frank M. Coughlin, a mem-
ber of the LLCs, and Lackawaxen Telecom, Inc. (“LTI”), a corporation of which
Coughlin was president and a shareholder, for breach of fiduciary duty based on
Coughlin’s obtaining information from the LLCs regarding the LLCs’ indebted-
ness to a bank and LTI’s purchase of the indebtedness from the bank.
5
The court
concluded Coughlin did not owe any fiduciary duty to the LLCs because he was
not a managing or controlling member.
6
The court also rejected an argument that
Coughlin had breached the implied covenant of good faith and fair dealing, rely-
ing in part on the statutory provisions governing access by LLC members to in-
formation about the LLC.
7
The court pointed out that the managers of the LLC
need not disclose confidential information if they believed it would harm the
LLC.
8
Moreover, the court found the Delaware LLC statute to implicitly recognize
that non-fiduciaries obtaining information may make use of that information for
their own benefit.
9
The court stated that “[p]resumably, defendant Coughlin
sought information from the debtors under section 18-305(a)(1) or (6).”
10
The
provision of the Delaware LLC Act at issue provides that a member’s inspection
rights are
subject to such reasonable standards (including standards governing what
information and documents are to be furnished at what time and location
and at whose expense) as may be set forth in a limited liability company
2. See infra notes 42, 98–109, 211–29 and accompanying text. Nevada is an outlier in that it pro-
vides no greater rights to managers of LLCs than to members. See infra notes 176–81, 232–36 and
accompanying text. Moreover, Nevada’s corporate statute provides no express information rights to
directors. N
EV. REV. STAT. § 78.257 (2017).
3. J. William Callison is a partner in the Denver office of Faegre Baker Daniels LLP.
4. J. William Callison & Allan W. Vestal, “They’ve Created a Lamb with Mandibles of Death”:
Secrecy, Disclosure, and Fiduciary Duties in Limited Liability Firms, 76 I
ND. L. J. 271, 279 (2001).
5. In re S. Canaan Cellular Invs., LLC, 427 B.R. 85 (Bankr. E.D. Pa. 2010).
6. Id. at 96, 109.
7. Id.
8. Id. at 109.
9. Id.
10. Id.
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agreement or otherwise established by the manager or, if there is no man-
ager, then by the members.
11
In re South Canaan Cellular cautions advisors to consider if appropriate re-
strictions on information should be included in a company agreement.
This article aims to provide a useful summary of where we are with respect to
information rights, including how we got there. This article concludes with some
recommendations.
II. GENESIS OF INFORMATION RIGHTS — COMMON LAW DEVELOPMENT
OF
SHAREHOLDER RIGHTS
Before the enactment of statutes permitting the inspection of a corporation’s
books and records by a shareholder, the common law provided inspection rights if
the shareholder established that the inspection would be made for a proper pur-
pose and at a proper time.
12
Stockholder inspection rights in Delaware date from the turn of the twentieth
century, when the courts recognized them under the common law.
13
In that era and
for a long time afterwards, courts logically focused on paper documents, but times
have changed. “Books as we know them may cease to exist in the evolution of the
Information Age.”
14
Today, over 90% of business documents are stored electroni-
cally.
15
Limiting “books and records” to physical documents “could cause Section
220 [of the Delaware General Corporate Law] to become obsolete or ineffec-
tive.”
16
For example, Sarni v. Meloccaro involved litigation which began before
Rhode Island adopted statutory inspection rights.
17
The court in Sarni held that a
proper purpose was established by evidence that apparently gratuitous payments
by the close corporation to the shareholder had terminated without explanation,
and that the shareholder had been deprived of any information concerning the
management of the corporation.
18
Otis-Hidden Co. v. Sheirich allowed a minority shareholder to inspect corre-
spondence between its nonresident president, who was the majority shareholder,
and its active manager.
19
The court held that the common law of inspection in-
cluded all documents, contracts, and papers relating to the business affairs of the
corporation.
20
As incidents of the common law inspection right, the shareholder was entitled
to employ independent experts,
21
and to make copies of those books and records
as were “essential and sufficient” to furnish the needed information.
22
11. DEL. CODE ANN. tit. 6, § 18-305(a) (2014).
12. M
ODEL BUS. CORP. ACT §§ 16.01–.02 (AM. BAR ASS’N 2006).
13. See, e.g., State ex rel. De Julvecourt v. Pan-Am. Co., 63 A. 1118 (Del. 1906).
14. Francis G.X. Pileggi, Kevin F. Brady & Jill Argo, Inspecting Corporate ‘Books and Records’ in
a Digital World: The Role of Electronically Stored Information, 37 D
EL. J. CORP. L. 163, 165 (2012).
15. Id.
16. Id. at 164.
17. Sarni v. Meloccaro, 324 A.2d 648 (R.I. 1974).
18. Id. at 653.
19. Otis-Hidden Co. v. Sheirich, 219 S.W. 191 (Ky. 1920).
20. Id.
21. Feick v. Hill Bread Co., 103 A. 813 (N.J. 1918), aff’d, 105 A. 725 (N.J. 1919).
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Information rights developed at common law because, as one court stated:
Since the stockholders are, in a sense, the beneficial owners of the corpo-
rate assets, and thus the persons primarily interested in seeing that the
corporation is efficiently and profitably managed, it is generally held that
they are entitled to inspect books and records in order to investigate the
conduct of management, to determine the financial condition of the cor-
poration, and generally to seek an account of the stewardship of the of-
ficers and directors.
23
The court in Sarni then quoted the U.S. Supreme Court:
Stockholders are entitled to inspect the books of the company for proper
purposes at proper times . . . [a]nd they are entitled to such inspection,
though their only object is to ascertain whether their affairs have been
properly conducted by the directors or managers. Such a right is neces-
sary to their protection. To say that they have the right, but that it can be
enforced only when they have ascertained, in some way without the
books, that their affairs have been mismanaged, or that their interests are
in danger, is practically to deny the right in the majority of cases.
24
The Massachusetts Supreme Court explained the common law right to exam-
ine books and records as follows:
The common law right of a stockholder to examine the books and ac-
counts of the corporation is not an absolute right but is a qualified one.
Stockholders are the beneficial owners of all the assets of the corpora-
tion, and they are entitled to reliable information as to the financial con-
dition of the corporation, the manner in which its business has been con-
ducted and its affairs have been managed, and whether those to whom
they have entrusted their property have acted faithfully and efficiently in
the interests of the corporation. A stockholder who is acting in good faith
for the purpose of advancing the interests of the corporation and protect-
ing his own interest as a stockholder is generally entitled to examine the
corporate records and accounts. But he has no such right to an examina-
tion if his purpose be to satisfy his curiosity, to annoy or harass the cor-
poration, or to accomplish some object hostile to the corporation or det-
rimental to its interests.
25
The principles applicable to shareholder requests to examine the books and
records of a corporation that the courts developed under the common law will be
evident in the statutes discussed later in this article.
22. State ex rel. Rogers v. Sherman Oil Co., 117 A. 122 (Del. Super. Ct. 1922).
23. Sarni, 324 A.2d at 653.
24. Id. (citing Guthrie v. Harkness, 199 U.S. 148, 154–55 (1905)).
25. Albee v. Lamson & Hubbard Corp., 69 N.E.2d 811, 813 (Mass. 1946).
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III. EFFECT OF STATUTORY INSPECTION RIGHTS ON COMMON LAW
RIGHTS
Parsons v. Jefferson Pilot Corp. held that the North Carolina corporate statute
did not limit the power of the court to compel the production of corporate records
for inspection under common law rights independent of those created by the stat-
ute.
26
In Bank of Giles County v. Mason, the court stated that the newly-adopted
Virginia inspection statute was “not materially differ[ent]” from the common
law.
27
However, the court in Caspary v. Louisiana Land & Exploration Co. held
that the common law right of inspection in Maryland was superseded by the
Maryland statute limiting inspection rights to shareholders holding more than 5%
of the corporation’s shares,
28
but Tucson Gas & Electric Co. v. Schantz held that
common law rights still applied in Arizona because the Arizona legislature had
not manifested a clear intent to repeal the common law or declare the statute to be
exclusive.
29
More recently, Pomerance v. McGarth
30
held the following:
[u]nder New York law, shareholders have both statutory and common-
law rights to inspect a corporation’s books and records, so long as the
shareholders seek the inspection in good faith and for a valid purpose [,
stating]
[s]tatutory inspection rights complement, but do not eliminate, common-
law inspection rights, which potentially encompass a far greater range of
records. While inspection rights permit shareholders to examine records
that are relevant and necessary for a valid purpose, they do not grant
shareholders a right to be involved in day to day management. Whether a
shareholder asserts statutory or common-law inspection rights, the share-
holder may be required to demonstrate good faith and a valid purpose,
and inspection may be limited to the scope of records relevant and neces-
sary for such purpose.
31
The court also noted,
In a prior appeal in this case, plaintiff sought to inspect a list of unit own-
ers and their contact information to assist her in campaigning for upcom-
ing condominium board elections. Although Real Property Law § 339-w,
unlike Business Corporation Law § 624, does not grant unit owners a
statutory right to examine a list of unit owners, we held that a condomin-
ium unit owner has the right to receive from the board a list of unit own-
26. Parsons v. Jefferson Pilot Corp., 426 S.E.2d 685 (N.C. 1993).
27. Bank of Giles Cty. v. Mason, 98 S.E.2d 905 (Va. 1957).
28. Caspary v. La. Land & Expl. Co., 707 F.2d 785 (4th Cir. 1983).
29. Tucson Gas & Elec. Co. v. Schantz, 428 P.2d 686 (Ariz. 1967). Earlier cases holding that stat-
utes did not limit common law inspection rights include Holdworth v. Goodall-Sandford, Inc., 55 A.2d
130 (Me. 1947) and State ex rel. Cochran v. Penn-beaver Oil Co., 143 A. 257 (Del. 1926). But Morris
v. Broadview, 52 N.E.2d 769 (Ill. 1944) held that the corporate statute before it changed the sharehold-
er’s absolute right of inspection at common law to a limited right of inspection that required a proper
purpose.
30. Pomerance v. McGarth, 143 A.D.3d 443 (N.Y. App. Div. 2016).
31. Id. at 444.
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ers and their contact information . . . . In so holding, we observed that
‘the rationale that existed for a shareholder to examine a corporation’s
books and records at common law applies equally to a unit owner vis-à-
vis a condominium.’ (id. at 441, 961 N.Y.S.2d 83 [internal citation omit-
ted]).
32
The court also held that the plaintiff was entitled to make copies of docu-
ments she was allowed to examine and to receive electronic copies.
33
King v. DAG SPE Managing Member denied the request of Robert L. King to
investigate the books and records of defendant under both the Delaware statute
34
and the common law.
35
King was a non-stockholder and former member of de-
fendant’s board of directors.
36
The court based its holding on the fact that King
was no longer a director and the fact that the Delaware statute had been construed
to require that the director be a current director.
37
The court expressed doubt that
the common law of inspection rights still applied in Delaware because Delaware
courts had enforced the common law only until 1981, when the Delaware statute
was enacted.
38
A Missouri court held that Missouri’s shareholder inspection statute
39
does
not “expressly or impliedly abrogate common law right[s] of inspection.”
40
North Carolina provides the following:
Notwithstanding the provisions of this section or any other provisions of
this Chapter or interpretations thereof to the contrary, a shareholder of a
public corporation shall have no common law rights to inspect or copy
any accounting records of the corporation or any other records of the
corporation that may not be inspected or copied by a shareholder of a
public corporation as provided in G.S. 55-16-02(b).
41
32. Id. at 445.
33. Id. at 446.
34. King v. DAG SPE Managing Member, Inc., C.A. No. 7770-VCP, 2013 WL 6870348, at *7 (Del.
Ch. Dec. 23, 2013) (citing D
EL. CODE ANN. tit. 8, § 220(d) (2010)).
35. Id.
36. Id. at *1.
37. Id. at *6.
38. Id. at *7.
39. Mo. Rev. Stat. § 351.215 (2017).
40. State ex rel. Brown v. III Investments, Inc., 80 S.W.3d 855, 859 (Mo. Ct. App. 2002).
41. N.C.
GEN. STAT. § 55-16-02(i) (1993). § 55-16-02(b) states:
(a) A qualified shareholder of a corporation is entitled to inspect and copy, during regular busi-
ness hours at a reasonable location specified by the corporation, any of the following rec-
ords of the corporation if the shareholder meets the requirements of subsection (c) and
gives the corporation written notice of his demand at least five business days before the
date on which he wishes to inspect and copy:
(1) Records of any final action taken with or without a meeting by the board of directors, or by
a committee of the board of directors while acting in place of the board of directors on be-
half of the corporation, minutes of any meeting of the shareholders and records of action
taken by the shareholders without a meeting, to the extent not subject to inspection under
G.S. 55-16-02(a) ;
(2) Accounting records of the corporation; and
(3) The record of shareholders: provided that a shareholder of a public corporation shall not be
entitled to inspect or copy any accounting records of the corporation or any records of the
corporation with respect to any matter which the corporation determines in good faith may,
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Whether any common law inspection rights still exist is, of course, a question
that will be answered differently state to state. The author believes, however, that
most states provide a comprehensive statutory scheme for the inspection of the
books and records of an entity; accordingly, common law rights likely no longer
exist in most states.
IV. DEVELOPMENT OF STATUTORY RIGHTS
Statutory rights developed first in the corporate context and then in the unin-
corporated context. This article begins its discussion of statutory provisions with a
discussion of a model act and three uniform acts.
A. Corporations — Model Business Corporation Act
The Model Business Corporation Act (“MBCA”) states that a shareholder is
entitled to inspect and copy, during regular business hours at the corporation’s
principal office, any records of the corporation described in MBCA § 1601(e) if
the shareholder gives the corporation written notice of the shareholder’s demand
at least five business days before the date on which the shareholder wants to in-
spect and copy.
42
Note that MBCA § 1602(a) does not require that the shareholder have any
particular purpose, or any purpose at all, to be entitled to inspect the records de-
scribed in MBCA § 1601(e).
43
The records described in MBCA § 1601(e), which
might be described as the fundamental records of the corporation, are the follow-
ing:
The corporation’s articles or restated articles of incorporation, all
currently effective amendments, and any notices to shareholders re-
ferred to in MBCA § 1.20(k)(5) regarding facts on which a filed doc-
ument is dependent;
The corporation’s bylaws or restated bylaws and all currently effec-
tive amendments;
Resolutions adopted by the corporation’s board of directors creating
one or more classes or series of shares, and fixing their relative
rights, preferences, and limitations, if shares issued pursuant to those
resolutions are outstanding;
The minutes of all meetings of the corporation’s shareholders, and
records of all action taken by the corporation’s shareholders without
a meeting, for the last three years;
All written communications to the corporation’s shareholders gener-
ally within the last three years, including the financial statements
furnished for such years under MBCA § 16.20;
if disclosed, adversely affect the corporation in the conduct of its business or may constitute
material nonpublic information at the time the shareholder’s notice of demand to inspect
and copy is received by the corporation.
42. M
ODEL BUS. CORP. ACT § 16.02(a) (AM. BAR ASS’N 2006).
43. Id.
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48 B.E.T.R. [Vol. 2 2018
A list of the names and addresses of the corporation’s current direc-
tors and offices; and
The corporation’s most recent report to the applicable state filing of-
fice.
44
If a shareholder’s demand is made in good faith and for a proper purpose, the
shareholder describes with reasonable particularity the shareholder’s purpose and
the records the shareholder wants to inspect, and the requested records are directly
connected with the shareholder’s purpose,
45
then the shareholder may inspect
46
the
following records:
Excerpts from minutes of any meeting of the corporation’s board of
directors, records of any action of a committee of the board of direc-
tors while acting in place of the board of directors on behalf of the
corporation, minutes of any meeting of the corporation’s sharehold-
ers, and records of action taken by the shareholders or the board of
directors, to the extent not subject to inspection under MBCA §
1602(a);
Accounting records of the corporation; and
The corporation’s record of shareholders.
47
The right of inspection granted by MBCA § 1602 may not be abolished or
limited by a corporation’s articles of incorporation or bylaws.
48
MBCA § 1602 does not affect a shareholder’s rights to inspect records under
MBCA § 7.20 or, if the shareholder is in litigation with the corporation to the
same extent as any other litigant, nor does it affect the power of a court to compel
the production of corporate records for inspection independently of the MBCA.
49
The MBCA provides that a director is always entitled to inspect books and
records of the corporation so long as the request is reasonably related to the direc-
tor’s duties, is not for an improper purpose and the director’s use of the infor-
mation would not violate any duty to the corporation.
50
B. Unincorporated Entities
i. Revised Uniform Limited Liability Company Act
The Revised Uniform Limited Liability Company Act (“RULLCA”)
51
pro-
vides,
44. Id. § 16.01(e).
45. Id. § 16.02(c).
46. Id. § (b) (The shareholder’s inspection under § 16.02(b) is subject to the notice and other re-
quirements of § 1602(a) except that the place for inspection will be “a reasonable location specified by
the corporation.”).
47. Id. §§ 16.02(b)(1)–(3).
48. Id. § (d).
49. Id. § (e).
50. Id. § 16.05(a). This article discusses representative and not so representative corporate statutes.
See discussion infra notes 66–137 and accompanying text.
51. See R
EVISED UNIF. LTD. LIAB. CO. ACT (UNIF. LAW COMM’N 2013).
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in the case of a member-managed LLC the following:
On reasonable notice, a member may inspect and copy during regular
business hours, at a reasonable location specified by the company,
any record maintained by the company regarding the company’s ac-
tivities, financial condition, and other circumstances, to the extent the
information is material to the member’s rights and duties under the
operating agreement or the applicable statute;
52
Without demand, the company shall furnish to each member any in-
formation concerning the company’s activities, financial condition,
and other circumstances known to the company that is material to the
proper exercise of the member’s rights and duties under the operating
agreement or the applicable statute except to the extent the company
can establish that it reasonably believes the member already knows
the information;
53
On demand, any other information concerning the company’s activi-
ties, financial condition, and other circumstances except to the extent
the demand or information demanded is unreasonable or otherwise
improper under the circumstances;
54
and
The obligation of the company to furnish certain information without
demand and other information on demand also applies to each mem-
ber to the extent the member knows any such information.
55
In a manager-managed LLC, the above information rights and the duty of the
members apply to the managers and not the members.
56
In addition, in a manager-managed LLC, RULLCA provides that, during reg-
ular business hours and at a reasonable location specified by the company, a
member may obtain from the company, inspect, and copy full information regard-
ing the activities, financial condition, and other circumstances of the company as
is just and reasonable under the following conditions:
The member seeks the information for a purpose material to the
member’s interest as a member;
The member makes a demand in a record received by the company,
describing with reasonable particularity the information sought and
the purpose for seeking the information; and
The information sought is directly connected to the member’s pur-
pose.
57
52. Id. § 410(a)(1).
53. Id. § (a)(2)(A).
54. Id. § (a)(2)(B).
55. Id. § (a)(3).
56. Id. § (b)(1).
57. Id. § (b)(2). RULLCA makes an appropriate distinction between the information rights available
to members in a member-managed LLC and in a manager-managed LLC. Bill Callison has observed
that if a non-manager member is permitted access to important business information of the LLC, the
LLC may not have recourse if the member uses that information for personal benefit even if in compe-
tition with the LLC. Callison & Vestal, supra note 4, at 279; see supra notes 3–9 and accompanying
text.
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50 B.E.T.R. [Vol. 2 2018
Within ten days after receiving a member’s demand pursuant to
RULLCA § 410(b)(2), the company is required in a record to inform
the member of the following:
The information that the company will provide in response to the
demand and when and where the company will provide the infor-
mation; and
If the company declines to provide any demanded information, the
company’s reasons for doing so.
58
Although the RULLCA information rights provision does not contain any
permissible restrictions on those rights, RULLCA requires that information made
available under § 410(a)(1) must be “material to the member’s rights and duties
under the operating agreement” or the applicable statute.
59
The same standard
applies to the information the company is required to provide without demand.
60
Information that the company is required to furnish on demand is subject to the
standard that the demand or information demanded not be unreasonable or other-
wise improper under the circumstances.
61
Moreover, in a manager-managed LLC,
a member requesting information must have a proper purpose and must make a
written demand “describing with reasonable particularity the information sought
and the purpose for seeking the information.”
62
In addition, the information sought
must be “directly connected to the member’s purpose.”
63
RULLCA implies that
some further restrictions are permissible by stating that an operating agreement
may not “unreasonably restrict the duties and rights stated in Section 410.”
64
RULLCA makes an appropriate distinction between the information rights
available to members in a member-managed LLC and in a manager-managed
LLC. Bill Callison has observed that if a non-manager member is permitted access
to important business information of the LLC, the LLC may not have recourse if
the member uses that information for personal benefit even if in competition with
the LLC.
65
ii. Revised Uniform Partnership Act
The Revised Uniform Partnership Act (1997 last amended 2013)
66
provides
the following:
(a) A partnership shall keep its books and records, if any, at its principal
office.
(b) On reasonable notice, a partner may inspect and copy during regular
business hours, at a reasonable location specified by the partnership, any
record maintained by the partnership regarding the partnership’s busi-
58. REVISED UNIF. LTD. LIAB. CO. ACT § 410(b)(3) (UNIF. LAW COMM’N 2013).
59. Id. § (a)(1).
60. Id. § (a)(2)(A).
61. Id. § (a)(2)(B).
62. Id. § (b)(2).
63. Id.
64. Id. § (c)(6).
65. Callison & Vestal, supra note 4, at 279; see supra notes 3–9 and accompanying text.
66. R
EVISED UNIF. P’SHIP ACT § 408 (UNIF. LAW COMM’N 2013).
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ness, financial condition, and other circumstances, to the extent the in-
formation is material to the partner’s rights and duties under the partner-
ship agreement or this [act].
(c) The partnership shall furnish to each partner:
(1) without demand, any information concerning the partnership’s
business, financial condition, and other circumstances which the
partnership knows and is material to the proper exercise of the
partner’s rights and duties under the partnership agreement or
this [act], except to the extent the partnership can establish that
it reasonably believes the partner already knows the infor-
mation; and
(2) on demand, any other information concerning the partnership’s
business, financial condition, and other circumstances, except to
the extent the demand or the information demanded is unreason-
able or otherwise improper under the circumstances.
(d) The duty to furnish information under subsection (c) also applies to
each partner to the extent the partner knows any of the information de-
scribed in subsection (c).
(e) Subject to subsection (j), on 10 days’ demand made in a record re-
ceived by a partnership, a person dissociated as a partner may have ac-
cess to information to which the person was entitled while a partner if:
(1) the information pertains to the period during which the person
was a partner;
(2) the person seeks the information in good faith; and
(3) the person satisfies the requirements imposed on a partner by
subsection (b).
(f) Not later than 10 days after receiving a demand under subsection (e),
the partnership in a record shall inform the person that made the demand
of:
(1) the information that the partnership will provide in response to
the demand and when and where the partnership will provide
the information; and
(2) the partnership’s reasons for declining, if the partnership de-
clines to provide any demanded information.
(g) A partnership may charge a person that makes a demand under this
section the reasonable costs of copying, limited to the costs of labor and
material.
(h) A partner or person dissociated as a partner may exercise the rights
under this section through an agent or, in the case of an individual under
legal disability, a legal representative. Any restriction or condition im-
posed by the partnership agreement or under subsection (j) applies both
to the agent or legal representative and to the partner or person dissociat-
ed as a partner.
(i) Subject to Section 505, the rights under this section do not extend to a
person as transferee.
(j) In addition to any restriction or condition stated in its partnership
agreement, a partnership, as a matter within the ordinary course of its
business, may impose reasonable restrictions and conditions on access to
and use of information to be furnished under this section, including des-
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ignating information confidential and imposing nondisclosure and safe-
guarding obligations on the recipient. In a dispute concerning the reason-
ableness of a restriction under this subsection, the partnership has the
burden of proving reasonableness.
67
iii. Revised Uniform Limited Partnership Act
The Revised Uniform Limited Partnership Act
68
provides the following:
(a) On 10 days’ demand, made in a record received by the limited part-
nership, a limited partner may inspect and copy required information
69
during regular business hours in the limited partnership’s designated of-
fice. The limited partner need not have any particular purpose for seek-
ing the information.
(b) During regular business hours and at a reasonable location specified
by the limited partnership, a limited partner may obtain from the limited
partnership and inspect and copy true
and full information regarding the
state of the activities and financial condition of the limited
partnership
and other information regarding the activities of the limited partnership as
is just and
reasonable if:
(1) the limited partner seeks the information for a purpose reasona-
bly related to the
partner’s interest as a limited partner;
67. Id.
68. R
EVISED UNIF. LTD. P’SHIP ACT § 304 (UNIF. LAW COMM’N 2013).
69. Id. §102(18) defines “required information” as “the information that a limited partnership
is required to maintain under Section 111.” § 111 states:
A limited partnership shall maintain at its designated office the following information:
(1) a current list showing the full name and last known street and mailing address of each partner,
separately identifying the general partners, in alphabetical order, and the limited partners, in
alphabetical order;
(2) a copy of the initial certificate of limited partnership and all amendments to and
restatements
of the certificate, together with signed copies of any powers of attorney under
which any cer-
tificate, amendment, or restatement has been signed;
(3) a copy of any filed articles of conversion or merger;
(4) a copy of the limited partnership’s federal, state, and local income tax returns and
reports, if
any, for the three most recent years;
(5) a copy of any partnership agreement made in a record and any amendment made in a
record
to any partnership agreement;
(6) a copy of any financial statement of the limited partnership for the three most recent years;
(7) a copy of the three most recent annual reports delivered by the limited partnership to
the [Sec-
retary of State] pursuant to Section 210;
(8) a copy of any record made by the limited partnership during the past three years of any con-
sent given by or vote taken of any partner pursuant to this [Act] or the partnership agreement;
and
(9) unless contained in a partnership agreement made in a record, a record stating:
(A) the amount of cash, and a description and statement of the agreed value of the
other bene-
fits, contributed and agreed to be contributed by each partner;
(B) the times at which, or events on the happening of which, any additional
contributions
agreed to be made by each partner are to be made;
(C) for any person that is both a general partner and a limited partner, a specification
of what
transferable interest the person owns in each capacity; and
(D) any events upon the happening of which the limited partnership is to be dissolved
and its
activities wound up.
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(2) the limited partner makes a demand in a record received by the
limited partnership, describing with reasonable particularity the
information sought and the purpose for seeking the information;
and
(3) the information sought is directly connected to the limited part-
ner’s purpose.
(c) Within 10 days after receiving a demand pursuant to subsection (b),
the limited
partnership in a record shall inform the limited partner that
made the demand:
(1) what information the limited partnership will provide in response
to the demand;
(1) what information the limited partnership will provide in re-
sponse to the demand;
(2) when and where the limited partnership will provide the infor-
mation; and
(3) if the limited partnership declines to provide any demanded in-
formation, the
limited partnership’s reasons for declining.
(d) Subject to subsection (f), a person dissociated as a limited partner
may inspect and copy required information during regular business hours
in the limited partnership’s designated
office if:
(1) the information pertains to the period during which the person
was a limited partner;
(2) the person seeks the information in good faith; and
(3) the person meets the requirements of subsection (b).
(e) The limited partnership shall respond to a demand made pursuant to
subsection (d) in
the same manner as provided in subsection (c).
(f) If a limited partner dies, Section 704
70
applies.
(g) The limited partnership may impose reasonable restrictions on the use
of information obtained under this section. In a dispute concerning the
reasonableness of a restriction under this subsection, the limited partner-
ship has the burden of proving reasonableness.
(h) A limited partnership may charge a person that makes a demand un-
der this section
reasonable costs of copying, limited to the costs of labor
and material.
(i) Whenever this [Act] or a partnership agreement provides for a lim-
ited partner to give
or withhold consent to a matter, before the consent is
given or withheld, the limited partnership shall, without demand, provide
the limited partner with all information material to the limited
partner’s
decision that the limited partnership knows.
(j) A limited partner or person dissociated as a limited partner may ex-
ercise the rights
under this section through an attorney or other agent.
Any restriction imposed under subsection (g) or by the partnership
agreement applies both to the attorney or other agent and to the limited
partner or person dissociated as a limited partner.
70. Id. § 704 provides:
If a partner dies, the deceased partner’s personal representative or other legal representative may
exercise the
rights of a transferee as provided in Section 702 and, for the purposes of settling the
estate, may exercise the rights of a current limited partner under Section 304.
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(k) The rights stated in this section do not extend to a person as transfer-
ee, but may be
exercised by the legal representative of an individual un-
der legal disability who is a limited
partner or person dissociated as a lim-
ited partner.
71
RULPA provides that the partnership agreement may not vary:
the information required under Section 111 or unreasonably restrict the
right to information under Sections 304 or 407, but the partnership
agreement may impose reasonable restrictions on the availability and use
of information obtained under those sections and may define appropriate
remedies, including liquidated damages, for a breach of any reasonable
restriction on use.72
RULPA provides the following information rights to general partners:
(a) A general partner, without having any particular purpose for seek-
ing the information, may inspect and copy during regular business hours:
(1) in the limited partnership’s designated office, required information;
and
(2) at a reasonable location specified by the limited partnership, any
other records maintained by the limited partnership regarding the
limited partnership’s activities and financial
condition.
(b) Each general partner and the limited partnership shall furnish to a
general partner:
(1) without demand, any information concerning the limited partner-
ship’s activities
and activities reasonably required for the proper
exercise of the general partner’s rights and duties under the part-
nership agreement or this [Act]; and
(2) on demand, any other information concerning the limited partner-
ship’s activities, except to the extent the demand or the infor-
mation demanded is unreasonable or otherwise
improper under the
circumstances.
(c) Subject to subsection (e), on 10 days’ demand made in a record re-
ceived by the
limited partnership, a person dissociated as a general part-
ner may have access to the information
and records described in subsec-
tion (a) at the location specified in subsection (a) if:
(1) the information or record pertains to the period during which the
person was a
general partner;
(2) the person seeks the information or record in good faith; and
(3) the person satisfies the requirements imposed on a limited partner
by Section 304(b).
(d) The limited partnership shall respond to a demand made pursuant to
subsection (c) in the same manner as provided in Section 304(c).
(e) If a general partner dies, Section 704
73
applies.
71. Id. § 304.
72. Id. § 110(b)(4).
73. Id. § 704 provides:
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(f) The limited partnership may impose reasonable restrictions on the use
of information under this section. In any dispute concerning the reasona-
bleness of a restriction under this
subsection, the limited partnership has
the burden of proving reasonableness.
(g) A limited partnership may charge a person dissociated as a general
partner that
makes a demand under this section reasonable costs of copy-
ing, limited to the costs of labor and material.
(h) A general partner or person dissociated as a general partner may exer-
cise the rights under this section through an attorney or other agent. Any
restriction imposed under subsection (f) or by the partnership agreement
applies both to the attorney or other agent and to the general
partner or
person dissociated as a general partner. The rights under this section do
not extend to a person as transferee, but the rights
under subsection (c) of
a person dissociated as a general may be exercised by the legal
repre-
sentative of an individual who dissociated as a general partner under Sec-
tion 603(7)(B) or (C).
74
V. CURRENT STATUTORY PROVISIONS GOVERNING INSPECTION OF
BOOKS AND RECORDS
A. Corporations
i. Representative Statute
Corporate statutes generally require the maintenance of specified records and
provide that shareholders have a right to inspect and copy those records in speci-
fied circumstances. Connecticut provides a statute that is representative in many
respects.
ii. Corporate Duty to Keep Records
The statute first establishes the corporation’s duty to keep records:
(a) A corporation shall keep as permanent records minutes of all meet-
ings of its shareholders and board of directors, a record of all actions tak-
en by the shareholders or board of directors without a meeting and a rec-
ord of all actions taken by a committee of the board of directors in place
of the board of directors on behalf of the corporation.
(b) A corporation shall maintain appropriate accounting records.
(c) A corporation or its agent shall maintain a record of its shareholders,
in a form that permits preparation of a list of the names and addresses of
all shareholders, in alphabetical order by class of shares showing the
number and class of shares held by each.
If a partner dies, the deceased partner’s personal representative or other legal representative may exer-
cise the
rights of a transferee as provided in Section 702 and, for the purposes of settling the estate, may
exercise the rights of a current limited partner under Section 304.
74. Id. § 407.
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(d) A corporation shall maintain its records in the form of a document,
including an electronic record, or in another form capable of conversion
into paper form within a reasonable time.
(e) A corporation shall keep a copy of the following records at its prin-
cipal office:
75
(1) Its certificate of incorporation or restated certificate of incorpo-
ration, all amendments to them currently in effect and any notic-
es to shareholders referred to in subsection (l) of section 33-608
regarding facts on which a document is dependent;
(2) its bylaws or restated bylaws and all amendments to them cur-
rently in effect;
(3) resolutions adopted by its board of directors creating one or
more classes or series of shares and fixing their relative rights,
preferences and limitations, if shares issued pursuant to those
resolutions are outstanding;
(4) the minutes of all shareholders’ meetings and records of all ac-
tion taken by shareholders without a meeting for the past three
years;
(5) all written communications to shareholders generally within the
past three years, including the financial statements furnished for
the past three years under section 33-951;
(6) a list of the names and business addresses of its current directors
and officers; and
(7) its most recent annual report delivered to the Secretary of the
State under section 33-953.
76
iii. Basic Inspection Right
The Connecticut statute then establishes the shareholder’s basic inspection
right:
A shareholder of a corporation is entitled to inspect and copy, during
regular business hours at the corporation’s principal office, any of the
records of the corporation described in subsection (e) of section 33-945 if
he gives the corporation a signed written notice of his demand at least
five business days before the date on which he wishes to inspect and
copy.
77
The records described in Conn. Gen. Stat. § 33-945(e) may be thought of as
the fundamental records of the corporation.
75. Compare CONN. GEN. STAT. § 33-945(e) (2011) (typical provision), with VT. STAT. ANN. tit. 11,
§ 16.02(a) (1993) (a unique variation which provides that a shareholder is entitled to inspect and copy
specified books and records, during normal business hours, at the corporation’s principal office. If the
corporation’s principal office is not in Vermont, the inspection is to take place at the corporation’s
registered office).
76. C
ONN. GEN. STAT. § 33-945.
77. Id. § 33-946(a).
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iv. Requirements for Examination of Additional Records
The Connecticut inspection statute then establishes how a shareholder may
examine records of the corporation in addition to the records described in Conn.
Gen. Stat. § 33-945(e):
(c) A shareholder of a corporation is entitled to inspect and copy, during
regular business hours at a reasonable location specified by the corpora-
tion, any of the following records of the corporation if the shareholder
meets the requirements of subsection (d) of this section and gives the
corporation a signed written notice of his demand at least five business
days before the date on which he wishes to inspect and copy:
(1) Excerpts from minutes of any meeting of the board of directors
or a committee of the board of directors while acting in place of
the board of directors on behalf of the corporation, minutes of
any meeting of the shareholders and records of action taken by
the shareholders, the board of directors or a committee of the
board without a meeting, to the extent not subject to inspection
under subsection (a) of this section;
(2) accounting records of the corporation; and
(3) the record of shareholders.
(d) A shareholder may inspect and copy the records described in subsec-
tion (c) of this section only if:
(1) His demand is made in good faith and for a proper purpose;
(2) he describes with reasonable particularity his purpose and the
records he desires to inspect; and
(3) the records are directly connected with his purpose.
78
78. Id. §§ 33-946(c)–(d). Other jurisdictions have similar requirements. ALASKA STAT. §
10.06.430(b) (1989); A
RIZ. REV. STAT. ANN. §§ 10-1602(B)–(C) (1996); COLO. REV. STAT. §§ 7-116-
102(2)–(3) (2004); D.
C. CODE § 29-313.02 (2011); FLA. STAT. §§ 607.1602(2)–(3) (1997); GA. CODE
ANN. §§ 14-2-1602(c)–(d) (2004); IND. CODE §§ 23-1-52-2(b)–(c) (1986); IOWA CODE §§
490.1602(3)–(4) (2014); K
Y. REV. STAT ANN. §§ 271B.16-020(2)–(3) (West 1998); LA. STAT. ANN. §§
12:1-1602(C)–(D) (2016); ME. STAT. tit. 13-C, §§ 1602(3)–(4) (2001); MD. CODE ANN., CORPS. &
ASS’NS § 2-512 (West 2009); MASS. GEN. LAWS ch. 156D, §§ 16.02(b)–(c) (2004) (except that Massa-
chusetts includes in (4)(c) that:
[T]he corporation shall not have determined in good faith that disclosure of the records sought would
adversely affect the corporation in the conduct of its business or, in the case of a public corporation,
constitute material non-public information at the time when the shareholder’s notice of demand to
inspect and copy is received by the corporation); M
INN. STAT. § 302A.461, subd. 4(b) (2010); MISS.
CODE ANN. §§ 79-4-16.02(b)–(c) (2013); MONT. CODE ANN. § 35-1-1107 (1997) (except that Montana
includes (3)(d): “the shareholder has been a shareholder of record for at least 6 months preceding the
demand or the shareholder is a holder of record of at least 5% of all the outstanding shares of the
corporation.”); N
EB. REV. STAT. §§ 21-2, 222(c)–(d) (2018); N.H. REV. STAT. ANN. §§ 293-
A:16:02(c)–(d) (2016); N.J.
STAT ANN. § 14A:5-28(3) (West 1988); N.C. GEN. STAT. § 55-16-02(b)
(1993); O
R. REV. STAT. §§ 60.774(2)–(3) (1987); S.C. CODE ANN. §§ 33-16-102(b)–(c) (1976); S.D.
CODIFIED LAWS §§ 47-1A-1602.1, 47-1A-1602.2 (2005); Tenn. Code Ann. §§ 48-26-102(b)–(c)
(1986); U
TAH CODE ANN. §§ 16-10a-1602(2)–(3) (West 1992) (except that Utah’s statute includes
directors in this provision). See infra note 97 and accompanying text; V
T. STAT. ANN. tit. 11A, §§
16.02 (b)–(c); V
A. CODE §§ 13-1-771(C)–(D) (except that (D) adds (4), which states: “The records are
directly connected with the shareholder’s purpose.”); W
ASH. REV. CODE §§ 23B.16.020(2)–(3) (2009);
W.
VA. CODE §§ 31D-16-1602(b)–(c) (2002); WYO. STAT. ANN. §§ 17-16-1602(b)–(c) (2009) (except
that Wyoming requires that the shareholder have been of record for at least six (6) months immediately
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The Connecticut statute then states that the rights established by § 33.946
may not be abolished or limited by the corporation’s articles of incorporation or
bylaws.
79
v. Other Requirements and Permissions
Connecticut also provides that a shareholder’s inspection may be through an
attorney or other agent.
80
Every state but Missouri provides for inspection by an
agent.
81
Other states establish requirements for any shareholder inspection, including
an inspection of what this article has termed fundamental records of the corpora-
tion, such as requiring that the shareholder have been a shareholder for at least six
months or be a holder of at least 5% of some class of stock.
82
Nevada requires that
a shareholder have at least 15% of the outstanding stock to be entitled to inspec-
tion rights.
83
Every state requires some sort of notice to the corporation — it may be simp-
ly a written notice of at least five days in advance,
84
a requirement for a written
preceding making a demand and shall be the holder of record of at least five percent (5%) of all the
outstanding shares of the corporation).
79. C
ONN. GEN. STAT. § 33.946(e). Only 16 states do not include such a provision. They are Alaska,
Delaware, Florida, Illinois, Kansas, Maryland, Michigan, Minnesota, New Jersey, New Mexico, New
York, North Dakota, Ohio, Oklahoma, Rhode Island, and Texas. Pennsylvania law states that there
may be no relaxation of its shareholder inspection rights by the corporation’s articles of incorporation.
15 P
A. STAT. AND CONST. STAT. ANN. § 1508 (West 2001). Missouri law states that a shareholder’s
right to examine the books and records of a corporation is subject to the bylaws. M
O. REV. STAT. §
351.215(1) (1996). Georgia provides that a corporation’s articles of incorporation or bylaws may limit
the inspection rights of a shareholder who owns 2% or less of the corporation’s outstanding shares.
G
A. CODE ANN. § 14-2-1602(e).
80. C
ONN. GEN. STAT. § 33.947(a). Delaware requires that, if an attorney or other agent seeks to
inspect books and records, the shareholder’s demand under oath must be accompanied by a power of
attorney or other writing authorizing the attorney or other agent to so act on behalf of the shareholder.
D
EL. CODE ANN. tit. 8, § 220(b)(2)b.2. (2010). Indiana requires that a shareholder’s attorney or agent
be “authorized in writing.” I
ND. CODE § 23-1-52-3(a). Michigan requires that an attorney or other
agent be authorized by a power of attorney or other writing that authorizes the attorney or other agent
to act for the shareholder in demanding records. Mich. Comp. Laws § 450.1487(2) (1989). New York
requires that an attorney or agent be authorized by a writing that would satisfy the New York proxy
rules. N.Y.
BUS. CORP. LAW § 624 (McKinney 1998).
81. The Missouri statute does not mention agents and provides that a shareholder’s inspection rights
are subject to the corporation’s bylaws. M
O. REV. STAT. § 351.215(1). North Dakota expresses the
right to use an agent by stating that the inspection may be “in person or by a legal representative.” N.D.
Cent. Code § 10-19.1-84(4) (2011). Minnesota uses similar language. M
INN. STAT. § 302A.461, subd.
4(a). Perhaps in recognition of the lobbying prowess of the accounting profession, Texas law provides
that “the examination may be conducted in person or through an agent, accountant, or attorney.” T
EX.
BUS. ORGS. CODE ANN. § 21.218(b) (West 2017). Indiana law requires that the agent or attorney must
be authorized in writing. I
ND. CODE § 23-1-52-3(a).
82. A
RIZ. REV. STAT. ANN. § 10-1602(A) (Arizona); N.M. STAT. ANN. § 53-11-50(B) (1983) (New
Mexico); N.J.
STAT. ANN. § 14A:5-28(3) (New Jersey); Id. § 14A:5-28(4) (stating the court has power,
upon shareholder’s proof of proper purpose, to order inspection irrespective of length of time or num-
ber of shares); N.C.
GEN. STAT. §§ 55-16-02(a), (g) (North Carolina); TEX. BUS. ORGS. CODE ANN. §
21.218(b) (Texas) (with same exception as New Jersey (Id. § 21.218(c)).
83. N
EV. REV. STAT. § 78.257 (2001).
84. A
LA. CODE § 10A-1-6.02(a) (2016); ARIZ. REV. STAT. ANN. § 10-163; FLA. STAT. § 16.02
(1995) (five business days); G
A. CODE ANN. § 14-2-1602(b) (five business days); IDAHO CODE § 30-
29-1602(1) (2015) (five business days); I
ND. CODE § 23-1-52-2(a) (five business days); IOWA CODE §
490.1602(1) (2014); K
Y. REV. STAT. § 271B.16-020(1) (1988) (five business days); LA. STAT. ANN. §
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demand with no time specified,
85
or a written demand made under oath stating the
purpose of the inspection.
86
Some statutes have no requirement but a provision
that the corporation has to produce the requested records within seven days after
the request is made;
87
other statutes require a written demand describing with
reasonable particularity his or her purpose and the records he or she desires to
inspect, and that the records sought are directly connected with the purpose.
88
Some have no requirement for notice unless set out in the corporation’s bylaws.
89
The requirements may be more substantial, such as a written, verified demand
stating the purpose of the request.
90
vi. Features Common to Corporate Inspection Statutes
The provisions of the Connecticut statutes quoted or cited above
91
contain
several features that are common to corporate inspection statutes:
Examination must be at a reasonable time;
The examination may be in person or through an agent;
The shareholder may make extracts from the books and records;
The shareholder may be charged for the corporation’s costs in providing
copies of records;
The shareholder must have a proper purpose; and
The shareholder must make a written demand.
This article discusses some of the differences among the corporate statutes
below.
1-1602(A) (2016) (five business days; must be signed); ME. STAT. tit. 13-C, § 1602(1) (2011) (five
business days); M
ASS. GEN. LAWS ch. 156D, § 16.02(a) (2004) (five business days); MISS. CODE ANN.
§ 79-4-16.02(a) (2013) (five business days; must be signed); M
ONT. CODE ANN. § 35-1-1107(1) (1997)
(five business days); N
EB. REV. STAT. § 21-2,222(a) (2018) (five business days); NEV. REV. STAT. §
78.257(1); N.H.
REV. STAT. ANN. § 293-A:16:02(a) (2016) (five business days); N.J. STAT. ANN. §
14A-5-28(1); N.Y.
BUS. CORP. LAW § 624(b); N. C. GEN. STAT. § 55-16-02(a) (five business days);
N.D.
CENT. CODE § 10-191.1-84(4); Ohio Rev. Code Ann. § 1701.37(C) (West 2002); OKLA. STAT. tit.
18, § 1065(B) (2004); O
R. REV. STAT. § 60.774(1) (2018) (five business days); 7 R.I. GEN. LAWS § 7-
1.2-1502(b) (2005); S.C.
CODE ANN. § 33-16-102(a) (1988) (five business days); S.D. CODIFIED LAWS
§ 47-1A-1602 (2005) (five business days); U
TAH CODE ANN. § 16-10a-1602(1) (West 1992) (five
business days); Vt. Stat. Ann. tit. 11A, § 16.02(a) (1993) (five business days); V
A. CODE ANN. § 13.1-
771(A) (2010) (five business days); W
ASH. REV. CODE § 23B.16.020(1) (2009) (five business days);
W.
VA. CODE § 31D-16-1602(a) (2002) (five business days); WYO. STAT. ANN. § 17-16-1602(a)
(2009) (five business days).
85. 805 I
LL. COMP. STAT. 5/7.75(b) (1986); MINN. STAT. § 302A.461, subd. 4(a); N.M. STAT. ANN.
§ 53-11-50(B).
86. Del. Code Ann. tit. 8, § 220(b) (2010). Kansas and Oklahoma are the same. K
AN. STAT. ANN. §
17-6510(b) (2016); O
KLA. STAT. tit. 18, § 1065(B).
87. M
D. CODE ANN., CORPS. & ASS’NS § 2-512(b) (2009).
88. M
ICH. COMP. LAWS § 450.1487(2) (1989).
89. M
O. REV. STAT. § 321.215(1) (1996).
90. 15 P
A. CONS. STAT. § 1508(b) (2001) (if the shareholder uses an attorney or other agent, the
shareholder must also provide the corporation with a verified power of attorney).
91. See supra notes 76–80 and accompanying text.
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vii. Financial Information
Other states provide that a shareholder is entitled to certain financial infor-
mation upon request:
(a) A corporation shall furnish its annual financial statements to each
shareholder who requests a statement, which may be consolidated or
combined statements of the corporation and one or more of its subsidiar-
ies, as appropriate, that include a balance sheet as of the end of the fiscal
year, an income statement for that year, and a statement of changes in
shareholders’ equity for the year unless that information appears else-
where in the financial statements. If financial statements are prepared for
the corporation on the basis of generally accepted accounting principles,
the annual financial statements must also be prepared on that basis. If the
financial statements for the corporation are not prepared on the basis of
generally accepted accounting principles, the annual financial statements
furnished [by] shareholders may be prepared either on the same basis
used by the corporation for filing its United States income tax returns or
as required by appropriate regulatory agencies.
(b) If the annual financial statements are reported upon by a public ac-
countant or certified public accountant, his or her report must accompany
them. If not, the statements must be accompanied by a statement of the
president or the person responsible for the corporation’s accounting rec-
ords:
(1) Stating his or her reasonable belief whether the statements were
prepared on the basis of generally accepted accounting princi-
ples and, if not, describing the basis of preparation; and
(2) [d]escribing any respects in which the statements were not pre-
pared on a basis of accounting consistent with the statements
prepared for the preceding year.
(c) A corporation shall mail or deliver by electronic transmission the
annual financial statements to each shareholder who requests a statement
within 120 days after the close of each fiscal year. Thereafter, on written
request from a shareholder who was not mailed the statements, the corpo-
ration shall mail or deliver by electronic transmission him or her the lat-
est annual financial statements.
92
92. ALA. CODE § 10A-2-16.20(a) (2009). Other states also provide for shareholders to receive some
form of financial information. A
LASKA STAT. § 10.00.443 (2015) (Alaska); ARIZ. REV. STAT. § 10-
1620 (1999) (Arizona); C
OLO. REV. STAT. § 7-116-105 (1994) (Colorado); 805 ILL. COMP. STAT.
5/7.75(e) (1986) (Illinois); K
Y. REV. STAT. ANN. § 271B.16-200 (1988) (Kentucky); MASS. GEN LAWS
ch. 156D, § 16.20 (2004) (Massachusetts); M
ICH. COMP. LAWS § 450.1487(1) (Michigan); MINN.
STAT. § 302A.463 (1993) (Minnesota); MONT. CODE ANN. § 35-1-1110 (1991) (Montana); NEB. REV.
STAT. § 21-2, 227 (2017) (Nebraska); N.H. REV. STAT. ANN. § 293-A:16.20 (2017) (New Hampshire);
N.J.
STAT. ANN. § 14A:5-28(2) (West 1988) (New Jersey); N.M. STAT. ANN. § 53-11-50(D) (1983)
(New Mexico); N.Y.
BUS. CORP. § 624(e) (McKinney 1998) (New York); N.C. GEN. STAT. § 55-16-02
(1993) North Carolina);.T
ENN. CODE ANN. § 48-26-201 (1983) (Tennessee); TEX. BUS. ORGS. CODE
ANN. § 21.219 (West 2006) (Texas); UTAH CODE ANN. § 16-10a-1605 (West 1992) (Utah); VA. CODE
ANN. § 13.1-774 (2010) (Virginia); WASH. REV. CODE ANN. § 23B.16.200 (2000) (Washington); W.
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Although not all states provide for financial information to be furnished to
shareholders, all corporate statutes require the corporation to maintain appropriate
accounting records. A corporation’s accounting records will be subject to inspec-
tion by its shareholders if the shareholder satisfies applicable conditions. Nevada,
which limits shareholder information rights more than most states, permits no
inspection unless the shareholder either “owns not less than 15% of all of the is-
sued and outstanding shares of the stock of such corporation or has been author-
ized in writing by the holders of at least 15% of all its issued and outstanding
shares”
93
provides that such a shareholder will be entitled to inspect “all financial
records of the corporation, to make copies of records, and to conduct an audit of
such records.”
94
viii. Information About Subsidiaries
Some states provide that a shareholder may examine information about the
corporation’s subsidiaries. For example, Delaware provides:
(b) Any stockholder, in person or by attorney or other agent, shall, upon
written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose, and
to make copies and extracts from:
a. The corporation’s stock ledger, a list of its stockholders, and its
other books and records; and
b. A subsidiary’s books and records, to the extent that:
i. The corporation has actual possession and control of such rec-
ords of such subsidiary; or
ii. The corporation could obtain such records through the exercise
of control over such subsidiary, provided that as of the date of
the making of the demand:
1. The stockholder inspection of such books and records of the
subsidiary would not constitute a breach of an agreement
between the corporation or the subsidiary and a person or
persons not affiliated with the corporation; and
2. [t]he subsidiary would not have the right under the law ap-
plicable to it to deny the corporation access to such books
and records upon demand by the corporation.
95
Kansas
96
and Oklahoma
97
have statutes similar to Delaware’s with regard to
inspection of subsidiaries.
VA. CODE ANN. § 31D-16-1620 (2002) (West Virginia); WIS. STAT. ANN. § 180.1620 (1989) (Wiscon-
sin).
93. N
EV. REV. STAT. § 78.257(1) (2003).
94. Id.
95. D
EL. CODE ANN. tit. 8, § 220(b) (2010). The Delaware statute defines “subsidiary” as follows:
“Subsidiary” means any entity directly or indirectly owned, in whole or in part, by the corpora-
tion of which the stockholder is a stockholder and over the affairs of which the corporation di-
rectly or indirectly exercises control, and includes, without limitation, corporations, partnerships,
limited partnerships, limited liability partnerships, limited liability companies, statutory trusts
and/or joint ventures. Id.
220(a)(2).
96. K
AN. STAT. ANN. § 17-6510(b) (2016).
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ix. Possible Defense to a Shareholder’s Demand
Some statutes provide a possible defense to a shareholder’s demand:
It shall be a defense to any action for penalties under this Section that the
person suing therefor[e] has within two years sold or offered for sale any
list of shareholders of such corporation or any other corporation or has
aided or abetted any person in procuring any list of shareholders for any
such purpose, or has improperly used any information secured through
any prior examination of the books and records of account, or minutes, or
records of shareholders of such corporation or any other corporation.
98
New York has a similar provision that also authorizes the corporation to con-
dition inspection on the presentation of an affidavit from the shareholder that the
shareholder has not engaged in any of these acts.
99
x. Other Reports
Four states provide for reports to be made to the shareholders if the corpora-
tion indemnifies a director or officer, or advances expenses.
100
In addition, two
states also require that a report be made if a person receives stock for a promissory
note or a promise to provide services.
101
Alaska requires that the board “send an
annual report to the shareholders no later than 180 days after the close of the fiscal
year or the date on which notice of the annual meeting in the next fiscal year is
sent under AS 10.06.410, whichever is first.”
102
Unless required by its articles or
bylaws, a corporation with fewer than 100 shareholders of record is exempt from
this requirement.
103
If an annual report is provided, it must contain the following:
[A] balance sheet as of the end of the fiscal year and an income statement
and statement of changes in financial position for the fiscal year, accom-
panied by a report on the fiscal year by independent accountants or, if
there is no such report, the certificate of an authorized officer of the cor-
poration that the statements were prepared without audit from the books
and records of the corporation.
104
In addition to the required financial information, in the case of a corporation
having 100 or more holders of record of its shares, unless the corporation has a
nonexempt class of securities registered under 15 U.S.C. 78l (Securities Exchange
97. OKLA. STAT. tit. 18, § 1065(B)(2) (2004).
98. 805 I
LL. COMP. STAT. 5/7.75(d) (1991). Delaware and Kansas have similar statutes. DEL. CODE
ANN. tit. 8, § 220 (2010); KAN. STAT. ANN. § 17-6510(c).
99. N.Y.
BUS. CORP. LAW § 624(c) (McKinney 1998).
100. These states are Alabama, Kentucky, Montana, and Oregon. A
LA. CODE § 10A-2-16.21 (2009);
K
Y. REV. STAT. ANN. § 271B.16-210(1) (West 2017); MONT. CODE ANN. § 35-1-1111(1) (1991); OR.
REV. STAT. § 60.784 (1987).
101. These states are Montana and Tennessee. M
ONT. CODE ANN. § 35-1-1111(2); TENN. CODE
ANN. § 48-26-202 (1986).
102. A
LASKA STAT. § 10.06.433(a) (2015).
103. Id. § (b).
104. Id. § (a).
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Act of 1934) or files reports under 43 U.S.C. 1606(c), 1607(c), and 1625 (Alaska
Native Claims Settlement Act), its annual report must also briefly describe:
(1) all transactions, excluding compensation of officers and directors,
during the previous fiscal year involving an amount in excess of $40,000,
other than contracts let at competitive bid or services rendered at prices
regulated by law, to which the corporation or its parent or subsidiary was
a party, and in which a director or officer of the corporation or of a sub-
sidiary or, if known to the corporation, its parent, or subsidiary, a holder
of more than 10 percent of the outstanding voting shares of the corpora-
tion had a direct or indirect material interest; the report must include the
name of the person, the person’s relationship to the corporation, the na-
ture of the person’s interest in the transaction and, if practicable, the
amount of the interest; in the case of a transaction with a partnership of
which the person is a partner, only the interest of the partnership need be
stated; a report is not required in the case of transactions approved by the
shareholders under AS 10.06.478;
(2) the amount and circumstances of indemnifications or advances ag-
gregating more than $10,000 paid during the fiscal year to an officer or
director of the corporation under AS 10.06.490; a report is not required in
the case of indemnification approved by the shareholders under AS
10.06.490(d)(3).
105
Alaska makes its statute applicable to Alaska corporations and to foreign cor-
porations having their principal executive office in Alaska or customarily holding
meetings of its board in Alaska.
106
xi. Charges to Shareholders for Copies
Several corporate information statutes provide that a corporation may impose
a reasonable charge for providing copies of records to shareholders.
107
105. Id. § (b).
106. Id. § (g).
107. These statutes are A
LA. CODE § 10A-2-1603(c) (209) (Alabama); ARIZ. REV. STAT. ANN. § 10-
1603(C) (1996) (Arizona); A
RK. CODE ANN. § 4-27-1603(c) (1987) (Arkansas); CONN. GEN. STAT. §
33-947(d) (2011) (Connecticut); D.C.
CODE § 29-313.03(d) (2011) (District of Columbia); FLA. STAT.
§ 607.1603(3) (1997) (Florida); G
A. CODE ANN. § 14-2-1603(c) (1988) (Georgia); HAW. REV. STAT. §
414-470(b) (2000) (Hawaii); I
DAHO CODE § 30-29-1603(4) (2015) (Idaho); IOWA CODE § 490.1603(4)
(2014) (Iowa); K
Y. REV. STAT. ANN. § 271B.11-030(3) (West 1988) (Kentucky); LA. STAT. ANN. §
12:1-1603(D) (2015) (Louisiana); M
E. STAT. tit. 13-C, § 1603(3) (2003) (Maine); MINN. STAT. §
302A.461 (2010) (Minnesota) (except for share register and all documents referred to in (2)); M
ISS.
CODE ANN. § 79-4-16.03(d) (2001) (Mississippi); NEV. REV. STAT. § 78.257(2) (2003) (Nevada); N.H.
REV. STAT. ANN. § 293-A:16.03(d) (1992) (New Hamphire); N.C. GEN. STAT. § 55-16-03(c) (2005)
(North Carolina); O
KLA. STAT. tit 18, § 1065(C)(1) (2004) (Oklahoma) (if corporation doesn’t reply to
a shareholder’s demand within 5 days, the court may order production subject to the shareholder bear-
ing reasonable costs); O
R. REV. STAT. § 60.777(3) (1987) (Oregon); S.C. CODE ANN. § 33-16-103(b)
(1984) (South Carolina); S.D.
CODIFIED LAWS § 47-1A-1603 (2005) (South Dakota); TENN. CODE
ANN. § 48-26-103(c) (2012) (Tennessee); VT. STAT. ANN. tit. 11, § 4058(c) (2015) (Vermont); VA.
CODE ANN. § 13.1-772(C) (2012) (Virginia); WASH. REV. CODE § 23B.16030(3) (1989) (Washington);
W.
VA. CODE § 31D-16-1603(d) (2002) (West Virginia); WIS. STAT. §§ 180.1603(2), 180.0720(2)(b)
(1989) (Wisconsin) (Shareholder or shareholder’s agent may copy the shareholder’s list at the share-
holder’s expense under § 180.1604(1). If a corporation does not within a reasonable time allow a
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xii. Directors’ Rights to Information
Corporate inspection statutes often have a specific reference to a director’s
rights to information. For example, Delaware provides that “[a]ny director shall
have the right to examine the corporation’s stock ledger, a list of its stockholders
and its other books and records for a purpose reasonably related to the director’s
position as a director.”
108
California is more emphatic:
Every director shall have the absolute right at any reasonable time to in-
spect and copy all books, records and documents of every kind and to in-
spect the physical properties of the corporation of which such person is a
director and also of its subsidiary corporations, domestic or foreign. Such
inspection by a director may be made in person or by agent or attorney
and the right of inspection includes the right to copy and make extracts.
This section applies to a director of any foreign corporation having its
principal executive office in this state or customarily holding meetings of
its board in this state.
109
Apart from Delaware and California, most corporate statutes fall into one of
two general approaches to director information rights. Connecticut illustrates one
approach:
A director of a corporation is entitled to inspect and copy the books, rec-
ords and documents of the corporation at any reasonable time to the ex-
tent reasonably related to the performance of the director’s duties as a di-
rector, including duties as a member of a committee, but not for any other
purpose or in any manner that would violate any duty to the corpora-
tion.
110
Kansas illustrates a more relaxed approach:
Any director shall have the right to examine the corporation’s stock ledg-
er, a list of its stockholders and its other books and records for a purpose
reasonably related to the director’s position as a director.
111
Under either approach, the responsibility to police a director’s inspection de-
mands falls on the corporation, and it appears unlikely that the additional language
at the end of the Connecticut statute make a practical difference. Any director who
seeks information for a purpose unrelated to the director’s duties, or who appears
shareholder to inspect and copy the demanded records, then § 180.1604(2), if the court then orders
inspection, it shall also order the corporation to pay the shareholder’s costs and expenses, including
reasonable attorney fees, notwithstanding § 814.04(c) (relating to costs in civil actions), and the court
shall also specify whether the corporation may impose a charge under § 180.1603(2) for copying the
records demanded.); W
YO. STAT. ANN. § 17-16-1603(d) (2009) (Wyoming).
108. D
EL. CODE ANN. tit. 8, § 220(d) (1953).
109. C
AL. CORP. CODE § 1602 (1976).
110. C
ONN. GEN. STAT. § 33-949(a). Note that the Connecticut approach follows the MBCA. See
supra note 42 and accompanying text.
111. K
AN. STAT. ANN. § 17-6510(d) (1988).
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to be proceeding in a manner that would violate a duty to the corporation would
almost certainly not be considered to be seeking the information for a purpose
reasonably related to the director’s position as a director.
Many jurisdictions follow either the Connecticut formulation
112
or the Kansas
approach.
113
As notes 102 to 103 show, the Connecticut formulation is the clear
winner on numbers.
Some states provide information rights to directors on the same or a similar
basis to that of shareholders. For example, Pennsylvania provides the following:
(a) General rule.--To the extent reasonably related to the performance of
the duties of the director, including those arising from service as a mem-
ber of a committee of the board of directors, a director of a business cor-
poration is entitled:
(1) in person or by any attorney or other agent, at any reasonable time,
to inspect and copy corporate books, records and documents and, in addi-
tion, to inspect and receive information regarding the assets, liabilities
and operations of the corporation and any subsidiaries of the corporation
incorporated or otherwise organized or created under the laws of this
Commonwealth that are controlled directly or indirectly by the corpora-
tion; and
(2) to demand that the corporation exercise whatever rights it may have
to obtain information regarding any other subsidiaries of the corpora-
tion.
114
Rhode Island takes the following approach:
Any director, shareholder or holder of voting trust certificates for shares
of a corporation, upon written demand stating the purpose for the de-
mand, has the right to examine, in person, or by agent or attorney, at any
reasonable time or times, for any proper purpose, its relevant books and
records of account, minutes, and record of shareholders and to make ex-
tracts from those books and records of account, minutes, and record of
shareholders.
115
Finally, Utah provides the following:
(1) A shareholder or director of a corporation is entitled to inspect and
copy, during regular business hours at the corporation’s principal office,
112. These are D. C. CODE § 29-313.05(a) (District of Columbia); FLA. STAT. § 607.1605(1) (Flori-
da); I
DAHO CODE § 30-29-1605(1) (Idaho); IOWA CODE § 490.1605(1) (Iowa); LA. STAT. ANN. § 12.1-
1605(A) (Louisiana); M
E. STAT. tit 13, § 1605(1) (Maine); MASS. GEN. LAWS ch. 156D, § 1605(a)
(2003) (Massachusetts); M
ISS. CODE ANN. § 79-4-16.05(a) (Mississippi); NEB. REV. STAT. § 21-2,
225(a) (2014) (Nebraska); N.H.
REV. STAT. ANN. § 293-A:16.05(a) (New Hampshire); N. C. GEN.
STAT. § 55-16-05(a) (North Carolina); S.D. CODIFIED LAWS § 47-1A-1605 (South Dakota); TENN.
CODE ANN. § 48-26-105(a) (Tennessee); VA. CODE ANN. § 13.1-773.1(A) (Virginia); W. VA. CODE §
31D-16-1605(a) (West Virginia); W
YO. STAT. ANN. § 17-16-1605(a) (Wyoming).
113. These are Oklahoma, Michigan, and Texas. O
KLA. STAT. tit. 18, § 1065D (2004); MICH. COMP.
LAWS § 450.1487(4) (1989); TEX. BUS. ORGS. CODE ANN. § 3.152(a) (West 2003).
114. 15 P
A. STAT. AND CONS. STAT. ANN § 1512 (West 2001).
115. 7 R.
I. GEN. LAWS § 7-1.2-1502 (2005).
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any of the records of the corporation described in Subsection 16-10a-
1601(5) if he gives the corporation written notice of the demand at least
five business days before the date on which he wishes to inspect and
copy.
(2) In addition to the rights set forth in Subsection (1), a shareholder or
director of a corporation is entitled to inspect and copy, during regular
business hours at a reasonable location specified by the corporation, any
of the following records of the corporation if the shareholder or director
meets the requirements of Subsection (3) and gives the corporation writ-
ten notice of the demand at least five business days before the date on
which he wishes to inspect and copy:
(a) excerpts from:
(i) minutes of any meeting, records of any action taken by the
board of directors, or by a committee of the board of direc-
tors while acting on behalf of the corporation in place of the
board of directors;
(ii) minutes of any meeting of the shareholders;
(iii) records of any action taken by the shareholders without a
meeting; and
(iv) waivers of notices of any meeting of the shareholders, of
any meeting of the board of directors, or of any meeting of
a committee of the board of directors;
(b) accounting records of the corporation; and
(c) the record of shareholders described in Subsection 16-10a-
1601(3).
(3) A shareholder or director is entitled to inspect and copy records as
described in Subsection (2) only if:
(a) the demand is made in good faith and for a proper purpose;
(b) the shareholder or director describes with reasonable particulari-
ty his purpose and the records he desires to inspect; and the rec-
ords are directly connected with his purpose.
116
As one can see, Utah treats directors no better than shareholders; some rec-
ords are readily available, but to see others, the director must jump though some
hoops. No reason appears why Pennsylvania, Rhode Island, and Utah would not
have been just as well served by the Connecticut or Kansas approach.
Nevada does not mention directors in its corporate inspection statute and lim-
its the inspection rights of shareholders in unique ways. Nevada limits the right to
shareholders who have “been a stockholder of record of any corporation and owns
not less than 15 percent of all of the issued and outstanding shares of the stock of
such corporation or has been authorized in writing by the holders of at least 15
percent of all its issued and outstanding shares.”
117
Even these shareholders are
denied inspection rights under the Nevada statute if the corporation furnishes to its
stockholders a detailed, annual financial statement or if the corporation that has
filed during the preceding 12 months all reports required to be filed pursuant to
116. UTAH CODE ANN. § 16-10a-1602 (West 1992).
117. N
EV. REV. STAT. § 78.257(1) (2003).
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section 13 or section 15(d) of the Securities Exchange Act of 1934.
118
An appar-
ently unnecessary provision expressly states that the Nevada statute applies to S
corporations.
119
xiii. Grounds for Denying Access to Books and Records
Of course, any corporation may deny a shareholder’s request to examine its
books and records if the shareholder fails to satisfy the requirements of the appli-
cable inspection statute. Some states provide additional reasons:
A corporation may deny any demand for inspection made pursuant to
subsection (2) if the demand was made for an improper purpose, or if the
demanding shareholder has within 2 years preceding his or her demand
sold or offered for sale any list of shareholders of the corporation or any
other corporation, has aided or abetted any person in procuring any list of
shareholders for any such purpose, or has improperly used any infor-
mation secured through any prior examination of the records of the cor-
poration or any other corporation.
120
The rights authorized by subsection 1 may be denied to any stockholder
upon the stockholder’s refusal to furnish the corporation an affidavit that
such inspection, copies or audit is not desired for any purpose not related
to his or her interest in the corporation as a stockholder. Any stockholder
or other person, exercising rights set forth in subsection 1, who uses or
attempts to use information, records or other data obtained from the cor-
poration, for any purpose not related to the stockholder’s interest in the
corporation as a stockholder, is guilty of a gross misdemeanor.
121
xiv. Penalties and Defenses to Penalties for Failure to Provide
Access to Books and Records
Several states impose penalties for a corporation’s failure to allow a share-
holder who has complied with the applicable statute to inspect the corporation’s
books and records. For example, the Alaska Corporations Code provides the fol-
lowing:
An officer or agent who, or a corporation that, refuses to allow a share-
holder, or the agent or attorney of the shareholder, to examine and make
copies from its books and records of account, minutes, and record of
shareholders, for a proper purpose, is liable to the shareholder for a pen-
alty in the amount of 10 percent of the value of the shares owned by the
shareholder or $5,000, whichever is greater, in addition to other damages
118. Id. § (6).
119. Id. The author is unaware of any state where the federal tax status of a corporation makes a
difference in the non-tax treatment of the corporation under state law.
120. F
LA. STAT. § 607.1602(6) (1997). New York’s statute is similar expect that the New York period
is five years. N.Y.
BUS. CORP. LAW § 624(c) (McKinney 1998).
121. N
EV. REV. STAT. § 78.257(4).
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or remedy given the shareholder by law. It is a defense to an action for
penalties under this section that the person suing has within two years
sold or offered for sale a list of shareholders of the corporation or any
other corporation or has aided or abetted a person in procuring a list of
shareholders for this purpose, or has improperly used information se-
cured through a prior examination of the books and records of account,
minutes, or record of shareholders of the corporation or any other corpo-
ration, or was not acting in good faith or for a proper purpose in making
the person’s demand.
122
The Texas penalty provision is somewhat different:
A corporation that refuses to allow a person to examine and make copies
of account records, minutes, and share transfer records under Section
21.218 is liable to the shareholder for any cost or expense, including at-
torney’s fees, incurred in enforcing the shareholder’s rights under Section
21.218. The liability imposed on a corporation under this subsection is in
addition to any other damages or remedy afforded to the shareholder by
law.
123
California takes a different approach, apparently concentrating on getting the
requested records disclosed:
Upon refusal of a lawful demand for inspection, the superior court of the
proper county, may enforce the right of inspection with just and proper
conditions or may, for good cause shown, appoint one or more competent
inspectors or accountants to audit the books and records kept in this state
and investigate the property, funds and affairs of any domestic corpora-
122. ALASKA STAT. § 10.06.430(c) (1989). Alabama imposes a similar penalty with the same defense
except that the Alabama penalty is just the 10% of value. A
LA. CODE § 10A-2-16.02(c) (1994). Illinois
is the same as Alabama. 805 Ill. Comp. Stat. 5/7.75(d) (1986). New Mexico is substantially the same
as Alabama. N.M.
STAT. ANN. § 53-11-50(B) (1983). The penalty in Missouri is $250 per offense. MO.
REV. STAT. § 351.215(2) (1996). Nevada’s statute is somewhat different:
If any officer or agent of any corporation keeping records in this State willfully neglects or refus-
es to permit an inspection of the books of account and financial records upon demand by a per-
son entitled to inspect them, or refuses to permit an audit to be conducted, as provided in subsec-
tion 1, the corporation shall forfeit to the State the sum of $100 for every day of such neglect or
refusal, and the corporation, officer or agent thereof is jointly and severally liable to the person
injured for all damages resulting to the person. N
EV. REV. STAT. § 78.257(4).
Nevada also provides a potential defense to a shareholder’s demand. See supra note 93 and accompa-
nying text. Rhode Island is the same as Alabama. 7 R. I. G
EN. LAWS § 7-1.2-1502(c) (2005).
123. T
EX. BUS. ORGS. CODE ANN. § 21.222(b) (West 2011); it is a defense to an action brought under
§ 21.222(b) that the person suing:
(1) has, within the two years preceding the date the action is brought, sold or offered for sale a
list of shareholders or of holders of voting trust certificates for shares of the corporation or any
other corporation;
(2) has aided or abetted a person in procuring a list of shareholders or of holders of voting trust
certificates for the purpose described by Subdivision (1);
(3) has improperly used information obtained through a prior examination of the books and ac-
count records, minutes, or share transfer records of the corporation or any other corporation; or
(4) was not acting in good faith or for a proper purpose in making the person’s request for exam-
ination.
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tion or any foreign corporation keeping records in this state and of any
subsidiary corporation thereof, domestic or foreign, keeping records in
this state and to report thereon in such manner as the court may direct.
124
The California statute requires all of the expenses of the investigation or audit
to be paid by the shareholder unless the court decides that the corporation should
pay all or a part of the expenses.
125
Missouri imposes a penalty of $250 per offense,
126
and also provides that it is
a misdemeanor if any officer or agent, or the corporation, refuses to exhibit the
books and records of the corporation for examination by the Secretary of State or
the Supervisor of Corporations.
127
New Jersey, which generally requires that a shareholder have been a share-
holder for at least six months or be the holder of at least 5% of the shares (either
directly or through agreement with other shareholders) also affirms the power of a
court to allow other shareholders access to information:
Nothing herein contained shall impair the power of any court, upon proof
by a shareholder of proper purpose, irrespective of the period of time dur-
ing which the shareholder shall have been a shareholder of record, and ir-
respective of the number of shares held by him, to compel the production
for examination by such shareholder of the books and records of account,
minutes, and record of shareholders of a corporation. The court may, in
its discretion prescribe any limitations or conditions with reference to the
inspection, or award any other or further relief as the court may deem just
and proper. The court may order books, documents and records, pertinent
extracts therefrom, or duly authenticated copies thereof, to be brought
within this State and kept in this State upon whatever terms and condi-
tions as the order may prescribe. In any action for inspection the court
may proceed summarily.
128
New York,
129
Oklahoma,
130
and Pennsylvania
131
simply affirm a sharehold-
er’s right to seek judicial redress if the shareholder is wrongly denied access to
information. Presumably, a shareholder would have this right in any event.
Several states that impose penalties for failure to allow a shareholder to in-
spect books and records provide a statutory defense:
It is a defense to an action for penalties under this section that the person
suing has within two years sold or offered for sale a list of shareholders
of the corporation or any other corporation or has aided or abetted a per-
son in procuring a list of shareholders for this purpose, or has improperly
used information secured through a prior examination of the books and
124. CAL. CORP. CODE § 1603(a) (West 1977).
125. Id. § (c).
126. M
O. REV. STAT. § 351.215.
127. Id. § 351.710.
128. N.J.
STAT. ANN. § 14A:5-28(4) (West 2018).
129. N.Y.
BUS. CORP. LAW § 624(d) (McKinney 1998).
130. O
KLA. STAT. tit. 18, § 1065(C)(1) (2004).
131. 15 P
A. STAT. AND CONST. STAT. ANN. § 1508(c) (West 2001).
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records of account, minutes, or record of shareholders of the corporation
or any other corporation, or was not acting in good faith or for a proper
purpose in making the person’s demand.
132
xv. Penalties for Misuse of Information
Some states also penalize shareholders who misuse information. Florida, for
example, provides a $5,000 civil penalty for any person who “sell[s] or otherwise
distribute[s] any information or records inspected under this section, except to the
extent that such use is for a proper purpose as defined in subsection (3).”
133
Other
states simply admonish the parties:
(a) The use and distribution of any information acquired from records
inspected or copied under the rights granted by this chapter or by IC 23-
1-30-1 are restricted solely to the proper purpose described with particu-
larity under section 2(c) of this chapter.
(b) This section applies whether the use and distribution are by the
shareholder, the shareholder’s agent or attorney, or any person who ob-
tains the information (directly or indirectly) from the shareholder or
agent or attorney.
(c) The shareholder, the shareholder’s agent or attorney, and any other
person who obtains the information shall use reasonable care to ensure
that the restrictions imposed by this section are observed.
134
Massachusetts states that a corporation may impose reasonable restrictions on
the use or distribution of records by a demanding shareholder.
135
Utah provides the following:
A shareholder or director may not use any information obtained through
the inspection or copying of records permitted by Subsection (2) for any
purposes other than those set forth in a demand made under Subsection
(3).
136
xvi. Protective Orders
Minnesota provides for protective orders in certain circumstances:
On application of the corporation, a court in this state may issue a protec-
tive order permitting the corporation to withhold portions of the records
of proceedings of the board for a reasonable period of time, not to exceed
12 months, in order to prevent premature disclosure of confidential in-
formation which would be likely to cause competitive injury to the cor-
132. ALASKA STAT. § 10.06.450(c) (1989). Alabama, New Mexico, and Rhode Island are similar.
A
LA. CODE § 10A-2-16.02(c) (2009); N.M. STAT. ANN. § 53-11-50 (1983); 7 R. I. GEN. LAWS § 7-1.2-
1502(c) (2005).
133. F
LA. STAT. § 607.1602(7) (1997).
134. I
ND. CODE § 23-1-52-5 (1986). Minnesota is similar. MINN. STAT. § 302A.461, subd. 4b (2010).
135. M
ASS. GEN. LAWS ch. 156D, § 16.03(e) (2004).
136. U
TAH CODE ANN. § 16-10a-1602(7) (West 1992).
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poration. A protective order may be renewed for successive reasonable
periods of time, each not to exceed 12 months and in total not to exceed
36 months, for good cause shown. In the event a protective order is is-
sued, the statute of limitations for any action which the shareholder, ben-
eficial owner, or holder of a voting trust certificate might bring as a result
of information withheld automatically extends for the period of delay. If
the court does not issue a protective order with respect to any portion of
the records of proceedings as requested by the corporation, it shall award
reasonable expenses, including attorney’s fees and disbursements, to the
shareholder, beneficial owner, or holder of a voting trust certificate.
137
B. Limited Liability Companies
i. General Requirements
As with corporate inspection statutes, the statutes governing the inspection of
the books and records of an LLC share many characteristics.
Inspection must be at a reasonable time.
Although not as common in LLC statutes as in the corporate context,
22 state LLC statutes permit a member to use an agent when examin-
ing books and records. This article discusses issues that arise in a
state that does not permit the use of agents by statute if a member
wants to use an agent.
138
Some LLC statutes permit a dissociated member or the legal repre-
sentative of a deceased or incapacitated member to inspect books and
records — in the case of a dissociated member, only for the period
the person was a member.
Some LLC statutes also extend inspection rights to the legal repre-
sentative of a member that is an entity and that has been dissolved or
terminated.
A few LLC statutes extend information rights to assignees or trans-
ferees.
This article discusses the differences among the LLC statutes below.
ii. Requirement that the Member Pay the Costs of the Inspec-
tion
Some LLC statutes require the member seeking inspection to pay the costs of
copying records.
139
137. MINN. STAT. § 302A.461, subd. 4a. North Dakota has a similar statute. N.D. CENT. CODE § 10-
19.1-84(8) (2011).
138. See infra Part IV.E (Right to Use an Agent When Statute is Silent).
139. These statutes are A
LA. CODE § 10A-5A-4.09(d) (2014) (Alabama); ARK. CODE ANN. § 4-32-
405(b) (1993) (Arkansas) (stating: “Upon reasonable request, a member may, at the member’s own
expense inspect and copy during ordinary business hours, any limited liability company record, wher-
ever the record is located.”); C
ONN. GEN. STAT. § 34-255(e) (2017) (Connecticut); D.C. CODE § 29-
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iii. Restrictions on Information Rights Permitted by Statute
All LLC statutes allow some inspection rights to members and managers.
However, LLC statutes often allow the LLC to establish reasonable standards for
the examination of the LLC’s books and records. For example, the Delaware LLC
statute provides that a member’s right to information is subject to reasonable
standards:
Subject to such reasonable standards (including standards governing
what information and documents at what time and location and at whose
expense) as may be set forth [in an LLC agreement] or otherwise estab-
lished by the manager, or if there is no manger, then by the members.
140
The Delaware LLC statute further provides that the manager of a LLC may
keep confidential from the members any information the manager reasonably
believes to be the following:
[I]n the nature of trade secrets or other information the disclosure of
which the manager in good faith believes is not in the best interest of the
limited liability company or could damage the limited liability company
or its business or which the limited liability company is required by law
or by agreement with a third party to keep confidential.
141
Texas states that a company agreement “may not unreasonably restrict a per-
son’s right of access to records and information.
142
The author believes a restriction that would be permitted under the Delaware
statute would be a reasonable restriction under Texas law. Colorado law
143
and
804.10(d) (2013) (District of Columbia); FLA. STAT. § 605.0410(6) (2016) (Florida); GA. CODE ANN. §
14-11-313(2) (1993) (Georgia) (similar to Arkansas); H
AW. REV. STAT. § 428-408(a) (1996) (Hawaii);
I
DAHO CODE § 30-25-410(e) (2015) (Idaho); 805 ILL. COMP. STAT. 180/10-15(e) (2017) (Illinois); IND.
CODE § 23-18-4-8(b) (Indiana) (similar to Arkansas); IOWA CODE § 489.410(4) (2009) (Iowa); KY.
REV. STAT. ANN. § 275.185(2) (West 2013) (Kentucky) (similar to Arkansas); LA. STAT. ANN.
§12:1319(B)(1) (1992) (Louisiana) (similar to Arkansas); M
E. STAT. tit 31, § 1558(3) (2011) (Maine);
M
ASS. GEN. LAWS ch. 156C, § 9(b) (Massachusetts); MICH. COMP. LAWS § 450.4503(3) (2010)
(Michigan) (similar to Arkansas); M
INN. STAT. § 322C.0410, subd. 4 (Minnesota); Mo. Rev. Stat. §
347.091(2)(1) (1993) (Missouri) (similar to Arkansas); M
ONT. CODE ANN. § 35-8-405(2)(a) (1999)
(Montana) (similar to Arkansas); N
EV. REV. STAT. § 86.241(4) (2015) (Nevada); N.H. REV. STAT.
ANN. § 304-C:55(II) (2013) (New Hampshire) (operating agreement may set forth at whose expense
records are to be provided); N.J.
STAT. ANN. § 42:2C-40(d) (2012) (New Jersey); N.M. STAT. ANN. §
53-19-19(B) (1993) (New Mexico) (similar to Arkansas); N.Y.
LTD. LIAB. CO. LAW § 1102(b)
(McKinney 1994) (New York) (similar to Arkansas); N.C.
GEN. STAT. § 57D-3-04(e) (2014) (North
Carolina) (LLC may require the member to pay); O
KLA. STAT. tit. 18, § 2021(B)(1) (1993) (Oklaho-
ma); O
R. REV. STAT. § 63.777(3) (1993) (Oregon); 15 PA. STAT. AND CONST. STAT. ANN. § 8850(e)
(West 2017) (Pennsylvania); 7 R.
I. GEN. LAWS § 7-16-22(b)(1) (1997) (Rhode Island); S.C. CODE
ANN. § 33-44-408(a) (1996) (South Carolina) (company may impose a reasonable charge); S.D.
CODIFIED LAWS § 47-34A-408(a) (2010) (South Dakota) (company may impose a reasonable charge);
T
ENN. CODE ANN. § 48-228-103(c) (1994) (Tennessee); TEX. BUS. ORGS. CODE ANN. § 101.502(a)
(West 2006) (Texas); U
TAH CODE ANN. § 48-3a-410(5) (Utah); WIS. STAT. § 183.0405(2) (2017)
(Wisconsin); W
YO. STAT. ANN. § 17-29-410(d) (2010) (Wyoming).
140. D
EL. CODE ANN. tit. 6, § 18-305(a) (2014).
141. Id. § (c). For a case illustrating what may happen if an advisor fails to include such a permitted
restriction in the company agreement, see supra notes 3–9 and accompanying text.
142. T
EX. BUS. ORGS. CODE ANN. § 101.054(e).
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New York
144
law are similar. The California limited partnership statute permits
similar restrictions.
145
The California limited liability statute does not contain such
a provision. RULLCA §410(a)(2)(B) would appear to permit such a provision,
146
and California must have decided to omit that provision when it adopted
RULLCA. It may be that the RULLCA provision was thought to be unnecessary.
California provides only limited inspection rights to members. A California LLC
is required to make available for inspection and copying to a member who re-
quests for a purpose reasonably related to interest of that person as a member, any
of the records required to be maintained by § 17701.13.
147
The Alabama LLC statute contains a restrictive provision similar to Dela-
ware’s,
148
as does Colorado.
149
Connecticut’s LLC Act permits similar re-
strictions
150
and also imposes the duty to provide information to members.
151
The
District of Columbia and Idaho LLC statutes are substantially the same as Con-
necticut.
152
The Florida LLC statute states the following:
In addition to a restriction or condition stated in the operating agreement,
a limited liability company, as a matter within the ordinary course of its
activities and affairs, may impose reasonable restrictions and conditions
on access to and use of information to be furnished under this section, in-
cluding designating information confidential and imposing nondisclosure
143. COLO. REV. STAT. § 7-80-408(3) (2007).
144. N.Y.
LTD. LIAB. CO. LAW § 1102(c).
145. C
AL. CORP. CODE §§ 15903.06(g), 15904.07(f) (West 2015).
146. R
EVISED UNIF. LTD. LIAB. CO. ACT § 410(a)(2)(B) (UNIF. LAW COMM’N 2013) (states that the
company shall furnish: on demand, any other information concerning the company’s activities, finan-
cial condition, and other circumstances, except to the extent the demand or information demanded is
unreasonable or otherwise improper under the circumstances) (emphasis added).
147. C
AL. CORP. CODE § 17704.10(b) (the operating agreement may not vary a member’s rights
under § 17704.10); § 17701.10(d). § 17701.13(d) requires the LLC to maintain:
(1) A current list of the full name and last known business or residence address of each
member and of each transferee set forth in alphabetical order, together with the contribution and
the share in profits and losses of each member and transferee.
(2) If the limited liability company is a manager-managed limited liability company, a cur-
rent list of the full name and business or residence address of each manager.
(3) A copy of the articles of organization and all amendments thereto, together with any
powers of attorney pursuant to which the articles of organization or any amendments thereto
were executed.
(4) Copies of the limited liability company’s federal, state, and local income tax or infor-
mation returns and reports, if any, for the six most recent fiscal years.
(5) A copy of the limited liability company’s operating agreement, if in writing, and any
amendments thereto, together with any powers of attorney pursuant to which any written operat-
ing agreement or any amendments thereto were executed.
(6) Copies of the financial statement of the limited liability company, if any, for the six most
recent fiscal years.
(7) The books and records of the limited liability company as they relate to the internal af-
fairs of the limited liability company for at least the current and past four fiscal years.
148. A
LA. CODE § 10A-5A-4.09(g) (2014).
149. C
OLO. REV. STAT. § 7-80-408(3) (2007). The Colorado LLC Act also permits the operating
agreement to impose restrictions on the information rights so long as the restrictions imposed are not
unreasonable. Id. § (2)(b).
150. C
ONN. GEN. STAT. § 34-255i(i) (2017).
151. Id.
§ (a)(3). See discussion infra Part V.B.iv (Propriety of Placing Obligation to Provide Infor-
mation on Members).
152. D.C.
CODE § 29-804.10 (2013). § 29.801.07(c)(6) states that an operating agreement may not
“unreasonably restrict the duties and rights stated in § 29-804.10.”
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and safeguarding obligations on the recipient. In a dispute concerning the
reasonableness of a restriction under this subsection, the company has the
burden of proving reasonableness. This subsection does not apply to the
request by a member for the records described in subsection (1).
153
The Illinois LLC statute is similar to Florida’s in this regard.
154
By contrast to
the above LLC statutes, the Georgia LLC statute states that a member may, “at the
member’s own expense, inspect and copy any limited liability company record
upon reasonable request during ordinary business hours.”
155
153. FLA. STAT. § 605.0410(10) (2016) (the records described in subsection (1) are basic information
about the LLC:
(1) A limited liability company shall keep at its principal office or another location the following
records:
(a) A current list of the full names and last known business, residence, or mailing addresses
of each member and manager.
(b) A copy of the then-effective operating agreement, if made in a record, and all amend-
ments thereto if made in a record.
(c) A copy of the articles of organization, articles of merger, articles of interest exchange,
articles of conversion, and articles of domestication, and other documents and all amend-
ments thereto, concerning the limited liability company which were filed with the depart-
ment, together with executed copies of any powers of attorney pursuant to which any arti-
cles of organization or such other documents were executed.
(d) Copies of the limited liability company’s federal, state, and local income tax returns and
reports, if any, for the 3 most recent years.
(e) Copies of the financial statements of the limited liability company, if any, for the 3 most
recent years.
(f) Unless contained in an operating agreement made in a record, a record stating the
amount of cash and a description and statement of the agreed value of the property or other
benefits contributed and agreed to be contributed by each member, and the times at which
or occurrence of events upon which additional contributions agreed to be made by each
member are to be made).
I
DAHO CODE § 30-25-410(h) (2015) (The operating agreement may not unreasonably restrict the duties
and rights under § 30-25-410, but the operating agreement may impose reasonable restrictions on the
availability and use of information obtained under that section and may define appropriate remedies,
including liquidated damages, for a breach of any reasonable restriction on use). The Florida limited
liability company statute provides that an operating agreement may not:
Unreasonably restrict the duties and rights stated in § 605.04.10, but the operating agreement
may impose reasonable restrictions on the availability and use of information obtained under that
section and may define appropriate remedies, including liquidated damages, for a breach of a
reasonable restriction on use.
F
LA. STAT. § 605.0105(3)(h).
154. 805 I
LL. COMP. STAT. 180/10-15(h) (2017).
155. G
A. CODE ANN. § 14-11-313(2)(A) (1993). The Georgia LLC statute does not define “limited
liability company record.” Presumably, the phrase includes at least the records required by § 14-11-
313(1):
(1) Each limited liability company shall keep at its principal office the following:
(A) A current list of the name and last known address of each member and manager;
(B) Copies of records that would enable a member to determine the relative voting rights, if any,
of the members;
(C) A copy of the articles of organization, together with any amendments thereto;
(D) Copies of the limited liability company’s federal, state, and local income tax returns, if any,
for the three most recent years;
(E) A copy of any operating agreement that is in writing, together with any amendments thereto;
and
(F) Copies of financial statements, if any, of the limited liability company for the three most re-
cent years.
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The Hawaii LLC statute contains a simple records provision,
156
and provides
that the operating agreement may not unreasonably restrict a right to information
or access to records under § 428-408.
157
Kansas provides that a member’s inspection rights are “subject to such rea-
sonable standards, including standards governing what information and docu-
ments are to be furnished at what time and location and at whose expense, as may
be set forth in an operating agreement or otherwise established by the manager or,
if there is no manager, then by the members.”
158
Kansas also provides the follow-
ing:
The manager of a limited liability company shall have the right to keep
confidential from the members, for such period of time as the manager
deems reasonable, any information which the manager reasonably be-
lieves to be in the nature of trade secrets or other information the disclo-
sure of which the manager in good faith believes is not in the best interest
of the limited liability company or could damage the limited liability
company or its business or which the limited liability company is re-
quired by law or by agreement with a third party to keep confidential.
159
Kansas further states the following:
The rights of a member or manager to obtain information as provided in
this section may be restricted in an original operating agreement or in any
subsequent amendment approved or adopted by all of the members or in
compliance with any applicable requirements of the operating agree-
ment.
160
Kentucky provides the following restriction:
156. HAW REV. STAT. § 428-408 (1996):
(a) A limited liability company shall provide members and their agents and attorneys access to
any of its records at reasonable locations specified in the operating agreement. The company
shall provide former members and their agents and attorneys access for proper purposes to rec-
ords pertaining to the period during which they were members. The right of access includes the
opportunity to inspect and copy records during ordinary business hours. The company may im-
pose a reasonable charge, limited to the costs of labor and material, for copies of records fur-
nished.
(b) A limited liability company shall furnish to a member, and to the legal representative of a de-
ceased member or member under legal disability:
(1) Without demand, information concerning the company’s business or affairs reasonably re-
quired for the proper exercise of the member’s rights and performance of the member’s duties
under the operating agreement or this chapter; and
(2) On demand, other information concerning the company’s business or affairs, except to the
extent the demand or the information demanded is unreasonable or otherwise improper under
the circumstances.
(c) A member has the right, upon a signed record given to the limited liability company, to obtain
at the company’s expense a copy of any operating agreement in record form.
157. Id. § 428-103(b)(1).
158. K
AN. STAT. ANN. § 17-7640(a) (2014).
159. Id. § (c).
160. Id. § (g).
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A written operating agreement may impose reasonable limitations upon
the inspection and use of any record of or information with respect to a
limited liability company. Except as to limitations set forth in a written
operating agreement to which a member requesting information has as-
sented, the limited liability company bears the burden of proof in demon-
strating the reasonableness of any restrictions imposed.
161
Subject to the restriction quoted immediately above, Kentucky provides that
“upon reasonable written request to the limited liability company, a member may,
at the member’s own expense, inspect and copy during ordinary business hours
any limited liability company record, where the record is located or at a reasona-
ble location.”
162
The Maryland LLC Act has a provision similar to the above permitting rea-
sonable restrictions on information rights,
163
and states the following:
Unless a member seeking information executes a confidentiality or non-
disclosure agreement reasonably acceptable to the limited liability com-
pany restricting the use and disclosure of the information, a limited liabil-
ity company shall have the right to keep confidential from members, for a
reasonable period of time:
(1) Any information that the limited liability company reasonably be-
lieves to be in the nature of trade secrets;
(2) Information the disclosure of which the limited liability company in
good faith believes:
(i) Is not in the best interest of the limited liability company; or
(ii) Could damage the limited liability company or its business; or
(3) Information the limited liability company is required by law or by
agreement with a third party to keep confidential.
164
Maine’s LLC statute is similar to Maryland’s.
165
Minnesota’s LLC statute is
similar to Kentucky’s in the type of restrictions it allows.
166
The Missouri LLC statute information rights provision does not contain a re-
striction like those of Minnesota, Kentucky, and others.
167
Moreover, it is unclear
what, if any, restrictions could be included in the operating agreement of a Mis-
souri LLC because Missouri Revised Statute § 347.081(1) states the following:
The member or members of a limited liability company shall adopt an
operating agreement containing such provisions as such member or
members may deem appropriate, subject only to the provisions of sec-
tions 347.010 to 347.187 and other law. The operating agreement may
contain any provision, not inconsistent with law, relating to the conduct
161. Id. § 275.185(5).
162. Id. § (2).
163. M
D. CODE ANN., CORPS. & ASS’NS § 4A-406(c) (West 2012).
164. Id. § (d).
165. M
E. REV. STAT. tit. 31, § 1558(6) (2011).
166. M
INN. STAT. § 322C.0410, subd. 7 (2015). An operating agreement may not “unreasonably
restrict the duties and rights stated in [§] 322C.0410.” Id. § 322C.0110, subd. 3.
167. M
O. REV. STAT. § 347.091 (1993).
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of the business and affairs of the limited liability company, its rights and
powers, and the rights, powers and duties of its members, managers,
agents or employees.
168
The Missouri information rights provision is one of the sections included in
the “subject only to the provisions of sections . . . “ in the quoted provision.
The Mississippi LLC statute provides that a member’s demand for infor-
mation must be “for any good faith purpose reasonably related to the member’s
interest as a member of the limited liability company”
169
and reads as follows:
subject to such reasonable standards, including standards governing what
information and documents are to be furnished at what time and location
and at whose expense, as may be set forth in an operating agreement or
otherwise established by the manager or, if there is no manager, then by
the members.
170
The Montana LLC statute inspection provision provides that an LLC will
keep specified records at its principal place of business “[u]nless otherwise pro-
vided in the articles of organization or a written operating agreement.”
171
Howev-
er, “[a] member may, at the member’s own expense, inspect and copy any limited
liability company record, wherever the record is located, upon reasonable request
during ordinary business hours.”
172
The operating agreement of a Montana LLC
may not “unreasonably restrict a right to information or access to records under
35-8-405.”
173
The Nebraska LLC statute states the following:
In addition to any restriction or condition stated in its operating agree-
ment, a limited liability company, as a matter within the ordinary course
of its activities, may impose reasonable restrictions and conditions on ac-
cess to and use of information to be furnished under this section, includ-
ing designating information confidential and imposing nondisclosure and
safeguarding obligations on the recipient. In a dispute concerning the rea-
sonableness of a restriction under this subsection, the company has the
burden of proving reasonableness.
174
The Nevada LLC statute contains an unusual provision:
The rights authorized by NRS 86.241 may be denied to a member or
manager, as the case may be, or to such person’s attorney or other agent,
upon the refusal of the member or manager to furnish to the limited-
liability company an affidavit that the provision or examination of rec-
168. Id. § 347.081(1).
169. M
ISS. CODE ANN. § 79-29-315(1) (2011).
170. Id.
171. M
ONT. CODE ANN. § 35-8-405(1) (1999).
172. Id. § (2)(a) (emphasis added).
173. Id. § 35-8-109(3)(a).
174. N
EB. REV. STAT. § 21-139(g) (2011). In Nebraska, the operating agreement may not unreasona-
bly restrict the duties and rights stated in section 21-139.” § 21-110)(b)(6).
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ords is not desired for a purpose which is in the interest of a business or
object other than the business of the company and that such person has
not at any time sold or offered for sale any list of members of any domes-
tic or foreign limited-liability company or any list of stockholders of any
domestic or foreign corporation or aided or abetted any person in procur-
ing any such record for any such purpose.
175
Nevada permits a number of other limits on information rights. The Nevada
statute first makes any request of a member or manager subject to the requirement
of a “reasonable demand” and that it be for a purpose reasonably related to the
member’s interest as a member of the LLC or, in the case of a manager, a purpose
reasonably related to the manager’s duties as manager.
176
Further, any demand by
a member or manager is “subject to such reasonable standards regarding at what
time and location and at whose expense records are to be furnished as may be set
forth in the articles of organization or in an operating agreement.”
177
Then, the demanding member or manager must comply with the following:
Any demand by a member or manager under this section must be in writ-
ing and must state the purpose of such demand. When a demanding
member seeks to obtain or a manager seeks to examine the records de-
scribed in subsection 2, the demanding member or manager must first es-
tablish that:
(a) The demanding member or manager has complied with the provi-
sions of this section respecting the form and manner of making a demand
for obtaining or examining such records; and
(b) The records sought by the demanding member or manager are rea-
sonably related to the member’s interest as a member or the manager’s
rights, powers and duties as a manager, as the case may be.
178
Finally, the Nevada statute provides the following:
The rights of a member to obtain or a manager to examine records as
provided in this section may be restricted or denied entirely in the articles
of organization or in an operating agreement adopted by all of the mem-
bers or by the sole member or in any subsequent amendment adopted by
all of the members at the time of amendment.
179
The Nevada LLC Act’s provision regarding operating agreements does not
restrict what the operating agreement may do to information rights.
180
The North Carolina LLC statute’s provision on information rights provides
the following restriction:
175. NEV. REV. STAT. § 86.243(1) (2009).
176. Id. §§ 86.241(2)–(3).
177. Id. § (4).
178. Id. § (5).
179. Id. § (7).
180. Id. § 86.286.
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The exercise of a member’s rights to inspect and copy the LLC’s
records is to take place at the LLC’s principal office, or other location or
locations selected by the LLC, during the LLC’s regular hours of opera-
tion unless the LLC directs otherwise. The LLC may require a member to
pay the labor, material, and other costs it incurs or would otherwise incur
to comply with the member’s demand to inspect and copy the LLC’s rec-
ords. The LLC (i) need not disclose to any member or any agent or repre-
sentative of a member any information related to any other interest own-
er, except to the extent required by subdivision (3) of subsection (a) of
this section, but subject to the restrictions that may be imposed under
clauses (ii) and (iii) of this subsection, or is not otherwise related to the
member’s ownership interest; (ii) may impose conditions, restrictions,
limitations, and standards on the exercise of a member’s inspection and
other information rights, including redacting names and other confiden-
tial information, providing summaries of documents, or requiring the
member to enter an agreement to not disclose and otherwise maintain the
confidentiality of the information provided; and (iii) need not disclose or
otherwise make available to a member, manager, or other company offi-
cial trade secrets or other confidential information of a nature that its dis-
closure could adversely affect the LLC, to the extent that the managers or
other applicable company officials determine the information cannot be
adequately safeguarded by other means, until either there no longer is a
risk that its disclosure will adversely affect the LLC or the LLC becomes
able to protect itself in some other way.
181
The North Dakota LLC inspection rights provision states, in part, the follow-
ing:
In addition to any restriction or condition stated in its operating agree-
ment, a limited liability company, as a matter within the ordinary course
of its activities, may impose reasonable restrictions and conditions on ac-
cess to and use of information to be furnished under this section, includ-
ing designating information confidential and imposing nondisclosure and
safeguarding obligations on the recipient. In a dispute concerning the rea-
sonableness of a restriction under this subsection, the company has the
burden of proving reasonableness.
182
New Hampshire provides that LLC information rights are the following:
[S]ubject to any reasonable standards that are set forth in an operating
agreement or established by the manager or, if there is no manager, by
the members. These may include standards governing what information
181. N. C. GEN. STAT. §§ 57D-3-04(e)–(f) (2014).
182. N.D.
CENT. CODE § 10-32.1-42(7) (2015). The operating agreement may not “[u]nreasonably
restrict the duties and rights stated in section 10-32.1-42.” Id. § 10-32.1-13(3)(f).
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and documents are to be furnished, at what time and location, and at
whose expense.
183
Further, LLC information rights in New Hampshire are subject to the follow-
ing:
The manager of a limited liability company shall have the right to keep
confidential from the members, for such period of time as the manager
deems reasonable:
(a) Information which the manager reasonably believes to be in the na-
ture of trade secrets;
(b) Other information if the manager believes in good faith that the dis-
closure (1) is not in the best interest of the limited liability company or
(2) could damage the limited liability company or its business; and
(c) Information which the limited liability company is required by law
or by agreement with a third party to keep confidential.
184
The New Hampshire LLC statute does not have the provision that most LLC
statutes have limiting the effect of an operating agreement. The New Jersey LLC
statute contains a permissible limitation on information rights like that of North
Dakota.
185
New York provides that any member of an LLC may act as follows:
[S]ubject to reasonable standards as may be set forth in, or pursuant to,
the operating agreement, inspect and copy at his or her own expense, for
any purpose reasonably related to the member’s interest as a member, the
records referred to in subdivision (a) of this section, any financial state-
ments maintained by the limited liability company for the three most re-
cent fiscal years and other information regarding the affairs of the limited
liability company as is just and reasonable.
186
The New York statute additionally states the following:
If provided in the operating agreement, certain members or managers
shall have the right to keep confidential from other members for such pe-
riod of time as such certain members or the managers deem reasonable,
any information which such certain members or the managers reasonably
believe to be in the nature of trade secrets or other information the disclo-
sure of which such certain members or the managers in good faith be-
lieve is not in the best interest of the limited liability company or its
business or which the limited liability company is required by law or by
agreement with a third party to keep confidential.
187
183. N.H. REV STAT. ANN. § 304-C:55(II) (2013).
184. Id. § (IV).
185. N.J. Stat. Ann. § 42:2C-40(g) (West 2013).
186. N.Y.
LTD. LIAB. CO. LAW § 1102(b) (McKinney 1994).
187. Id. § (c).
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Other than the provision in the information rights section quoted above, the
New York LLC statute does not provide authority for the operating agreement to
vary the information rights provisions.
188
The Ohio LLC statute provides that a member is entitled to inspect a broad
range of information “[s]ubject to any reasonable standards stated in the operating
agreement or otherwise established by the members.”
189
The Ohio statute further
states the following:
The reasonable standards authorized by division (A)(1) of this section
may include standards governing the type and nature of information and
documents that are to be furnished, the time and location at which they
are to be furnished, and the person who is to pay the expense of furnish-
ing them.
190
Ohio goes on to authorize the following:
Unless otherwise provided in the operating agreement, a limited liability
company has the right to keep confidential from its members for a rea-
sonable period of time any information that the company reasonably con-
siders to be in the nature of trade secrets or any other information as fol-
lows:
(1) Information the disclosure of which the company in good faith rea-
sonably believes is not in the best interest of the company or could dam-
age the company or its business;
(2) Information that the company is required by law or by agreement
with a third person to keep confidential.
191
The books and records provision of the Oklahoma LLC Act does not contain
any protective language.
192
The operating agreement provision of the Oklahoma
LLC Act does not restrict what the operating agreement may do about access to
books and records.
193
Like Oklahoma, the books and records provisions of the
Oregon LLC Act do not contain any protective language.
194
The Oregon provision
regarding operating agreements is one of the shortest of all and does not restrict
what the operating agreement may do with regard to books and records: “The
operating agreement, if any, may provide for the regulation and management of
the affairs of the limited liability company in any manner not inconsistent with
law or the articles of organization and may be in writing or oral.”
195
It appears, therefore, that the operating agreements of Oklahoma and Oregon
LLCs could restrict information rights however the members desired. It is proba-
bly true that some restrictions members might dream up at the margins would be
188. Id. § 417.
189. O
HIO REV. CODE ANN. § 1705.22(A)(1) (West 1994).
190. Id. § (A)(2).
191. Id. § (B). In Ohio, the operating agreement may not “[u]nreasonably restrict the right of access
to books and records.” Id. § 1705.081(B)(2).
192. O
KLA. STAT. tit. 18, § 2021 (1993).
193. Id. § 2012.2.
194. O
R. REV. STAT. §§ 63.771, 63.777 (1991 & 1993).
195. Id. § 63.057.
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found by a court to violate public policy, but most commercially reasonable re-
strictions should certainly be permitted.
Like many states, Pennsylvania includes the following in the books and rec-
ords provision of its LLC statute:
In addition to any restriction or condition stated in the operating agree-
ment, a limited liability company, as a matter within the ordinary course
of its activities and affairs, may impose reasonable restrictions and condi-
tions on access to and use of information to be furnished under this sec-
tion, including designating information confidential and imposing non-
disclosure and safeguarding obligations on the recipient. In a dispute
concerning the reasonableness of a restriction under this subsection, the
company has the burden of proving reasonableness.
196
Pennsylvania allows an operating agreement to “impose reasonable re-
strictions on the availability and use of information obtained under section 8850
and may define appropriate remedies, including liquidated damages, for a breach
of any reasonable restriction on use.”
197
Rhode Island’s books and records provision is broad and does not contain any
limiting language.
198
The Rhode Island LLC statute also does not contemplate that
an LLC will necessarily have an operating agreement. The Rhode Island LLC
statute in its powers section simply authorizes, but does not require, a LLC to have
an operating agreement: “To make and alter operating agreements, not incon-
sistent with its articles of organization or with the laws of this state, for the admin-
istration and regulation of the business and affairs of the limited liability compa-
ny.”
199
Although the South Dakota LLC Act’s provision on books and records
200
does not contain any restrictive language, the South Dakota LLC Act permits an
operating agreement to “restrict a right to information or access to records” if the
restriction is not manifestly unreasonable.
201
The Utah LLC Act provides the following:
In addition to any restriction or condition stated in the operating agree-
ment, a limited liability company, as a matter within the ordinary course
of its activities and affairs, may impose reasonable restrictions and condi-
tions on access to and use of information to be furnished under this sec-
tion, including designating information confidential and imposing non-
disclosure and safeguarding obligations on the recipient. In a dispute
concerning the reasonableness of a restriction under this Subsection (9),
196. 15 PA. CONS. STAT. § 8850(h) (2017).
197. Id. § 8815(d)(1)(iii).
198. R.I.
GEN. LAWS § 7-16-22 (1997) (the Rhode Island statute provides:
A member may:
(1) At the member’s own expense, inspect and copy any limited liability company records re-
quired to be kept under this section upon reasonable request during ordinary business hours; and
(2) Obtain from time to time, upon reasonable request, information regarding the state of the
business and financial condition of the limited liability company).
199. Id. § 7-16-4(12).
200. S.D.
CODIFIED LAWS § 47-34A-408 (2010).
201. Id. § 47-34A-103(c)(1).
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the limited liability company has the burden of proving reasonable-
ness.
202
The Utah LLC Act also provides that an operating agreement may not “un-
reasonably restrict the duties and rights under [s]ection 48-3a-410, but the operat-
ing agreement may impose reasonable restrictions on the availability and use of
information obtained under that section and may define appropriate remedies,
including liquidated damages, for a breach of any reasonable restriction on
use.”
203
The Vermont LLC Act states that “a limited liability company may impose
reasonable restrictions and conditions on access to and use of information to be
furnished under [its information rights section], including designating information
confidential and imposing nondisclosure and safeguarding obligations on the re-
cipient.”
204
Further, the Vermont LLC Act provides that an operating agreement
may not do the following:
[U]nreasonably restrict the duties and rights with respect to books, rec-
ords, and other information stated in section 4058 of this title, but the op-
erating agreement may impose reasonable restrictions on the availability
and use of information obtained under that section and may define ap-
propriate remedies, including liquidated damages, or a breach of any rea-
sonable restriction on use.
205
The Virginia LLC Act’s information rights statute provides the following:
[T]he rights of a member to obtain information as provided in such [stat-
ute] may be restricted in writing in an original operating agreement or
any subsequent written amendment to an operating agreement approved
or adopted by all of the members and in compliance with any applicable
requirements of the operating agreement.
206
The Virginia LLC Act provides that an operating agreement “may contain
any provisions regarding the affairs of a limited liability company and the conduct
of its business to the extent that such provisions are not inconsistent with the laws
of the Commonwealth or the articles of organization.”
207
The Washington LLC Act’s information rights provision
208
does not contain
any express restrictive language like many LLC statutes do, but the Washington
statutory provision regarding operating agreements implies that restrictions may
be imposed by stating that an operating agreement may “not unreasonably restrict
the right to records or information under RCW 25.15.136.”
209
202. UTAH CODE ANN. § 48-3a-410(9) (West 2014).
203. Id. § 48-3a-112(3)(h).
204. V
T. STAT. ANN. tit. 11, § 4058(h)(1) (2015).
205. Id. § 4003(b)(6).
206. V
A. CODE ANN. § 13.1-1028(C) (2016).
207. Id. § 13.1-1023(A)(1).
208. W
ASH. REV. CODE § 25.15.136 (2016).
209. Id. § 25.15.018(3)(g).
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The Wisconsin LLC Act provision on information does not contain any re-
strictions other than requiring that a request be reasonable and provide the follow-
ing:
Members or, if the management of the limited liability company is vested
in one or more managers, managers shall provide, to the extent that the
circumstances render it just and reasonable, true and full information of
all things affecting the members to any member or to the legal repre-
sentative of any member upon reasonable request of the member or the
legal representative.
210
The Wisconsin Act does not have a provision regarding operating agree-
ments.
The West Virginia Act provision on information does not contain any re-
striction other than the requirement that the member seeking information have a
proper purpose.
211
Like the Washington statute, however, the West Virginia stat-
ute implies that restrictions are permissible by stating that an operating agreement
may not “unreasonably restrict a right to information or access to records.”
212
Wyoming provides the following:
In addition to any restriction or condition stated in its operating agree-
ment, a limited liability company, as a matter within the ordinary course
of its activities, may impose reasonable restrictions and conditions on ac-
cess to and use of information to be furnished under this section, includ-
ing designating information confidential and imposing nondisclosure and
safeguarding obligations on the recipient. In a dispute concerning the rea-
sonableness of a restriction under this subsection, the company has the
burden of proving reasonableness.
213
Wyoming further provides that an operating agreement may not unreasonably
restrict the rights and duties stated in the information rights provision.
214
iv. Propriety of Placing Obligation to Provide Information on
Members
Under RULLCA, in a member-managed LLC, the obligation of the company
to furnish certain information without demand, and other information on demand
also applies to each member to the extent the member knows any such infor-
mation.
215
This is not typical of adopted LLC statutes that are not based on
RULLCA. Moreover, the Prefatory Note and Commentary to RULLCA do not
explain why this provision was included, other than the statement that “ULLCA’s
[the predecessor of RULLCA] drafting relied substantially on the then recently
adopted Revised Uniform Partnership Act (“RUPA”), and this reliance was espe-
210. WIS. STAT. § 183.0405(3) (1995).
211. W.
VA. CODE § 31B-4-408(a) (1996).
212. Id. § 31B-1-103(b)(1).
213. W
YO. STAT. ANN. § 17-29-410(g) (2010).
214. Id. § 17-29-410(c)(vi).
215. See supra note 57 and accompanying text.
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cially heavy with regard to member-managed LLCs.”
216
Many non-RULLCA
states do not include such a provision.
217
Six of the 18 states that have adopted
RULLCA have omitted this provision.
218
The other states that have adopted
RULLCA have included RULLCA § 410(a)(3).
219
Some non-RULLCA states
have included a similar provision in its LLC statute. Ark. Code § 4-32-405(c)
states the following:
Members, if the management of the limited liability company is vested in
the members, or managers, if management of the limited liability compa-
ny is vested in managers, shall render, to the extent the circumstances
render it just and reasonable, true and full information of all things affect-
ing the members to any member and to the legal representative of any
deceased member or of any member under legal disability.
220
The Kentucky and Montana LLC Acts contain a provision identical to that of
the Arkansas statute in K.R.S. § 275.185 and M.C.A § 35-8-405(3). Virginia has a
somewhat broader provision stating that each member has the right to, do the fol-
lowing, inter alia:
Obtain from the manager or managers, or if the limited liability company
has no manager or managers, from any member or other person with ac-
cess to such information, from time to time upon reasonable demand (i)
true and full information regarding the state of the business and financial
condition of the limited liability company, (ii) promptly after becoming
available, a copy of the limited liability company’s federal, state and lo-
cal income tax returns for each year, and (iii) other information regarding
216. REVISED UNIF. LTD. LIAB. CO. ACT prefatory n. 1 (UNIF. LAW COMM’N 2013).
217. For non-RULLCA states that do not include such a provision, see, e.g., C
OLO. REV. STAT. § 7-
80-408 (2007); D
EL. CODE ANN. tit. 6, § 18-305 (2014); TEX. BUS. ORGS. CODE ANN. § 101.502
(2006). Other non-RULLCA states that do not impose a requirement to provide information on mem-
bers are A
RIZ. REV. STAT. § 29-607 (2005) (Arizona); GA. CODE ANN. § 14-11-313 (1993) (Georgia);
Haw. Rev. Stat. § 428-408 (1996) (Hawaii); I
ND. CODE § 23-18-4-8 (2007) (Indiana); KAN. STAT.
ANN. § 17-7690 (2014) (Kansas); LA. STAT. ANN. § 12:1319 (1992) (Louisiana); MD. CODE ANN.,
CORPS. & ASS’NS § 4A-406 (West 1991) (Maryland); ME. REV. STAT. ANN. tit. 31, § 1558 (2011)
(Maine); M
ICH. COMP. LAWS § 450.4503 (2010) (Michigan); MO. REV. STAT. § 347.091 (1993) (Mis-
souri); M
ISS. CODE ANN. § 79-29-315 (2011) (Mississippi); N.C. GEN. STAT. § 57D-3.04 (2005)
(North Carolina); N.H. Rev. Stat. Ann. § 304-c55 (2005) (New Hampshire); N.M.
STAT. ANN. § 53-
19-19 (1993) (New Mexico); N
EV. REV. STAT. § 86.241 (2015) (Nevada); N.Y. LTD. LIAB. CO. LAW §
1102 (McKinney 1994) (New York); O
HIO REV. CODE ANN. § 1705.22 (West 1994) (Ohio); OKLA.
STAT. tit. 18, § 2021 (1993) (Oklahoma); OR. REV. STAT. §§ 63.771, 63.777 (1999) (Oregon); 7 R.I.
GEN. LAWS § 7-16-22 (1997) (Rhode Island); S.D. CODIFIED LAWS § 47-34A-408 (1998) (South
Dakota); T
ENN. CODE ANN. § 48-228-101 (1994) (Tennessee); VT. STAT. ANN. tit. 11, § 4058 (2015)
(Vermont); W.
VA. CODE § 31B-4-408 (West Virginia).
218. A
LA. CODE § 10A-5A-4.09 (1975); CAL. CORP. CODE § 17704.10 (2016); 805 Ill. Comp. Stat.
180/10-15 (2017); S.D.
CODIFIED LAWS § 47-34A-408; VT. STAT. ANN. tit. 11, § 4058; WASH. REV.
CODE § 25.15.136 (2016).
219. C
ONN. GEN. STAT. § 34-225i(a)(3) (2012); D.C. CODE § 29-804.10(a)(3) (2013); FLA. STAT. §
605.0416(2)(d) (2013); I
DAHO CODE § 30-25-410(a)(3) (2015); IOWA CODE § 489.410(1)(c) (2009);
M
INN. STAT. § 322C.0410, subd. 1(3) (2015); NEB. REV. STAT. § 21-139(a)(3) (2011); N.J. STAT.
ANN. § 42:2C-40a(3) (West 2012); N.D. CENT. CODE § 10-32.1-42(1)(c) (2015); 15 PA. STAT. AND
CONS. STAT. ANN. § 8850(a)(3) (West 2017); UTAH CODE ANN. § 48-3a-410(1)(c) (West 2014); WYO.
STAT. ANN. § 17-29-410(a)(iii).
220. A
RK. CODE ANN. § 4-32-405(c) (1993).
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the affairs of the limited liability company, except to the extent the in-
formation demanded is unreasonable or otherwise improper under the
circumstances.
221
Wisconsin has a provision similar to those of Arkansas, Kentucky, and Mon-
tana:
Members or, if the management of the limited liability company is vested
in one or more managers, managers shall provide, to the extent that the
circumstances render it just and reasonable, true and full information of
all things affecting the members to any member or to the legal repre-
sentative of any member upon reasonable request of the member or the
legal representative.
222
States that have provisions making members responsible for providing infor-
mation should reconsider those provisions. Member-managed LLCs may bear
some similarities to general partnerships, but they are few, and LLCs are not gen-
eral partnerships. LLCs, which may be subject to taxes that do not apply to gen-
eral partnerships,
223
are limited liability entities, and generally have more conti-
nuity of life than general partnerships. If a state determines that it is desirable to
retain an obligation on members to provide information, careful thought should be
given to what standards should apply to a member’s obligation. Why should a
member who may be more observant, studious, or prescient be obligated to share
his information with other members if he has not agreed to do so? Although courts
have sometimes likened closely-held corporations to partnerships, no corporate
inspection statute puts a disclosure burden on the shareholders.
v. Inspection Rights of Governing Persons
The MBCA provides that a director is always entitled to inspect books and
records so long as the request is reasonably related to the director’s duties and is
not for an improper purpose and the director’s use of the information would not
violate any duty to the corporation.
224
In states that have adopted RULLCA, man-
agers have the rights of members to information that are stated in RULLCA §
410(a):
(1) On reasonable notice, a member may inspect and copy during regular
business hours, at a reasonable location specified by the company, any
record maintained by the company regarding the company’s activities,
financial condition, and other circumstances, to the extent the infor-
mation is material to the member’s rights and duties under the operating
agreement or this [act].
221. VA. CODE ANN. § 13.1-1028 (2016).
222. W
IS. STAT. § 183.0405(3) (2017).
223. For example, the Texas margin tax does not apply to general partnerships composed solely of
individuals that are not limited liability partnerships. See generally T
EX. TAX CODE ANN. § 171.001
(West 2015). Moreover, general and limited partnerships, but not LLCs, may be exempt from the
Texas margin tax if they are passive entities. Id. §
171.002(a).
224. M
ODEL BUS. CORP. ACT § 16.05(a) (AM. BAR ASS’N 2006).
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(2) The company shall furnish to each member:
(A) without demand, any information concerning the company’s activi-
ties, financial condition, and other circumstances which the company
knows and is material to the proper exercise of the member’s rights and
duties under the operating agreement or this [act], except to the extent the
company can establish that it reasonably believes the member already
knows the information; and
(B) on demand, any other information concerning the company’s activi-
ties, financial condition, and other circumstances, except to the extent the
demand or information demanded is unreasonable or otherwise improper
under the circumstances.
(3) The duty to furnish information under paragraph (2) also applies to
each member to the extent the member knows any of the information de-
scribed in paragraph (2).
225
Apart from RULLCA, Delaware is one of the states that does provide specific
rights for managers. Delaware provides that each manager shall have the right to
examine all of the information listed below “for a purpose reasonably related to
the position of manager”:
(1) True and full information regarding the status of the business and fi-
nancial condition of the limited liability company;
(2) Promptly after becoming available, a copy of the limited liability
company’s federal, state and local income tax returns for each year;
(3) A current list of the name and last known business, residence or
mailing address of each member and manager;
(4) A copy of any written limited liability company agreement and cer-
tificate of formation and all amendments thereto, together with executed
copies of any written powers of attorney pursuant to which the limited li-
ability company agreement and any certificate and all amendments there-
to have been executed;
(5) True and full information regarding the amount of cash and a de-
scription and statement of the agreed value of any other property or ser-
vices contributed by each member and which each member has agreed to
contribute in the future, and the date on which each became a member;
and
(6) Other information regarding the affairs of the limited liability com-
pany as is just and reasonable.
226
The information rights of a manager of a Delaware LLC may be restricted by
the company agreement.
227
The Kansas and Mississippi statutes are the same as
Delaware.
228
225. REVISED UNIF. LTD. LIAB. CO. ACT § 410(b)(1) (UNIF. LAW COMM’N 2013).
226. D
EL. CODE ANN. tit. 6, §§ 18-305(a)–(b) (2014).
227. Id. § (g).
228. K
AN. STAT. ANN. §§ 17-7690(b), (g) (2014); MISS. CODE ANN. §§ 79-29-315(2), (7) (2011).
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Colorado’s LLC statute is substantially the same as Delaware.
229
Colorado
provides that the operating agreement may not unreasonably restrict the rights of
managers to information.
230
Nevada’s LLC Act includes a provision much like that of Delaware, Colora-
do, and Kansas:
Each manager of a limited-liability company managed by a manager or
managers is entitled to examine from time to time upon reasonable de-
mand, for a purpose reasonably related to the manager’s rights, powers
and duties as such, the records described in subsection 2.
231
Unlike the statutes in other states, however, Nevada restricts, or provides pos-
sible restrictions on a manager’s rights to information, that other states apply only
to members:
Any demand by a member or manager under subsection 2 or 3 is subject
to such reasonable standards regarding at what time and location and at
whose expense records are to be furnished as may be set forth in the arti-
cles of organization or in an operating agreement.
232
Further, the Nevada statute states the following:
Any demand by a member or manager under this section must be in writ-
ing and must state the purpose of such demand. When a demanding
member seeks to obtain or a manager seeks to examine the records de-
scribed in subsection 2, the demanding member or manager must first es-
tablish that:
(a) The demanding member or manager has complied with the provi-
sions of this section respecting the form and manner of making a demand
for obtaining or examining such records; and
(b) The records sought by the demanding member or manager are rea-
sonably related to the member’s interest as a member or the manager’s
rights, powers and duties as a manager, as the case may be.
233
Finally, the Nevada statue says “[t]he rights of a member to obtain or a man-
ager to examine records as provided in this section may be restricted or denied
entirely in the articles of organization or in an operating agreement.”
234
Another provision in the Nevada LLC Act suggests that the legislature either
is hostile to the idea of information rights or had heard some horror stories about
misuse of information rights:
The rights authorized by NRS 86.241 may be denied to a member or
manager, as the case may be, or to such person’s attorney or other agent,
229. COLO. REV. STAT. § 7-80-408 (2007).
230. Id. § 7-80-108(2)(b).
231. N
EV. REV. STAT. § 86.241(3) (2015).
232. Id. § (4).
233. Id. § (5).
234. Id. § (7).
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upon the refusal of the member or manager to furnish to the limited-
liability company an affidavit that the provision or examination of rec-
ords is not desired for a purpose which is in the interest of a business or
object other than the business of the company and that such person has
not at any time sold or offered for sale any list of members of any domes-
tic or foreign limited-liability company or any list of stockholders of any
domestic or foreign corporation or aided or abetted any person in procur-
ing any such record for any such purpose.
235
North Carolina law states as follows:
In connection with any member, manager, or other company official ex-
ercising management or other control rights or performing that person’s
duties to the LLC or the members, the LLC shall provide that person
with, or access to, all information related to the applicable matter that is
known by the LLC and is material to the proper exercise and perfor-
mance of those rights and duties.
236
Oklahoma provides that “[a] manager, for any purpose reasonably related to
his position, may inspect and copy any limited liability company records upon
reasonable request during ordinary business hours.”
237
Presumably, Oklahoma law
would permit the operating agreement to modify this language to some extent. In
Oklahoma, the operating agreement governs generally “[t]he rights and duties
under the Oklahoma Limited Liability Company Act of a person in the capacity of
manager.”
238
South Carolina provides that an LLC shall furnish to a manager the follow-
ing:
(1) Without demand, information concerning the company’s business or
affairs reasonably required for the proper exercise of the manager’s per-
formance of the manager’s duties under the operating agreement or this
chapter; and
(2) On demand, other information concerning the company’s business or
affairs, except to the extent the demand or the information demanded is
unreasonable or otherwise improper under the circumstances.
239
South Carolina would permit some modification of a manager’s information
rights. The South Carolina LLC Act states that an operating agreement may re-
strict a right to information or access to records under § 47-34A-408 if the re-
striction is not manifestly unreasonable.
240
235. Id. § 86.243(1).
236. N.
C. GEN. STAT. § 57D-3-04(c) (2014). In North Carolina, the operating agreement may not
“[d]iminish the rights and protections of members under G.S. 57D-3-04(a), except as permitted by and
otherwise subject to subsections (b) through (f) of G.S. 57D-3-04.” Id. § 57D-2-30(b)(4) (this protec-
tion is limited to members, and, accordingly, it appears that North Carolina would permit an operating
agreement to restrict a manager’s information rights).
237. O
KLA. STAT. tit. 18, § 2021(C) (1993).
238. Id. § 2012.2(A)(2).
239. S.D.
CODIFIED LAWS § 47-34A-4.08(b) (1998).
240. Id. § 47-34A-103(c)(1).
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Washington provides as follows:
Each manager, or each member of the manager if the manager is a board,
committee, or other group of persons, without having any particular pur-
pose for seeking the information, may inspect and copy during regular
business hours:
(a) At the limited liability company’s principal office, the records re-
quired by subsection (1) of this section; and
(b) At a reasonable location specified by the limited liability company,
any other records maintained by the limited liability company regarding
the limited liability company’s activities and financial condition, or that
otherwise relate to the management of the limited liability company.
241
In Washington, the operating agreement may not “unreasonably restrict the
right to records or information.”
242
This article’s review of the statutory provisions governing the rights of a
manager to inspect books and records suggests that the company agreement’s
provisions for limiting or expanding the manager’s information rights should be
negotiated by any person who is asked to serve as a manager.
vi. Inspection by Member’s Agent
Somewhat surprisingly, not all LLC statutes expressly provide that a member
may examine records through an agent.
243
Indeed, RULLCA does not contain such
a provision. The right to use an agent was recognized at common law,
244
and per-
haps the drafters of RULLCA thought the right was so well established as to not
need mentioning. On the other hand, some states that adopted RULLCA added a
provision permitting the use of agents. Only 22 LLC statutes permit examination
of records through an agent.
245
241. WASH. REV. CODE § 25.15.136(12) (2016).
242. Id. § 25.15.018(3)(g).
243. See infra Part V.E (Right to Use an Agent when Statute is Silent).
244. See Feick v. Hill Bread Co., 103 A. 813 (N.J. 1918), aff’d, 105 A. 725 (N.J. 1919).
245. The statutes are A
LA. CODE § 10A-5A-4.09(b) (2014) (Alabama) (RULLCA state); ALASKA
STAT. § 10.50.870(a) (1994) (Alaska); DEL. CODE ANN. tit. 6, § 18-305(a) (2014) (Delaware); HAW.
REV. STAT. § 428-408(a) (1996) (Hawaii): ME. STAT. tit. 31, § 1558(4) (2011) (Maine); MD. CODE
ANN., CORPS & ASS’NS § 4A-406(a) (West 2012) (Maryland); MINN. STAT. § 322C.0410, subd. 5
(2015) (Minnesota) (RULLCA state); N
EV. REV. STAT. § 86.241(6) (2015) (Nevada) (but in another
illustration of wariness about information rights, Nevada requires:
In every instance where an attorney or other agent of a member or manager seeks to exercise any
right arising under this section on behalf of such member or manager, the demand must be ac-
companied by a power of attorney signed by the member or manager authorizing the attorney or
other agent to exercise such rights on behalf of the member or manager);
N.J.
STAT. ANN. § 42:2C-40(e) (West 2013) (New Jersey); N.M. STAT. ANN. § 53-19-19(B) (1993)
(New Mexico); N.C.
GEN. STAT. § 57D-3-04(b) (2014) (North Carolina); N.D. CENT. CODE § 10-32.1-
42 (2015) (North Dakota) (RULLCA state); O
R. REV. STAT. § 63.777(1) (1993) (Oregon);
15 P
A. STAT. AND CONS. STAT. ANN. § 8850(f) (West 2016) (Pennsylvania) (RULLCA state); S.C.
CODE ANN. § 33-44-408(a) (1996) (South Carolina); S.D. CODIFIED LAWS § 47-34A-408(a) (South
Dakota) (RULLCA state); T
EX. BUS. ORG. CODE ANN. § 101.502(a) (West 2006) (Texas); UTAH
CODE ANN. § 48-3a-410(b) (West 2014) (Utah); Vt. Stat. Ann. tit. 11, § 4058(f)(1) (2015) (Vermont)
(RULLCA state); W
ASH. REV. CODE § 25.15.136(10) (Washington) (RULLCA state); W. VA. CODE §
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vii. Inspection and Copying by Non-Members
Unincorporated entity statutes often do not provide inspection rights to trans-
ferees and assignees. This is not an issue in the corporate context because a trans-
feree of shares receives all the rights associated with the shares. In LLCs and part-
nerships, the member or partner has a transferable interest, which is only the
member or partner’s economic rights. The transferee or assignee of a member or
partner typically will have no management-of-information rights unless, and until,
admitted as a member or partner. Some states provide exceptions to the general
rule. For example, some LLC statutes provide that a deceased member’s personal
representative, or other legal representative who holds the deceased member’s
transferable interest may, for purposes of settling the estate, exercise the rights of
a current member to information.
246
It is good policy for an LLC statute to provide information rights to the legal
representative of a deceased or incapacitated member. Otherwise, the legal repre-
sentative may face difficulties in carrying out his or her responsibilities. Other
states provide that dissociated members may access information relating to the
period of their membership.
247
Texas extends information rights to assignees.
248
As this article discusses with respect to transferees,
249
extending information
rights to assignees will likely benefit the personal representative of a deceased
member, but is not likely to benefit the legal representative of an incapacitated
member.
250
The personal representative of a deceased member should be consid-
ered an assignee, but the legal representative of an incapacitated member likely
would not be.
viii. Information Rights Extended to Representative of Deceased
or Incapacitated Members
For example, although the Alabama LLC statute provides that inspection
rights do not extend to transferees,
251
it does provide that a deceased member’s
personal representative or other legal representative who holds the deceased
member’s transferable interest may, for purposes of settling the estate, exercise
the rights of a current member to information.
252
Moreover, an individual under
legal disability may exercise information rights through a legal representative
under the Alabama statute.
253
Alaska,
254
Arkansas,
255
Connecticut,
256
Florida,
257
31B-4-408(a) (1996) (West Virginia); WYO. STAT. ANN. § 17-29-410(e) (2010) (Wyoming)
(RULLCA state).
246. See infra notes 251–76 and accompanying text.
247. See infra notes 279–301 and accompanying text.
248. T
EX. BUS. ORGS. CODE ANN. § 101.502.
249. See infra note 272 and accompanying text.
250. Colorado has a potentially useless statute providing that the legal representative of a deceased or
incapacitated member “may exercise all the powers of an assignee or transferee of the member.”
C
OLO. REV. STAT. § 7-80-704 (2006) (the Colorado LLC Act provides no meaningful powers to an
assignee or transferee).
251. A
LA. CODE § 10A-5A-4.09(f) (2014).
252. Id. § 10A-5A-5.04.
253. Id. § 10A-5A-4.09(e).
254. A
LASKA STAT. § 10.50.880 (1994).
255. A
RK. CODE ANN. § 4-32-405(c) (1993).
256. C
ONN. GEN. STAT. § 34-29 (1979).
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Hawaii,
258
Indiana,
259
Kentucky,
260
Montana,
261
New Mexico,
262
New York,
263
South Carolina,
264
South Dakota,
265
Washington,
266
Wisconsin,
267
and West Vir-
ginia
268
are substantially the same as Alabama. Idaho,
269
Pennsylvania,
270
and
Utah
271
extend these rights only to the personal representative of a deceased mem-
ber.
The California LLC statute extends inspection rights to transferees.
272
It may
be noted that, although the term “transferee” would likely be construed to include
the personal representative or other successor to a deceased member, the term
would not appear to include the legal representative of an incapacitated member
because the appointment of a guardian for an incapacitated member, or the as-
sumption of power by an agent named in a power of attorney, typically would not
involve a transfer.
Florida’s LLC statute is similar to those of Alabama and the other states listed
above, but it also extends inspection rights to the legal representative of a dis-
solved entity member “[i]f a member is a corporation, trust, or other entity and is
dissolved or terminated, the powers of that member may be exercised by its legal
representative.”
273
The Hawaii LLC statute provides that “[a] limited liability company shall
provide members and their agents and attorneys access to any of its records at
reasonable locations specified in the operating agreement.”
274
Further, the compa-
ny is required to do as follows:
[F]urnish to a member, and to the legal representative of a deceased
member or member under legal disability:
(1) Without demand, information concerning the company’s business or
affairs reasonably required for the proper exercise of the member’s rights
and performance of the member’s duties under the operating agreement
or this chapter; and
(2) On demand, other information concerning the company’s business or
affairs, except to the extent the demand or the information demanded is
unreasonable or otherwise improper under the circumstances.
275
257. FLA. STAT. § 605.0410(4) (2016).
258. H
AW. REV. STAT. § 428-408 (1996).
259. I
ND. CODE § 23-28-4-8(c) (1986).
260. K
Y. REV. STAT. ANN. § 275.185(3) (West 2013).
261. M
ONT. CODE ANN. § 35-8-405(2)(b) (1999).
262. N.M.
STAT. ANN. § 53-19-34 (1993).
263. N.Y.
LTD. LIAB. CO. LAW § 608 (McKinney 1994).
264. S.C.
CODE ANN. § 33-44-408(b) (1996).
265. S.D.
CODIFIED LAWS § 47-34A-408(c) (2010).
266. W
ASH. REV. CODE § 25.15.136(6) (2015).
267. W
IS. STAT. § 183.0405(3) (1995).
268. W.
VA. CODE § 31B-4-408(b) (1996).
269. I
DAHO CODE § 30-25-504 (2015).
270. 15 P
A. CONS. STAT. § 8850(c) (2016).
271. U
TAH CODE ANN. §§ 48-3a-410(8), 48-3a-504 (West 2013).
272. C
AL. CORP. CODE § 17704.10 (2015).
273. F
LA. STAT. § 605.0504 (2014).
274. H
AW. REV. STAT. § 428-408(a) (1996).
275. Id. § (b).
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The South Carolina, South Dakota, and Utah LLC statutes are substantially
the same as Hawaii.
276
ix. Information Rights Extended to Representative of Dissolved
or Terminated Entity Member
In addition to extending information rights to the legal representative of a de-
ceased or incapacitated member, some LLC statutes also extend information rights
to the liquidating trustee, or other legal representative of a member who is not an
individual who has been dissolved or terminated. These states are New Mexico
277
and New York.
278
x. Information Rights Extended to Dissociated Members
Alabama provides information rights to a dissociated member for the period
the person was a member.
279
Connecticut,
280
the District of Columbia,
281
Flori-
da,
282
Hawaii,
283
Idaho,
284
Illinois,
285
Iowa,
286
Maine,
287
Minnesota,
288
Montana,
289
Nebraska,
290
New Jersey,
291
North Dakota,
292
Pennsylvania,
293
Utah,
294
Ver-
mont,
295
and Wyoming
296
provide the same rights, and, as discussed elsewhere,
some of these states provide other rights as well.
Oklahoma provides that “[t]he obligations of a limited liability company and
its members to an assignee or dissociated member are governed by the operating
agreement.”
297
Texas provides assignees of members of LLCs the same inspection
276. S.C. CODE ANN. § 33-44-408 (1996); S.D. CODIFIED LAWS § 47-34A-408 (2010); UTAH CODE
ANN. §§ 48-3a-410(3), (6), (8), 48-3a-504 (2013).
277. N.M.
STAT. ANN. § 53-19-34 (1993).
278. N.Y.
LTD. LIAB. CO. LAW § 608 (1993).
279. A
LA. CODE § 10A-5A-4.09 (2015).
280. C
ONN. GEN. STAT. § 34-255i(c) (2017).
281. D.C.
CODE § 29-804.10(c) (2013).
282. F
LA. STAT. § 605.0410(4) (2016).
283. H
AW. REV. STAT. § 428-408(a) (1996).
284. I
DAHO CODE § 30-25-410(c) (2015).
285. 805 I
LL. COMP. STAT. 180/10-15(d) (2016).
286. I
OWA CODE § 489.410.3 (2008).
287. M
E. REV. STAT. ANN. tit. 31, § 1558.2 (2009).
288. M
INN. STAT. § 322C.0410, subd. 3 (2014).
289. M
ONT. CODE ANN. § 35-8-405(2)(b) (1999).
290. N
EB. REV. STAT. § 21-139(c) (2010).
291. N.J. Rev. Stat. § 42:2C-40(c) (2012).
292. N.D.
CENT. CODE § 10-32.1-42(3) (2015). It appears, however, that the obligation to furnish
information to dissociated members may be overridden by the operating agreement:
The obligations of a limited liability company and its members to a person in the capacity of the
person as a transferee or dissociated member are governed by the operating agreement. Subject
only to any court order issued under section 10-32.1-45, to effectuate a charging order, an
amendment to the operating agreement made after a person becomes a transferee or dissociated
member is effective with regard to any debt, obligation, or other liability of the limited liability
company or its members to the person in the capacity of the person as a transferee or dissociated
member. Id. § 10-32.1-15.
293. 15 P
A. CONS. STAT. § 8850(c) (2016).
294. U
TAH CODE ANN. § 48-3a-410(3) (West 2013).
295. V
T. STAT. ANN. tit. 11, § 4058(f) (2015).
296. W
YO. STAT. ANN. § 17-29-410(c) (2010).
297. O
KLA. STAT. tit. 18, § 2012.2(D) (2017).
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rights as members.
298
The records members and assignees of a Texas LLC are
entitled to inspect are found in TBOC §§ 3.151
299
and 101.501.
300
As this article
discusses with respect to transferees,
301
a dissociated member is not an assignee.
298. TEX. BUS. ORGS. CODE ANN. § 101.502 (West 2003).
299. The records that members and assignees are entitled to inspect under id. § 3.151 are:
(a) Each filing entity shall keep:
(1) books and records of accounts;
(2) minutes of the proceedings of the owners or members or governing authority of the filing
entity and committees of the owners or members or governing authority of the filing entity;
(3) at its registered office or principal place of business, or at the office of its transfer agent or
registrar, a current record of the name and mailing address of each owner or member of the fil-
ing entity; and
(4) other books and records as required by the title of this code governing the entity.
(b) The books, records, minutes, and ownership or membership records of any filing entity, in-
cluding those described in Subsection (a)(4), may be in written paper form or another form capa-
ble of being converted into
The records required by Subsection (a)(2) need not be maintained by a limited partnership or a
limited liability company except to the extent required by its governing documents.
300. Id. § 101.501 states:
(a) In addition to the books and records required to be kept under Section 3.151, a limited liabil-
ity company shall keep at its principal office in the United States, or make available to a person
at its principal office in the United States not later than the fifth day after the date the person
submits a written request to examine the books and records of the company under Section
3.152(a) or 101.502:
(1) a current list that states:
(A) the percentage or other interest in the limited liability company owned by each
member; and
(B) if one or more classes or groups of membership interests are established in or under
the certificate of formation or company agreement, the names of the members of each
specified class or group;
(2) a copy of the company’s federal, state, and local tax information or income tax returns for
each of the six preceding tax years;
(3) a copy of the company’s certificate of formation, including any amendments to or restate-
ments of the certificate of formation;
(4) if the company agreement is in writing, a copy of the company agreement, including any
amendments to or restatements of the company agreement;
(5) an executed copy of any powers of attorney;
(6) a copy of any document that establishes a class or group of members of the company as
provided by the company agreement; and
(7) except as provided by Subsection (b), a written statement of:
(A) the amount of a cash contribution and a description and statement of the agreed val-
ue of any other contribution made or agreed to be made by each member;
(B) the dates any additional contributions are to be made by a member;
(C) any event the occurrence of which requires a member to make additional contribu-
tions;
(D) any event the occurrence of which requires the winding up of the company; and
(E) the date each member became a member of the company.
(b) A limited liability company is not required to keep or make available at its principal office in
the United States a written statement of the information required by Subsection (a)(7) if that in-
formation is stated in a written company agreement.
(c) A limited liability company shall keep at its registered office located in this state and make
available to a member of the company on reasonable request the street address of the company’s
principal office in the United States in which the records required by this section and Section
3.151 are maintained or made available.
301. See supra note 272 and accompanying text.
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xi. Penalties and Defenses to Penalties for Not Allowing Inspec-
tion of the Books and Records of an LLC
Fewer LLC statutes than corporate statutes impose penalties for the failure to
allow inspection of books and records, but the following do.
302
Alaska provides the following:
A manager, or, if the company is not managed by a manager, a member,
who, or a limited liability company that, refuses to allow a member, or
the agent or attorney of the member, to examine and make copies from
its books and records of account, minutes, and record of members, for a
proper purpose, is liable to the member for a penalty in the amount of 10
percent of the value of the limited liability company interests owned by
the member or $5,000, whichever is greater, in addition to other damages
or remedy given the member by law.
303
Alaska also provides as follows:
It is a defense to an action for penalties under this section that the person
suing has within two years sold or offered for sale a list of members of
the company or any other limited liability company or has aided or abet-
ted a person in procuring a list of members for this purpose, or has im-
properly used information secured through a prior examination of the
books and records of account, minutes, or record of members of the
company or any other limited liability company, or was not acting in
good faith or for a proper purpose in making the person’s demand.
304
Alabama imposes a penalty similar to Alaska’s except that the Alabama pro-
vision is limited to “an amount not to exceed 10 percent of the fair market value of
the transferable interest of the member.”
305
Texas imposes the following penalties for failure to provide members with
the required information:
(a) A limited liability company that refuses to allow a member to exam-
ine and copy, on written request that complies with Section 101.502(a),
records or other information described by that section is liable to the
member for any cost or expense, including attorney’s fees, incurred in
enforcing the member’s rights under Section 101.502. The liability im-
posed on a limited liability company under this subsection is in addition
to any other damages or remedy afforded to the member by law.
(b) It is a defense to an action brought under this section that the person
suing:
(1) has improperly used information obtained through a prior exam-
ination of the records or other information of the limited liability
302. See supra notes 122–32 and accompanying text.
303. A
LASKA STAT. § 10.50.870(b) (1994).
304. Id.
305. A
LA. CODE § 10A-5A-4.09(b) (2015).
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company or any other limited liability company, under Section
101.502; or
(2) was not acting in good faith or for a proper purpose in making
the person’s request for examination.
306
Note that the penalty applies only to requests by members even though the
Texas LLC statute extends the same information rights to assignees as it does to
members. The Texas limited partnership statute, which also extends the same
information rights to assignees as to limited partners, does include requests by
either in its corresponding penalty provision.
The following LLC statutes limit inspection rights to members without excep-
tion:
Arizona: A.R.S. § 29-607.
Colorado: C.R.S. § 7-80-408.
Delaware: 6 Del. Code Ann. § 18-305.
Georgia: OCGA § 14-11-313.
Kansas: K.S.A. § 17-7690.
Louisiana: La. R.S. § 12:1319.
Maryland: Md. Code, CA § 4A-406.
Michigan: MCL § 450.4503.
Mississippi: Miss. Code § 79-29-315.
Missouri: RS Mo. § 347.091.
New Hampshire: R.S.A. § 304-C:35.
North Carolina: N.C. Gen. Stat. § 57D-3-04.
Ohio: R.C. § 1705.22.
307
Oklahoma: Okla. Stat. tit. 18, § 2021.
Oregon: O.R.S. §§ 63.771, 63.777.
Rhode Island: R.I. Gen. Laws § 7-16-22.
Tennessee’s statute, T.C.A. § 48-222-102, provides that members are entitled
to inspect the records required to be maintained by T.C.A. § 48-222-101 and that
this right cannot be limited or modified by the operating agreement.
308
The records
required by § 101 are:
(a) Board-Managed LLC. If an LLC has elected to be board-managed, it
shall keep at its principal executive office, or at another place or places
within the United States determined by the board of governors:
(1) A current list of the full name and last-known business, resi-
dence, or mailing address of the chief manager, secretary and
each member and governor;
306. TEX. BUS. ORGS. CODE ANN. § 101.503 (West 2017).
307. As with many LLC statutes, the Ohio statute provides that the operating agreement may not
unreasonably restrict the right of access to books and records. O
HIO REV. CODE ANN. §
1705.081(B)(2) (West 2016).
308. T
ENN. CODE ANN. §§ 48-228-102(a)–(b) (2010).
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(2) A current list of the full name and last-known business, resi-
dence, or mailing address of each assignee of financial rights
and a description of the rights assigned;
(3) A copy of the articles and all amendments to the articles;
(4) Copies of the currently effective operating agreement and/or any
agreements concerning classes or series of membership inter-
ests;
(5) Copies of the LLC’s federal, state, and local income tax returns
and reports, if any, for the three (3) most recent years;
(6) Financial statements required by § 48-228-201 and accounting
records of the LLC;
(7) Records of all proceedings of members, if any;
(8) Any written consents obtained from members under chapters
201-248 of this title;
(9) Records of all proceedings of the board of governors for the last
three (3) years;
(10) A statement of all contributions accepted under § 48-232-101,
the identity of the contribution and the agreed value of the con-
tribution;
(11) A copy of all contribution agreements and contribution allow-
ance agreements; and
(12) A copy of the LLC’s most recent annual report delivered to the
secretary of state under § 48-228-203.
(b) Member-Managed LLC. If an LLC has elected to be governed by the
members directly, it shall keep at its principal executive office, or at an-
other place or places within the United States determined by its members:
(1) All records required by subsection (a), except for subdivision
(a)(6) and other records relating solely to a board of governors,
the identity of governors, or actions of a board of governors; and
(2) Financial information sufficient to provide true and full infor-
mation regarding the status of the business and financial condi-
tion of the LLC.
309
The Virginia LLC statute limits inspection rights to members and contains in-
teresting wording permitting the LLC to either keep the required records at its
principal office or provide each member access as an electronic record, as defined
in § 13.1-603, on a network or system.
310
RULLCA limits inspection rights to members, but some states that have
adopted RULLCA have extended inspection rights to dissociated members
311
and
309. Id. § 48-222-101.
310. V
A. CODE ANN. § 13.1-1028(a) (2016); § 13.603 defines electronic record as “information that
is stored in an electronic or other medium and is retrievable in paper form through an automated pro-
cess used in conventional commercial practice.”
311. A
LA. CODE § 10A-5A-4.09 (2014) (Alabama); D.C. CODE § 29-804.10(c) (2013) (District of
Columbia); C
ONN. GEN. STAT. § 34-255i(c) (2017) (Connecticut); IDAHO CODE § 30-25-410(c) (2015)
(Idaho); 805 Ill.Comp. Stat. 180/10-15(d) (2017) (Illinois); I
OWA CODE § 489.410(3) (2008 (Iowa);
M
INN. STAT. § 322C.0410, subd. 3 (2015) (Minnesota); NEB. REV. STAT. § 21-139(c) (2010) (Nebras-
ka); N.D.
CENT. CODE § 10-32.1-42(3) (2015) (North Dakota); 15 PA. CONS. STAT. § 8850(c) (2016)
(Pennsylvania); U
TAH CODE ANN. § 48-3a-410(3) (West 2013) (Utah); VT. STAT. ANN. tit. 11, §
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the legal representative of deceased or incapacitated members.
312
One RULLCA
state extends information rights to transferees.
313
C. Limited Partnerships
i. General Requirements
As with corporate inspection statutes, the statutes governing the inspection of
the books and records of a limited partnership share many characteristics.
Inspection must be at a reasonable time;
Although not as common in limited partnership statutes as in the cor-
porate context, 23 limited partnership statutes permit both a general
partner and a limited partner to use an agent when examining books
and records. Sixteen limited partnership statutes permit the general
partner to use an agent. Michigan provides the right to use an agent
to limited partners but not to general partners.
314
Nine limited part-
nership statutes do not provide for either the general partner or a lim-
ited partner to use an agent. This article discusses issues that arise in
a state that does not permit the use of agents by statute if a member
wants to use an agent.
315
Some limited partnership statutes permit a dissociated partner, or the
legal representative of a deceased or incapacitated partner to inspect
books and records — in the case of a dissociated partner, it is only
for the period the person was a partner;
Some limited partnership statutes also extend inspection rights to the
legal representative of a partner that is an entity and that has been
dissolved or terminated.
A few limited partnership statutes extend information rights to as-
signees or transferees.
This article discusses the differences among the limited partnership statutes
below.
4058(f) (2015) (Vermont); WASH. REV. CODE § 25.15.136(6) (2016) (Washington); WYO. STAT. ANN.
§ 17-29-410(c) (2017) (Wyoming).
312. F
LA. STAT. § 605.0504 (2014) (Florida); IDAHO CODE §§ 30-25-410, 30-25-504 (Idaho) (only
deceased members); I
ND. CODE § 23-18-4-8(c) (2007) (Indiana); 15 PA. CONS. STAT. § 8854 (2016)
(Pennsylvania) (only deceased members); S.D.
CODIFIED LAWS § 47-34A-408(c) (2010) (South Dako-
ta); U
TAH CODE ANN. § 48-3a-504 (Utah); WASH. REV. CODE §§ 25.15.131(1)(f), 25.15.136 (Wash-
ington).
313. C
AL. CORP. CODE § 17704.10 (West 2016).
314. M
ICH. COMP. LAWS §§ 449.20, 449.21, 449.1305(1), 449.2106 (2018).
315. See infra Part V.E (Right to Use an Agent When Statute is Silent).
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ii. Requirement that the Limited Partner Pay the Costs of the
Inspection
Some limited partnership statutes require the limited partner seeking inspec-
tion to pay the costs of copying records.
316
Although RULPA extends information rights to dissociated partners and the
legal representative of deceased or incapacitated partners,
317
some limited partner-
ship statutes limit inspection rights to limited partners. This article first discusses
limited partnership statutes that do not limit inspection rights to limited partners.
iii. Information Rights Extended to Legal Representative of De-
ceased or Incapacitated Limited Partner
As this article discusses above
318
with respect to LLCs, the author believes it
is good policy for a limited partnership statute to extend inspection rights to the
legal representative of a deceased or incapacitated limited partner. Otherwise, the
legal representative may face difficulties in discharging his or her responsibilities.
The Alabama limited partnership statute states the following: “But if a limited
partner dies, the deceased partner’s legal representative can exercise the infor-
mation rights of a current limited partner for purposes of settling the estate.”
319
Hawaii,
320
Idaho,
321
Montana,
322
and New Mexico
323
are the same. Illinois is sub-
stantially the same as Alabama, Hawaii, and Idaho, except that Illinois also pro-
vides the following:
The rights stated in this Section do not extend to a person as transferee,
but may be exercised by the legal representative of an individual under
legal disability who is a limited partner or person dissociated as a limited
partner.
324
316. These statutes are ALA. CODE § 10A-9A-3.04(h) (Alabama); ARK. CODE ANN. § 4-47-304(h)
(2009) (Arkansas); D.
C. CODE § 29-703.04(h) (District of Columbia); FLA. STAT. § 620.1304(8)
(Florida); G
A. CODE ANN. § 14-9-305(a)(2) (2017) (Georgia); HAW. REV. STAT. § 425E-304(h)
(2010) (Hawaii); I
DAHO CODE § 30-24-304(g) (Idaho); 805 ILL. COMP. STAT. 215/304(h) (Illinois):
I
OWA CODE § 488.304(8) (Iowa); KY. REV. STAT. ANN. § 362.2-704 (West 2006) (Kentucky); ME.
STAT. tit. 31, § 1344(8) (2008) (Maine); MINN. STAT. § 321.0304(h) (2005) (Minnesota); MISS. CODE
ANN. § 79-14-304(g) (2015) (Mississippi); MONT. CODE ANN. § 35-12-705(8) (2017) (Montana); NEV.
REV. STAT. § 87A.355(8) (2007) (Nevada); N.M. STAT. ANN. § 54-2A-304(H) (2008) (New Mexico);
N.Y.
P’SHIP LAW § 121-106(b) (McKinney 1990) (New York); OKLA. STAT. tit. 54, § 500-304A(h)
(2011) (Oklahoma); 15 P
A. CONS. STAT. § 8634 (2016) (Pennsylvania); TENN. CODE ANN. § 61-2-
304(a) (1988) (Tennessee); T
EX. BUS. ORGS. CODE ANN. § 153.552(a) (West 2018) (Texas); UTAH
CODE ANN. § 48-2e-304(7) (Utah); WASH. REV. CODE § 25.10.331(8) (Washington).
317. R
EVISED UNIF. LTD. P’SHIP ACT §§ 407(d)–(f) (UNIF. LAW COMM’N 2013).
318. See supra notes 246-50 and accompanying text.
319. A
LA. CODE §§ 10A-9A-3.04(f), 10A-9A-7.04.
320. H
AW. REV. STAT. §§ 425E-304(f), 425E-704.
321. I
DAHO CODE §§ 30-24-304(i), 30-24-704.
322. M
ONT. CODE ANN. §§ 35-12-705(6), 35-12-1105 (2011).
323. N.M.
STAT. ANN. §§ 54-2A-304(F), (K), 54-2A-704 (2007).
324. 805 I
LL. COMP. STAT. 215/304(k) (2005); see also 805 ILL. COMP. STAT. 215/304(f), 215/704.
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Arkansas,
325
Connecticut,
326
Kentucky,
327
Maine,
328
Minnesota,
329
Mississip-
pi,
330
North Dakota,
331
Oklahoma,
332
Pennsylvania,
333
and Utah
334
are substantially
the same as Illinois. California follows RULPA, which makes it substantially the
same as Illinois.
335
Several states, for example Michigan, have one inspection statute that limits
inspection rights to limited partners,
336
but have another statute providing the fol-
lowing:
If a partner who is an individual dies or a court of competent jurisdiction
adjudges the partner to be unable to manage his or her property or in-
competent to manage his or her person or property, the partner’s personal
representative, executor, administrator, guardian, conservator, or other
legal representative may exercise all the partner’s rights for the purpose
of settling the partner’s estate or administering his or her property, in-
cluding any power the partner had to give an assignee the right to become
a limited partner. If a partner is a corporation, trust, or other entity, and is
dissolved or terminated, the powers of that partner may be exercised by
its legal representative or successor.
337
The states that follow the Michigan approach are Colorado,
338
Delaware,
339
Indiana,
340
Kansas,
341
New Jersey,
342
New York,
343
North Carolina,
344
Ohio,
345
Oregon,
346
Rhode Island,
347
South Carolina,
348
South Dakota,
349
Tennessee,
350
325. ARK. CODE ANN. §§ 4-47-304(f), 4-47-704 (2007).
326. C
ONN. GEN. STAT. § 34-18 (1961).
327. K
Y. REV. STAT. ANN. §§ 362.2-304(6), (11), 362.2-704 (West 2018).
328. M
E. STAT. tit. 31, §§ 1344(6), 1384 (2005).
329. M
INN. STAT. §§ 321.0304, 321.0704 (2004).
330. M
ISS. STAT. ANN. §§ 79-14-304, 79-14-704 (2015).
331. N.D.
CENT. CODE §§ 45-10.2-34(6), 45-10.2-65 (2005).
332. O
KLA. STAT. tit. 54, §§ 500-304A(f), 500-704A (2010).
333. 15 P
A. CONS. STAT. §§ 8634, 8674 (2016).
334. U
TAH CODE ANN. §§ 48-2e-304(5), (8), (10), 48-2e-704 (West 2013) (the Utah statute also
applies to dissociated limited partners).
335. C
AL. CORP. CODE §§ 15903.04(f), 15907.04 (West 2018); REVISED UNIF. LTD. P’SHIP ACT §§
304(f), (k), 704 (U
NIF. LAW COMM’N 2013). See supra notes 68–74 and accompanying text.
336. M
ICH. COMP. LAWS § 449.1106 (1982).
337. Id. § 449.1705.
338. C
OLO. REV. STAT. §§ 7-62-305, 7-62-705 (2004).
339. D
EL. CODE ANN. tit. 6, §§ 17-305, 17-705 (1973).
340. I
ND. CODE §§ 23-16-4-5, 23-16-8-5 (1988).
341. K
AN. STAT. ANN. §§ 56-1a205, 56-1a405 (1983).
342. N.J.
STAT. ANN. §§ 42:2A-29, 42:2A-50 (West 2018).
343. N.Y.
P’SHIP LAW §§ 121-106, 121-706 (McKinney 1990).
344. N.C.
GEN. STAT. §§ 59-305, 59-705 (1999).
345. O
HIO REV. CODE ANN. §§ 1782.21, 1782.43 (LexisNexis 2018).
346. O
R. REV. STAT. §§ 70.050, 70.305 (1985).
347. R.I.
GEN. LAWS §§ 7-13-21, 7-13-43 (1985). Rhode Island also provides:
In case of the death of any person who was at the time of his or her decease a member of any co-
partnership, either general or limited, the surviving partner shall, upon the demand in writing of
the administrator or executor of the deceased copartner, and within ten (10) days subsequently,
make out and deliver to the administrator or executor a detailed statement of the assets and liabil-
ities of the copartners as they existed at the time of the decease of the copartner, which statement
shall be verified by the oath of the surviving copartner. Id. § 7-12-12.
And:
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Texas,
351
Vermont,
352
Virginia,
353
Washington,
354
West Virginia,
355
Wisconsin,
356
and Wyoming.
357
Nevada follows RULPA in its limited partnership information rights statute,
which makes it substantially the same as Illinois.
358
This means that Nevada has
much more liberal inspection rights for limited partners than for members or man-
agers of LLCs.
359
Ohio follows RULPA in its limited partnership information
rights statute, which also makes it substantially the same as Illinois.
360
Tennessee has perhaps the broadest exception to its general rule that only lim-
ited partners are entitled to information from a limited partnership.
361
Tenn. Code
Ann. § 61-2-304(a) states the following:
Any person shall have the right to examine the current list of the names
and addresses of all general and limited partners of any partnership
formed under this chapter at the registered office of the partnership dur-
ing reasonable business hours, and, upon payment of reasonable costs of
duplication, to make a copy thereof.
362
The Texas limited partnership statute, like the Texas LLC statute, extends the
same information rights to assignees of limited partners as to limited partners.
363
As with LLCs, the Texas limited partnership statute now provides for a potential
penalty if a limited partnership fails to provide requested information:
(a) A limited partnership that refuses to allow a partner or assignee of a
partnership interest to examine and copy, on written request that com-
plies with Section 153.552(a), records or other information described by
that section is liable to the partner or assignee for any cost or expense, in-
cluding attorney’s fees, incurred in enforcing the partner’s or assignee’s
The administrator or executor may enter upon the premises and examine the books and Naffairs
of the copartnership and take an inventory of the personal property in which his or her intestate
or testate may have had an interest at the time of his or her decease.
Id. § 7-12-13.
348. S.C.
CODE ANN. §§ 33-42-450, 33-42-1250 (1984).
349. S.D.
CODIFIED LAWS §§ 48-7-305, 48-7-705 (1986).
350. T
ENN. CODE ANN. § 61-2-705 (1988).
351. T
EX. BUS. ORGS. CODE ANN. §§ 153.552, 153.113 (West 2018).
352. V
T. STAT. ANN. tit. 11, §§ 3425, 3465 (1997).
353. V
A. CODE §§ 50-73.26, 50-73.48 (1985).
354. W
ASH. REV. CODE §§ 25.10.331(14), 25.10.561, 25.10.331(10) (2010) (the Washington statute
also extends information rights to dissociated limited partners for the period that they were limited
partners).
355. W.
VA. CODE §§ 47-9-21, 47-9-43 (1981).
356. W
IS. STAT. §§ 179.25, 179.65 (2018).
357. W
YO. STAT. ANN. §§ 17-14-405, 17-14-805 (1979).
358. N
EV. REV. STAT. § 87A-335 (2007); REVISED UNIF. LTD. P’SHIP ACT §§ 304(f), (k), 704 (UNIF.
LAW COMM’N 2013). See supra notes 68–74 and accompanying text.
359. See supra notes 175–80 and accompanying text; infra note 418 and accompanying text. Neva-
da’s limited partner inspection rights are also more favorable to limited partners than Nevada’s share-
holder inspection rights are to shareholders. See supra notes 117–19 and accompanying text.
360. O
HIO REV. CODE § 1782.43 (1992); REVISED UNIF. LTD. P’SHIP ACT §§ 304(f), (k), 704 (UNIF.
LAW COMM’N 2013). See supra notes 68–74 and accompanying text.
361. T
ENN. CODE ANN. § 61-2-304 (1989).
362. Id. § (a).
363. T
EX. BUS. ORGS. CODE § 153.552 (2016).
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rights under Section 153.552. The liability imposed on a limited partner-
ship under this subsection is in addition to any other damages or remedy
afforded to the partner or assignee by law.
(b) It is a defense to an action brought under this section that the person
suing:
(1) has improperly used information obtained through a prior exam-
ination of the records or other information of the limited part-
nership or any other limited partnership under Section 153.552;
or
(2) was not acting in good faith or for a proper purpose in making
the person’s request for examination.
364
Note that the penalty provision of the Texas limited partnership statute ap-
plies to requests by assignees as well as requests by limited partners. The corre-
sponding penalty provision of the Texas LLC statute applies only to requests by
members, even though the information rights provided in the LLC statute, like
those in the limited partnership statute, extend to assignees.
365
Utah follows
RULPA in its limited partnership information rights statute.
366
iv. Information Rights Extended to Legal Representative of En-
tity Limited Partner that is Dissolved or Terminated
In addition to extending information rights to the legal representative of a de-
ceased or incapacitated limited partner, several limited partnership statutes also
extend information rights to the liquidating trustee or other legal representative of
a limited partner that is an entity that has been dissolved or terminated. These
states are Connecticut,
367
Delaware,
368
Florida,
369
Indiana,
370
Kansas,
371
New Jer-
sey,
372
New York,
373
North Carolina,
374
Ohio,
375
Oregon,
376
Rhode Island,
377
South
Carolina,
378
South Dakota,
379
Tennessee,
380
Vermont,
381
Virginia,
382
West Virgin-
ia,
383
Wisconsin,
384
and Wyoming.
385
364. Id. § 153.5521.
365. See supra note 306 and accompanying text.
366. U
TAH CODE ANN. § 48-2e-304 (West 2014).
367. C
ONN. GEN. STAT. § 34-29 (1979).
368. D
EL. CODE ANN. tit. 6, § 17-705 (1997).
369. F
LA. STAT. §§ 605.0410(7), 605.0504 (2016).
370. I
ND. CODE § 23-16-8-5 (1989).
371. K
AN. STAT. ANN. §§ 56a-601(g), 405 (1998).
372. N.J.
STAT. ANN. § 42:2A-50 (West 2013).
373. N.Y.
P’SHIP LAW § 121-706 (1990).
374. N.C.
GEN. STAT. § 59-705 (1986).
375. O
HIO REV. CODE § 1782.43 (1992).
376. O
R. REV. STAT. § 70.305 (1985).
377. 7 R.I.
GEN. LAWS § 7-13-43 (1985).
378. S.C.
CODE ANN. § 33-42-1250 (1986).
379. S.D.
CODIFIED LAWS § 48-7-705 (1986).
380. T
ENN. CODE ANN. § 61-2-705 (1988).
381. V
T. STAT. ANN. tit. 11, § 3465 (2014).
382. V
A. CODE ANN. § 50-73.48 (1988).
383. W.
VA. CODE § 47-9-43 (1981).
384. W
IS. STAT. § 179.65 (2018).
385. W
YO. STAT. ANN. § 17-14-805 (1979).
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The following limited partnership statutes restrict inspection rights to limited
partners without exception:
Alaska: Alaska Stat. § 32.11.140.
Delaware provides as follows:
Each limited partner, in person or by attorney or other agent, has the
right, subject to such reasonable standards (including standards gov-
erning what information and documents are to be furnished, at what
time and location and at whose expense) as may be set forth in the
partnership agreement or otherwise established by the general part-
ners, to obtain from the general partners from time to time upon rea-
sonable demand for any purpose reasonably related to the limited
partner’s interest as a limited partner [the information specified in
the statute].
386
Georgia: Ga. Code Ann. § 14-9-305.
Louisiana provides as follows:
In Louisiana, a limited partnership is also known as a partnership in
commendam.
387
The Louisiana statute provides that “the provisions
of the other chapters of this Title apply to partnerships in commen-
dam to the extent they are consistent with this chapter.”
388
Presuma-
bly, this would include the following:
(a) A partner may inform himself of the business activities of the
partnership and may consult its books and records, even if he has
been excluded from management. A contrary agreement is null.
(b) He may not exercise his right in a manner that unduly interferes
with the operations of the partnership or prevents other partners from
exercising their rights in this regard.
389
Massachusetts: Mass. Gen. Laws § 109.21.
386. DEL. CODE ANN. tit. 6, § 17-305(a) (2014). (the information specified in § 17-305(a) is:
(1)True and full information regarding the status of the business and financial condition of the limited
partnership;
(2)Promptly after becoming available, a copy of the limited partnership’s federal, state and local in-
come tax returns for each year;
(3)A current list of the name and last known business, residence or mailing address of each partner;
(4)A copy of any written partnership agreement and certificate of limited partnership and all amend-
ments thereto, together with executed copies of any written powers of attorney pursuant to which the
partnership agreement and any certificate and all amendments thereto have been executed;
(5)True and full information regarding the amount of cash and a description and statement of the
agreed value of any other property or services contributed by each partner and which each partner has
agreed to contribute in the future, and the date on which each became a partner; and
(6) Other information regarding the affairs of the limited partnership as is just and reasonable).
387. L
A. CIV. CODE ANN. art. 2837 (1981) (stating the following: “A partnership in commendam
consists of one or more general partners who have the powers, rights, and obligations of partners, and
one or more partners in commendam, or limited partners, whose powers, rights, and obligations are
defined in this Chapter.”).
388. Id. art. 2836.
389. Id. art. 2813.
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Missouri: Mo. Rev. Stat. § 359.221. The Missouri statute specifying what
records a limited partnership must keep contains this unusual provision:
Any general partner of a limited partnership may be individually
subject to the following sanctions if the general partner fails to de-
liver the partnership list to the secretary of state’s office within twen-
ty days after receiving the written demand for such list:
(1) Assessed a civil penalty in the amount of fifty dollars a day
for each day the list has not been delivered to the secretary of state
but not to exceed ten thousand dollars;
(2) Prosecuted criminally with any resulting conviction being
deemed a class A misdemeanor.
390
Nebraska: Neb. Rev. Stat. § 67-253.
Nevada: Nev. Rev. Stat. § 88-440.
New Hampshire: N.H. Rev. Stat. Ann. § 304-B:21.
North Carolina: N.C. Gen. Stat. § 59-305.
v. Restrictions Permitted by Limited Partnership Statutes
The Alabama limited partnership statute contains a provision similar to that in
its LLC Act allowing the imposition of reasonable restrictions on access and con-
fidentiality requirements.
391
Arkansas permits a limited partnership to impose rea-
sonable restrictions on the use of information obtained from the limited partner-
ship.
392
Colorado,
393
The District of Columbia,
394
Florida,
395
Georgia,
396
Hawaii,
397
Idaho,
398
Illinois,
399
Maryland,
400
Maine,
401
Minnesota,
402
and Utah
403
limited
partnership statutes contain similar provisions.
404
Delaware states the following:
A general partner shall have the right to keep confidential from limited
partners for such period of time as the general partner deems reasonable,
any information which the general partner reasonably believes to be in
the nature of trade secrets or other information the disclosure of which
the general partner in good faith believes is not in the best interest of the
limited partnership or could damage the limited partnership or its busi-
390. MO. REV. STAT. § 359.051 (1990).
391. A
LA. CODE § 10A-9A-3.04 (2016).
392. A
RK. CODE ANN. § 4-47-304(g) (2009).
393. C
OLO. REV. STAT. § 7-62-305 (2004).
394. D.
C. CODE § 29-703.04(g) (2013).
395. F
LA. STAT. § 620.1304(7) (2006).
396. G
A. CODE ANN. § 14-9-305(a)(3)(C) (1988).
397. H
AW. REV. STAT. §§ 425E-304(f), (k) (2010).
398. I
DAHO CODE § 30-24-304(j) (2015).
399. 805 I
LL. COMP. STAT. 215/304(g) (2005).
400. M
D. CODE ANN., CORPS. & ASS’NS § 10-305(c) (West 1988)..
401. M
E. STAT. tit. 31, § 1344(7) (2008).
402. M
INN. STAT. § 321.0304(g) (2005).
403. U
TAH CODE ANN. §§ 48-1d-403(11), 48-2e304(11) (West 2014).
404. The Wisconsin limited partnership statute does not contain such a provision. W
IS. STAT. §
179.25 (1984). A similar provision does apply to the information rights of general partners of Wiscon-
sin limited partnerships. Id. §§ 178.048(10), 179.10(2).
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ness or which the limited partnership is required by law or by agreement
with a third party to keep confidential.
405
Delaware further provides:
The rights of a limited partner to obtain information as provided in this
section may be restricted in an original partnership agreement or in any
subsequent amendment approved or adopted by all of the partners or in
compliance with any applicable requirements of the partnership agree-
ment. The provisions of this subsection shall not be construed to limit the
ability to impose restrictions on the rights of a limited partner to obtain
information by any other means permitted under this chapter.
406
Kansas provides that a limited partner’s inspection rights are “subject to any
reasonable standards set forth in the partnership agreement. . . .”
407
Kentucky pro-
vides that “[t]he partnership agreement may impose reasonable limitations upon
use of information obtained under this section.”
408
The Montana,
409
Nevada,
410
New Mexico,
411
North Dakota,
412
Oklahoma,
413
and Washington
414
limited partnership statutes are like Kentucky. Louisiana pro-
vides that a partner may not exercise information rights “in a manner that unduly
interferes with the operations of the partnership or prevents other partners from
exercising their rights in this regard.”
415
Mississippi’s limited partnership statute provides as follows:
In addition to any restriction or condition stated in its partnership agree-
ment, a limited partnership, as a matter within the ordinary course of its
activities and affairs, may impose reasonable restrictions and conditions
on access to and use of information to be furnished under this section, in-
cluding designating information confidential and imposing nondisclosure
and safeguarding obligations on the recipient. In a dispute concerning the
reasonableness of a restriction under this subsection, the partnership has
the burden of proving reasonableness.
416
Nebraska provides the following:
A general partner shall have the right to keep confidential from limited
partners for such period of time as the general partner deems reasonable
405. DEL. CODE ANN. tit. 6, § 17-305(b) (2014).
406. Id. § (f).
407. K
AN. STAT. ANN. § 56-1a205 (1998).
408. K
Y. REV. STAT. ANN. § 362.2-304(7) (West 2006).
409. M
ONT. CODE ANN. §§ 35-12-705(7), 35-12-810(8) (2011).
410. N
EV. REV. STAT. §§ 87A.335(10), 87A.380(8) (2007).
411. N.M.
STAT. ANN. §§ 54-2A-304(G), 54-2A-407(H) (2008).
412. N.D.
CENT. CODE §§ 45-10.2-34(7), 45-10.2-43(8) (2005).
413. O
KLA. STAT. tit. 54, §§ 500-304A(g), 500-401A(h) (2011).
414. W
ASH. REV. CODE §§ 25.10.331(7), 25.10.431(8) (2010).
415. L
A. CIV. CODE ANN. art. 2813 (1981) (this section appears to be applicable to limited partner-
ships because of § 2837).
416. M
ISS. CODE ANN. § 79-14-304(j) (2015).
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any information which the general partner reasonably believes to be in
the nature of trade secrets or other information the disclosure of which
the general partner in good faith believes is not in the best interest of the
limited partnership or could damage the limited partnership or its busi-
ness or which the limited partnership is required by law or by agreement
with a third party to keep confidential.
417
Unlike its LLC statute, which contains several restrictions on the rights of
members and managers to information, Nevada’s limited partnership statute pro-
vides a comparatively liberal provision:
Each limited partner has the right to do the following:
1. Inspect and copy any of the partnership records required to be main-
tained by NRS 88.335; and
2. Obtain from the general partners from time to time upon reasonable
demand:
(a) True and full information regarding the state of the business and
financial condition of the limited partnership;
(b) Promptly after becoming available, a copy of the limited part-
nership’s federal, state and local income tax returns for each
year; and
(c) Other information regarding the affairs of the limited partner-
ship as is just and reasonable.
418
The Tennessee limited partnership statute states that a limited partner’s in-
formation rights are as follows:
[S]ubject to such reasonable standards (including standards governing
what information and documents are to be furnished, at what time and lo-
cation and at whose expense) as may be set forth in the partnership
agreement or otherwise established by the general partners, upon reason-
able demand for any purpose reasonably related to the limited partner’s
interest as a limited partner.
419
In addition, Tennessee permits the following:
A general partner shall have the right to keep confidential from limited
partners for such period of time as the general partner deems reasonable,
any information which the general partner reasonably believes to be in
the nature of trade secrets or other information the disclosure of which
the general partner in good faith believes is not in the best interest of the
limited partnership or could damage the limited partnership or its busi-
417. NEB. REV. STAT. 67-253(b) (1989). The Ohio Statute is similar. OHIO REV. CODE ANN. §
1782.21(B) (1994).
418. N
EV. REV. STAT. § 88.440 (1985).
419. T
ENN. CODE ANN. § 61-2-304(b) (1989).
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ness or which the limited partnership is required by law or by agreement
with a third party to keep confidential.
420
vi. Inspection by Limited Partners Through an Agent
Although RULPA § 304(j) provides that a limited partner may exercise his or
her inspection rights through an attorney or agent, the actual state statutes are
inconsistent.
421
Some provide that both limited partners and general partners may
act through agents. Other states do not provide that limited partners may exercise
inspection rights through an agent but provide that a general partner of the same
limited partnership may do so. This follows from the fact that most general part-
nership statutes provide for inspection through an agent, and many of those stat-
utes are linked to the corresponding limited partnership statute, which typically
includes an inspection statute applying to limited partners but not one applying to
general partners unless the state has adopted RULPA.
The following states authorize both general and limited partners to exercise
inspection rights through an agent:
Alabama: Ala. Code §§ 10A-8-4.03(b), 10A-9A-3.04(i).
Arkansas: Ark. Code Ann. §§ 4-47-304(i), 4-47-407(h).
California: Ca. Corp. Code §§ 15903.04(k), 15904.07(h).
Delaware: Del. Code Ann. tit. 6, §§ 17-305(a), 17-1105, 17-403.
District of Columbia: D.C. Code §§ 29-703.04(i), 29-704.07(h).
Florida: Fla. Stat. §§ 620.1304(10), 620.1407(8).
Hawaii: Haw. Rev. Stat. §§ 425E-304(j), 425E-304(h).
Idaho: Idaho Code §§ 30-24-304(h), 30-24-407(h).
Illinois: 805 Ill. Comp. Stat. 215/304(j), 407(h).
Iowa: Iowa Code §§ 488.304 10, 488.407 8.
Kentucky: Ky. Rev. Stat. Ann. §§ 362.2-304(1), 362.2-407(8).
Maine: Me. Stat. tit. 31, §§ 1344 10, 1357 8.
Maryland: Md. Code Ann. Corps. & Ass’ns §§ 9A-403(b), 10-305(a),
10-108.
Minnesota: Minn. Stat. §§ 321.0304(i), 321.0407(h).
Mississippi: Miss. Code Ann. §§ 79-14-304(h), 79-14-704(h).
Montana: Mont. Code Ann. §§ 35-12-705(10), 35-12-810(8).
Nevada: Nev. Rev. Stat. §§ 87A.335 10, 87A.380 8.
New Mexico: N.M. Stat. Ann. §§ 54-2A-304J, 54-2A-407H.
North Dakota: N.D. Cent. Code §§ 45-10.2-34 10, 45-10.2-43 8.
Oklahoma: Okla. Stat. tit. 54, §§ 500-304(j), 407(h).
Pennsylvania: 15 Pa. Cons. Stat. §§ 8634(f), 8647(h).
Utah: Utah Code Ann. §§ 48-2e-304(8), 48-2e-407(8).
Washington: Wash. Rev. Code §§ 25.10.331(9), 25.10.431(8).
420. Id. § (c).
421. See infra Part V.E (Right to Use an Agent When Statute is Silent).
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The following states provide that general partners of limited partnerships may
inspect books and records through an agent, but make no such provision for lim-
ited partners:
Alaska: Alaska Stat.. §§ 32.11.40, 32.06.403(b).
Arizona: Ariz. Rev. Stat. §§ 29-321, 29-1033B.
Colorado: Colo. Rev. Stat. §§ 7-62-305, 7-62-1104, 7-64-403(2).
Connecticut: Conn. Gen. Stat. §§ 34-18, 34-337.
Kansas: Kan. Stat. Ann. §§ 56-1a, 205, 56-1a, 604, 56a-403(b).
Nebraska: Neb. Rev. Stat. §§ 67-253, 67-294, 67-423(2).
New Jersey: N.J. Stat. Ann. §§ 42:2A-29, 42:2A-3, 42:1A-23b.
Ohio: Ohio Rev. Code Ann. §§ 1776.43(b), 1782.21, 1782.60.
Oregon: Or. Rev. Stat. §§ 67.150(2), 70.050, 70.615.
South Dakota: S.D. Codified Laws §§ 48-7-305, 48-7-1105, 48-7A-
403(b).
Tennessee: Tenn. Code Ann. §§ 61-1-403(b), 61-2-304(b), 61-2-1205.
Vermont: Vt. Stat. Ann. tit. 11, §§ 3233(b), 3425, 3502.
Virginia: Va. Code Ann. §§ 50-73.26, 50-73.75, 50-73.101B.
West Virginia: W. Va. Code §§ 47-9-21, 47-9-63, 47B-4-3(b).
Wisconsin: Wis. Stat. §§ 178.048(8), 179.10, 179.25.
Wyoming: Wyo. Stat. Ann. §§ 17-14-405, 17-21-403.
The following states do not provide for either limited partners or general
partners of limited partnership to exercise information rights through an agent:
Georgia: Ga. Code Ann. §§ 14-8-19, 14-9-305, 14-9-1204.
Indiana: I. C. §§ 23-4-1-19, 23-4-1-20, 23-16-12-3, 23-26-4-5.
Massachusetts: Mass. Gen Laws §§ 108A.19, 108A.20, 109.21.
New Hampshire: N.H. Rev. Stat. Ann. §§ 304-A:19, 304-A:20, 304-
B:21, 304-B63.
New York: N. Y. P’ship Law §§ 41, 42, 121-106.
North Carolina: N. C. Gen. Stat. §§ 59-49, 59-50, 59-305, 59-1102.
Rhode Island: 7 R.I. Gen. Laws §§ 7-12-30, 7-12-31, 7-13-21, 7-13-63.
South Carolina: S.C. Code Ann. §§ 33-41-520, 33-41-530, 33-42-450,
33-42-2020.
Texas: Tex. Bus. Orgs. Code Ann. §§ 152.213(a), 153.552.
Michigan provides agency rights to limited partners but not general part-
ners.
422
vii. Information Rights of General Partners of Limited Partner-
ships
RULPA states that a general partner, without having any particular purpose,
may inspect all records of the limited partnership.
423
A dissociated general partner
422. MICH. COMP. LAWS §§ 449.20, 449.21, 449.1305(1), 449.2106 (1983).
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may inspect information pertaining to the period during which the person was a
general partner if the person seeks the information in good faith, and the person
satisfies the requirements that § 304(b)
424
of RULPA imposes on a limited part-
ner.
425
If a general partner dies, the deceased general partner’s personal repre-
sentative or other legal representative may exercise the information rights of a
current limited partner for purposes of settling the deceased general partner’s es-
tate.
426
The following states provide general partners of limited partnerships substan-
tially the same information rights as RULPA:
Alabama: Ala. Code § 10A-9A-4.07.
Alaska: Alaska Stat. §§ 32.06.403, 32.11.170.
Arizona: Ariz Rev. Stat.. §§ 29-324, 29-363, 29-1003.
Arkansas: Ark. Code Ann. § 4-47-407.
California: Ca. Corp. Code § 15904.07.
Colorado: Colo. Rev. Stat. §§ 7-62-403, 7-62-1104(1), 7-64-403.
Connecticut: Conn. Gen. Stat. §§ 34-17, 34-337.
District of Columbia: D.C. Code § 29-704.07.
Florida: Fla. Stat. § 620.1407.
Hawaii: Haw. Rev. Stat. § 425E-407.
Idaho: Idaho Code § 30-24-407.
Illinois: 805 Ill. Comp. Stat. § 215/407.
Iowa: Iowa Code § 488.407.
Kansas: Kan. Stat. Ann. §§ 56-1a, 604, 56a-403.
Kentucky: Ky. Rev. Stat. Ann. §§ 362.523, 362.1-403.
Maine: Me. Stat. tit. 31 § 1357.
Maryland: Md. Code Ann. Corps. & Ass’ns §§ 9A-403, 10-108.
Minnesota: Minn. Stat. § 321.0407.
Mississippi: Miss. Code Ann. § 79-14-407.
Montana: Mont. Code. Ann. § 35-12-810.
Nevada: Nev. Rev. Stat. § 87A.380.A-23.
New Mexico: N.M. Stat. Ann. § 54-2A-407.
North Dakota: N.D. Cent. Code § 45-10.2-43.
Oklahoma: Okla. Stat. tit. 54, § 500-407A.
Pennsylvania: 15 Pa. Cons. Stat. § 8647.
South Dakota: S.D. Codified Laws § 48-7A-403.
Tennessee: Tenn. Code Ann. § 61-1-403.
Utah: Utah Code Ann. § 48-2e-407.
Vermont: Vt. Code. Ann. tit. 11, §§ 3233, 3502.
Virginia: Va. Code Ann. §§ 50-73.101, 50-73.75.
Washington: Wash. Rev. Code. § 25.10.431.
West Virginia: W. Va. Code §§ 47-9-62, 47B-4-3.
W
isconsin. Wis. Stat. §§ 178.0408, 179.10.
423. REVISED UNIF. LTD. P’SHIP ACT § 407(a) (UNIF. LAW COMM’N 2013).
424. Id. § (e).
425. Id.
426. Id. §§ (i)(1), 704.
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Wyoming: Wyo. Stat. Ann. § 17-21-403.
Delaware extends information rights to former partners and the legal repre-
sentative of a deceased or incapacitated partner.
427
However, the Delaware statute
also provides as follows:
A partnership agreement may provide that the partnership shall have the
right to keep confidential from partners for such period of time as the
partnership deems reasonable, any information which the partnership rea-
sonably believes to be in the nature of trade secrets or other information
the disclosure of which the partnership in good faith believes is not in the
best interest of the partnership or could damage the partnership or its
business or affairs or which the partnership is required by law or by
agreement with a third party to keep confidential.
428
The rights of a partner to obtain information as provided in this section may
be restricted in an original partnership agreement or in any subsequent amendment
approved or adopted by all of the partners or in compliance with any applicable
requirements of the partnership agreement.
429
Georgia permits every general partner access to all books and records of the
partnership.
430
Indiana provides that partners shall render on demand true and full infor-
mation of all things affecting the partnership to any partner or the legal representa-
tive of any deceased partner or partner under a legal disability.
431
Louisiana provides the following:
A partner may inform himself of the business activities of the partnership
and may consult its books and records, even if he has been excluded from
management. A contrary agreement is null.
He may not exercise his right in a manner that unduly interferes with the
operations of the partnership or prevents other partners from exercising
their rights in this regard.
432
Massachusetts provides that every general partner shall at all times have ac-
cess to and may inspect and copy any of the partnership books and records.
433
Michigan provides that every general partner shall, at all times, have access to
and may inspect and copy any of the partnership books and records
434
and that
“partners shall render on demand true and full information of all things affecting
427. DEL. CODE ANN. tit. 6, §§ 17-1105, 15-403(a) (2001 & 2014).
428. Id. § 15-403(b).
429. Id. § (f).
430. G
A. CODE ANN. §§ 14-9-403, 14-8-19 (1996 & 1984).
431. I
ND. CODE §§ 23-4-1-20, 23-16-5-3(a) (2017).
432. L
A. CIV. CODE ANN. art. 2813 (1980).
433. M
ASS. GEN. LAWS §§ 109.62, 108A.19 (1982 & 2017).
434. M
ICH. COMP. LAWS § 449.19 (2018).
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the partnership to any partner or the legal representative of any deceased partner
or partner under legal disability.”
435
Missouri,
436
New Hampshire,
437
New York,
438
North Carolina,
439
Ohio,
440
Or-
egon,
441
Rhode Island,
442
and South Carolina
443
are substantially the same as
Michigan.
D. General Partnerships
The author’s research for this article did not find any cases involving general
partnerships. The author believes this to be because most general partnership stat-
utes require not only the partnership but also general partners having the same
information as the partnership to provide the information.
444
Georgia states its
information requirements for general partnerships a little differently, requiring that
every partner shall at all times have access to the books of the partnership and
may inspect and copy them.
445
Georgia further requires that “partners shall render,
to the extent the circumstances render it just and reasonable, true and full infor-
mation of all things affecting the partners to any partner and the legal representa-
tive of any deceased partner of any deceased partner of any partner under legal
disability.”
446
The New Hampshire, New York, South Carolina, and South Dakota
statutes are the same as the Georgia statute.
447
The Colorado and Washington
general partnership statutes are the same as the Georgia statute with the addition
of rights of former partners.
448
The Kansas statute is similar to the Georgia statute,
but perhaps a little broader:
Each partner and the partnership shall furnish to a partner, and to the le-
gal representative of a deceased partner or partner under legal disability:
(1) Without demand, any information concerning the partnership’s busi-
ness and affairs reasonably required for the proper exercise of the part-
ner’s rights and duties under the partnership agreement or this act; and
435. Id. §§ 449.20, 449.2106.
436. M
O. REV. STAT. §§ 358.190, 358.200 (2017).
437. N.H.
REV. STAT. ANN. §§ 304-A:19, 304-A:20 (2018).
438. N.Y.
P’SHIP LAW §§ 41, 42, 121-403(a) (McKinney 1990 & 2018).
439. N.C.
GEN. STAT. §§ 59-49, 59-50, 59-1103 (1985 & 2017).
440. O
HIO REV. CODE ANN. §§ 1776.43, 1782.60 (West 1985 & 2008).
441. O
R. REV. STAT. §§ 67.150, 70.615 (1997 & 2017) (rights also extended to former partners).
442. 7 R.I.
GEN. LAWS §§ 7-13-63, 7-12-30, 7-12-31 (1957 & 1985).
443. S.C.
CODE ANN. §§ 33-41-520, 33-41-503, 33-42-2020 (1962, 1976, & 1986).
444. R
EVISED UNIF. LTD. P’SHIP ACT §§ 408(c)–(d) (UNIF. LAW COMM’N 2013); ALA. CODE § 10A-
8-4.03(c) (1996); A
LASKA STAT. § 32.06.403(c) (2000); ARIZ. REV. STAT. ANN. § 29-1033(C) (1996);
A
RK. CODE ANN. § 4-46-403(c) (1999); CAL. CORP. CODE §16403(c) (West 2004); COLO. REV. STAT.
§ 7-64-403(3) (1997); C
ONN. GEN. STAT. § 34-337(c) (1997); DEL. CODE ANN. tit. 6, § 15-403(a)
(2014); D.C.
CODE § 29.604.06(c) (2013); FLA. STAT. § 620.8403(3) (1995); HAW. REV. STAT. § 425-
122(c) (1999); I
DAHO CODE § 30-23-408(c) (2015); MICH. COMP. LAWS § 449.20 (2018); TEX. BUS.
ORGS. CODE ANN. §152.203(a) (West 2006). Montana applies the duty to provide information only to
the partnership. M
ONT. CODE ANN. § 35-10-402(2) (1993).
445. G
A. CODE ANN. § 14-8-19 (1984).
446. Id. § 14-8-20.
447. N.H.
REV. STAT. ANN. § 304-A:20 (2018); N.Y. P’SHIP LAW § 42 (McKinney 2018); S.C. CODE
ANN. § 33-41-530; S.D. CODIFIED LAWS § 48-7-403 (1986).
448. C
OLO. REV. STAT. § 7-64-403; WASH. REV. CODE § 25.05.160 (1998).
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(2) on demand, any other information concerning the partnership’s busi-
ness and affairs, except to the extent the demand or the information de-
manded is unreasonable or otherwise improper under the circumstanc-
es.
449
The Kentucky, Maine, Maryland, Minnesota, Mississippi, Nebraska, Nevada,
New Jersey, New Mexico, North Dakota, and Tennessee statutes are the same as
that of Kansas.
450
The North Dakota statute adds the requirement that “[the part-
nership] shall provide former partners and their agents and attorneys access to
books and records pertaining to the period during which they were partners.”
451
The Missouri general partnership statute states that “[p]artners shall render on
demand true and full information of all things affecting the partnership to any
partner or the legal representative of any deceased partner or partner under legal
disability.”
452
The North Carolina statute is the same as Missouri.
453
The Ohio,
Oklahoma, Oregon, Pennsylvania, Vermont, and Virginia statutes are the same as
North Dakota.
454
Rhode Island provides that “[p]artners shall render on demand true and full
information of all things affecting the partnership to any partner or the legal repre-
sentative of any deceased partner or partner under legal disability.”
455
If a partner
dies, and the deceased partner was a member of a copartnership, general or lim-
ited, Rhode Island requires the following:
[T]he surviving partner shall, upon the demand in writing of the adminis-
trator or executor of the deceased copartner, and within ten (10) days
subsequently, make out and deliver to the administrator or executor a de-
tailed statement of the assets and liabilities of the copartners as they ex-
isted at the time of the decease of the copartner, which statement shall be
verified by the oath of the surviving copartner.
456
In addition, in the case of a copartnership, the following is permitted:
The administrator or executor may enter upon the premises and examine
the books and affairs of the copartnership and take an inventory of the
personal property in which his or her intestate or testate may have had an
interest at the time of his or her decease.
457
449. KAN. STAT. ANN. § 56a-403(c) (1998).
450. K
Y. REV. STAT. ANN. § 362.1-403(3) (West 2006); ME. REV. STAT. ANN. tit. 31, § 1043(3)
(2007); M
D. CODE Ann., CORPS. & ASS’NS § 9A-403(c) (West 1998); MINN. STAT. § 323A.0403(c)
(2017); M
ISS. CODE ANN. § 79-13-403(c) (2004); NEB. REV. STAT. § 67-423(3) (1997); NEV. REV.
STAT. § 87.4335(3) (2006); N.J. STAT. ANN. § 42:1A-23(c) (West 2000); N.M. STAT. ANN. § 54-1A-
403(c) (1997); N.D.
CENT.CODE § 45-16-03(3) (1995); TENN. CODE ANN. § 61-1-403(c) (2002).
451. N.D.
CENT. CODE § 45-16-03(2).
452. M
O. REV. STAT. § 358.200 (2017).
453. N.C.
GEN. STAT. § 59-50 (1941).
454. See supra note 451 and accompanying text. O
HIO REV. CODE § 1776.43 (1997); OKLA. STAT. tit.
54, § 1-403 (1997); O
R. REV. STAT. § 67.150 (1997); 15 PA. CONS. STAT. §§ 8446, 8455 (2017); VT.
STAT. ANN. tit. 11, § 3233 (1997); VA. CODE § 50-73.101 (1997).
455. 7 R.I.
GEN. LAWS § 7-12-31 (1956).
456. Id. § 7-12-2.
457. Id. § 7-12-3.
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The Texas general partnership statute extends the duties of partners to provide
information to assignees.
458
The Utah general partnership statute extends information rights to dissociated
partners and the legal representative of a deceased partner.
459
The Wisconsin
460
and Wyoming
461
general partnership statutes extend infor-
mation rights to former partners and the legal representatives of deceased or disa-
bled partners.
E. Right to Use an Agent When Statute is Silent
The author’s research disclosed that only 22 LLC statutes permit a member to
inspect the books and records of an LLC through an agent. Indeed, RULLCA does
not mention the use of an agent. This is interesting in light of the possible explana-
tion of why RULLCA, in a member-managed LLC, puts the disclosure obligation
on members as well as the LLC. The Prefatory Note and Commentary to
RULLCA states that “ULLCA’s [the predecessor to RULLCA] drafting relied
substantially on the then recently adopted Revised Uniform Partnership Act
(“RUPA”), and this reliance was especially heavy with regard to member-
managed LLCs.”
462
RUPA does include a provision stating that a partner may
exercise information rights “through an agent or, in the case of an individual under
legal disability, a legal representative.”
463
If a member requests to be permitted to
have the member’s agent inspect the LLC’s books and records, the LLC might
respond that its governing statute did not contemplate the use of agents, and ques-
tion how the LLC could know that an agent was properly authorized.
The author’s research also disclosed that only 24 limited partnership statutes
permit a limited partner to inspect the books and records of the limited partnership
through an agent — even though RULPA states that a limited partner may act
through an agent when exercising information rights.
464
As with LLCs, if a limited
partner in one of the other 26 states requests to have the limited partner’s agent
inspect the limited partnership’s books and records, the general partner might
respond that its governing statute did not contemplate the use of agents, and ques-
tion how the limited partnership could know that an agent was properly author-
ized.
These are legitimate concerns, but it is also legitimate for a member or lim-
ited partner to seek to examine books and records through an agent even in the
absence of specific statutory authorization. As a general rule in American juris-
458. TEX. BUS. ORGS. CODE ANN. § 152.213 (West 2006) (stating the following:
(a) On request and to the extent just and reasonable, each partner and the partnership shall fur-
nish complete and accurate information concerning the partnership to:
(1) a partner;
(2) the legal representative of a deceased partner or a partner who has a legal disability; or
(3) an assignee.
(b) A legal representative of a deceased partner or a partner who has a legal disability and an as-
signee are subject to the duties of a partner with respect to information made available).
459. U
TAH CODE §§ 48-1d-403, 48-1d-605 (1953).
460. W
IS. STAT. §§ 178.0408, 178.0505 (2016).
461. W
YO. STAT. ANN. § 17-21-403 (1993).
462. R
EVISED UNIF. LTD. LIAB. CO. ACT Prefatory n. 1 (UNIF. LAW COMM’N 2013).
463. R
EVISED UNIF. P’SHIP ACT § 408(h) (UNIF. LAW COMM’N 2013).
464. R
EVISED UNIF. LTD. P’SHIP ACT § 304(h) (UNIF. LAW COMM’N 2013).
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prudence, people are entitled to act through agents, and agency law provides nu-
merous protections for third parties who deal with a principal’s agent.
465
To be
sure, as a matter of basic contract law, a third party should be able to decline to
deal with an agent instead of the principal, and this approach might apply through
the company agreement or partnership agreement.
The author submits that a reasonable approach is that followed by the Dela-
ware LLC and limited partnership statutes. Delaware provides that whenever the
member or partner uses an attorney or other agent, “the demand shall be accom-
panied by a power of attorney or such other writing which authorizes the attorney
or other agent to so act on behalf of the member [or limited partner].”
466
Another
possible approach is suggested by Henshaw v. American Cement Corp., which
held that when inspection was to be made by a person other than the shareholder,
the corporation may require evidence of that person’s authority to act on behalf of
the shareholder.
467
In this case, the shareholder’s “demand, under oath, met that
requirement by naming his agents and attorneys who were to make the inspec-
tion.”
468
An LLC or limited partnership could protect itself further by requiring
the member or partner and the agent execute a confidentiality agreement. For a
case approving the requirement of a confidentiality agreement, see NAMA Hold-
ings, LLC v. World Market Center Venture, LLC,
469
discussed in Part V, Section D
below.
Absent prior bad conduct, there appears to be reason other than obstruction-
ism for a limited partnership or LLC to oppose a member’s or limited partner’s
request to employ an attorney or other agent to inspect the books and records the
member or limited partner is entitled to inspect.
VI. C ASE LAW INVOLVING INSPECTION OF BOOKS AND RECORDS IN
CORPORATIONS AND UNINCORPORATED ENTITIES
A. Summary of Cases
The following summary of cases shows that a requestor must have a proper
purpose,
470
that a request will be denied if the requestor does not have a proper
purpose,
471
what records are required to be made available,
472
what records are not
required to be made available,
473
what reasonable access is,
474
potential liability
for failure to provide records, and when the requestor’s agent may conduct the
465. See RESTATEMENT (THIRD) OF AGENCY §§ 6.01-7.01 (AM. LAW INST. 2006).
466. D
EL. CODE ANN. tit. 6, §§ 17-305(d), 18-305(e) (2014).
467. Henshaw v. Am. Cement Corp., 252 A.2d 125, 128 (Del. Ch. 1969).
468. Id.
469. NAMA Holdings, LLC v. World Mkt. Ctr. Venture, LLC, 948 A.2d 411, 412 (Del Ch. 2007).
470. See discussion infra Part VI.B (Proper Purpose Requirements).
471. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
472. See discussion infra Part VI.C (Records Required to be Available for Inspection).
473. See discussion infra Part VI.C.ii (Records Required to be Available for Inspection: Interim
Financial Statements)
474. See discussion infra Part VI.D (What is Reasonable Access).
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inspection.
475
The corporate cases will, in most cases, also be relevant in the LLC
context.
This article also discusses statutory protection for sensitive information
476
and
restrictions in governing documents approved in case law.
477
Proper purposes
include alleged corporate wrongdoing,
478
risks of planned corporate action,
479
valuing the requestor’s shares,
480
the requestor’s desire to offer shares for sale,
481
communicating with other shareholders for purposes of informing them of the
requestor’s tender offer and soliciting tenders of shares,
482
the requestor’s intent to
offer to purchase shares of other shareholders,
483
and facilitating a proxy chal-
lenge to incumbent directors.
484
Improper purposes have included a director’s desire to examine voting rec-
ords of the association of which the requestor was a director,
485
a request by a
former director,
486
investigation of possible waste and mismanagement where the
requestor presents no evidence forming a credible basis from which the court may
infer that waste or mismanagement has occurred,
487
where the requestor fails to
show that inspection will not adversely affect the corporation’s interests,
488
the
requestor’s desire to obtain names of shareholders who might sell their stock to
the requestor,
489
a request to communicate with other shareholders in connection
with a special meeting where the requestor did not show the intended communica-
tion,
490
a fishing expedition,
491
a request motivated by preexisting social and polit-
475. See supra notes 80-81 and accompanying text; discussion supra Part V.B.vi (Inspection by
Member’s Agent).
476. See discussion of statutes supra Part V. (Current Statutory Provisions Governing Inspection of
Books and Records)
(A. Corporations, B.iii Limited Liability Companies: Restrictions on Information
Rights Permitted by Statute, and C.v
Limited Partnerships: Restrictions in Limited Partnership Agree-
ments).
477. See discussion infra Part VI.E (Protecting Sensitive Information: Restrictions in Governing
Documents Approved by Case Law).
478. See discussion infra Part VI.B.i (Proper Purpose Requirements: Alleged Corporate Wrongdo-
ing).
479. See discussion infra Part VI.B.ii (Proper Purpose Requirements: Risks of Planned Corporate
Action).
480. See discussion infra Part VI.B.iii (Proper Purpose Requirements: Valuing the Requestor’s
Shareholdings).
481. See discussion infra Part VI.B.iii (Proper Purpose Requirements: Valuing the Requestor’s
Shareholdings).
482. See discussion infra Part VI.B.iv (Proper Purpose Requirements: Communicating with Other
Shareholders).
483. See discussion infra Part VI.B.iv (Proper Purpose Requirements: Communicating with Other
Shareholders)..
484. See discussion infra Part VI.B.iv (Proper Purpose Requirements: Communicating with Other
Shareholders).
485. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
486. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
487. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
488. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
489. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
490. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
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ical beliefs,
492
a request intended to aid a competitor,
493
and a request in the inter-
est of another corporation.
494
Records that have been required to be made availa-
ble include NOBO lists and other lists of shareholders,
495
communications with
the corporation’s attorneys,
496
emails,
497
the general ledger,
498
and state sales tax
records.
499
Records that have not been required to be made available include interim fi-
nancial statements,
500
preliminary profit and loss statements,
501
and valuation es-
timates.
502
The potential liability for failure to provide records includes the possi-
ble liability of attorneys, and in some states, statutory liability for LLCs and lim-
ited partnerships. This article also discusses statutory standards for restrictions on
information rights in corporations
503
and unincorporated entities,
504
the statutory
provisions for inspection of books and records by directors
505
and the governing
persons of LLCs,
506
the statutory provisions allowing a member to use an agent to
carry out an inspection of an LLC’s books and records,
507
the propriety of obligat-
ing members of LLCs to provide information to other members,
508
and the statuto-
ry provisions for allowing assignees, former owners, and deceased or disabled
owners or former owners information rights in unincorporated entities.
509
491. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
492. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
493. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
494. See discussion infra Part VI.B.v (Proper Purpose Requirements: Purposes for Which Inspection
Has Been Denied).
495. See discussion infra Part VI.C.i (Records Required to be Available for Inspection: Availability
of NOBO Lists and Other Lists of Shareholders”).
496. See discussion infra Part VI.C.iii (Records Required to be Available for Inspection: Communica-
tions with Attorneys”).
497. See discussion infra Part VI.C.v (Records Required to be Available for Inspection: Meaning of
Books and Records”).
498. See discussion infra Part VI.C.v (Records Required to be Available for Inspection: Meaning of
Books and Records”).
499. See discussion infra Part VI.C.v (Records Required to be Available for Inspection: Meaning of
Books and Records”).
500. See discussion infra Part VI.C.ii (Records Required to be Available for Inspection: Interim
Financial Statements”).
501. See discussion infra Part VI.C.ii (Records Required to be Available for Inspection: Interim
Financial Statements”).
502. See discussion infra Part VI.C.ii (Records Required to be Available for Inspection: Interim
Financial Statements”).
503. See discussion infra Part V.A (Corporations).
504. See discussion infra Part V.B.iii (Limited Liability Companies:
Restrictions on Information
Rights Permitted by Statute).
505. See discussion infra Part V.A.xii (Corporations:
Directors’ Rights to Information).
506. See discussion infra Part V.B.v (Limited Liability Companies:
Inspection Rights of Governing
Persons).
507. See discussion infra Part V.B.vi (Limited Liability Companies:
Inspection by Member’s Agent).
508. See discussion infra Part V.B.iv (Limited Liability Companies:
Propriety of Placing Obligation
to Provide Information on Members).
509. See discussion infra Part V.B.vii (Limited Liability Companies:
Inspection and Copying by Non-
members, Information Rights Extended to Deceased or Incapacitated Members).
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B. Proper Purpose Requirements
Statutory inspection rights, like the common law, routinely require that the
requesting owner have a proper purpose. The following cases illustrate this re-
quirement.
i. Alleged Corporate Wrongdoing
Amalgamated Bank v. Yahoo! Inc. held that the plaintiff, Amalgamated
Bank’s (“Amalgamated”) demands to inspect the books and records of respond-
ent, Yahoo! Inc., pursuant to § 220 of the Delaware General Corporation Law
510
would be allowed, in part, where Amalgamated’s stated purpose was to investi-
gate the hiring and subsequent firing of Yahoo’s Chief Operating Officer, Hen-
rique de Castro.
511
This post-trial decision ordered a tailored production of some
of the documents identified in the demand.
512
The production is subject to a condi-
tion that the resulting documents will be deemed incorporated by reference in any
derivative complaint that Amalgamated may file relating to the subject matter of
the demand.
513
The court further stated that the plaintiff had produced credible evidence of
corporate wrongdoing, including possible breaches of fiduciary duty and corporate
waste.
514
Investigation of possible corporate wrongdoing is a proper purpose for a
shareholder inspection of books and records.
515
Security First Corp. v. U.S. Die Casting & Development Co. held that a
stockholder demonstrates a proper purpose for the production of corporate books
and records by showing, by a preponderance of the evidence, that there is a credi-
ble basis to find that probable corporate wrongdoing exists, but plaintiff is not
required to prove the wrongdoing itself.
516
The court said that the required show-
ing may be made “through documents, logic, testimony, or otherwise.”
517
Fleisher
Development v. Home Owners Warranty applied Delaware common law and ruled
that allegations of discriminatory treatment among members of a nonstock profit
corporation, which reasonably related to the requestor’s membership interests,
was a proper purpose to inspect corporate records.
518
The requestor need not come
forward with proof of wrongdoing by the corporation, but the scope of inspection
allowed may be limited to those documents relevant to the proper purpose.
519
Also, see Sanders v. Ohmite Holding, LLC.
520
510. DEL. CODE ANN. tit. 8, § 220 (2010).
511. Amalgamated Bank v. Yahoo! Inc.,132 A.3d 752 (Del. Ch. 2016).
512. Id.
513. Id. at 761.
514. Id. at 780, 783–84.
515. Id. at 777–78.
516. Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A.2d 563 (Del. 1997) (en banc).
517. Id. at 568.
518. Fleisher Dev. Corp. v. Home Owners Warranty Corp., 856 F.2d 1529 (D.C. Cir. 1988).
519. Riser v. Genuine Parts Co., 258 S.E.2d 184 (Ga. Ct. App. 1979); Skouras v. Admiralty Enters.,
Inc., 386 A.2d 674 (Del Ch. 1978); Miles v. Bank of Heflin, 328 So. 2d 281 (Ala. 1976); Briskin v.
Briskin Mfg. Co., 286 N.E.2d 571 (Ill. App. Ct. 1972); Durr v. Paragon Trading Corp., 1 N.E.2d 967
(N.Y. 1936) (these cases are to the same effect).
520. See infra note 541 and accompanying text. Sanders is both a case holding that valuation of the
requestor’s holdings is a proper purpose and a corporate wrong doing case.
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ii. Risks of Planned Corporate Actions
Conservative Caucus Research Analysis & Education Foundation Inc. v.
Chevron Corp. held that a shareholder was entitled to a shareholder list for the
purpose of communicating with other shareholders about the alleged economic
risks of the corporation’s business in Angola.
521
The court held that the desire to
communicate with other shareholders about a specific corporate concern, especial-
ly in connection with a pending shareholder meeting, is a proper purpose for ob-
taining a stockholders list.
522
Food and Allied Service Trade Dept., AFL-CIO v.
Wal-Mart Stores, Inc. allowed a labor union that owned stock in a corporation to
access a list of shareholders to contact them in connection with the union’s
planned resolution concerning the corporation’s purchase of goods made in China,
allegedly by forced labor.
523
The union proposed measures to allay the corpora-
tion’s fear that the union actually intended to pursue its organizing activities.
524
iii. Valuing the Requestor’s Shareholdings
CM & M Group, Inc. v. Carroll held that a desire to value the requestor’s
shareholdings was a proper purpose even though the shareholder might have a
“secondary purpose” to obtain financial information that might be helpful to a
third person.
525
The court required the order to inspect be made contingent on the
requirement that neither the shareholder nor his agent disclose any financial in-
formation to third persons except under specified circumstances.
526
The court also
directed the lower court to permit up to two further inspections necessary to up-
date the financial information on the theory that the updated information was as
essential as the original information.
527
In an earlier Delaware case, Skoglund v. Ormand Industries, Inc., the court
stated that the test for a proper purpose under the Delaware statute was whether it
was reasonably related to the person’s interest as a shareholder.
528
The court held
that if a proper purpose was established, it was no defense that the shareholder had
a secondary purpose (in this case, gaining control of the corporation), which may
be improper.
529
The court also noted, however, that even a proper purpose in the
sense of being related to the shareholder’s interest must also not be adverse to the
interests of the corporation.
530
Helmsman Management Service v. A & S Consult-
ing followed CM & M Group, Inc. and listed two more proper purposes: (1) A
shareholder’s desire to determine the corporation’s present and past ability to pay
dividends; and (2) A shareholder’s need to inform himself of a corporate transac-
521. Conservative Caucus Research, Analysis & Educ. Found., Inc. v. Chevron Corp., 525 A.2d 569
(Del. Ch. 1987).
522. Id.
523. Food & Allied Serv. Trades Dep’t, AFL-CIO v. Wal-Mart Stores, Inc., CIV. A. No. 12551, 1992
WL 11285, at *1 (Del. Ch. May 20, 1992).
524. Id.
525. CM & M Grp., Inc. v. Carroll, 453 A.2d 788 (Del. 1982).
526. Id.
527. Id.
528. Skoglund v. Ormand Indus., Inc., 372 A.2d 204, 207 (Del. Ch. 1976).
529. Id.
530. Id.
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tion about which he would otherwise have learned and voted upon if given the
proper notice.
531
Eastlund v. Fusion Systems Corp. held that a shareholder of 4,723 shares of a
privately held high technology company was entitled to access the shareholder list
where the shareholder stated that his sole purpose was to determine the value of
his shares and then offer a portion for sale.
532
The shareholder was not entitled to
inspect a broad range of books and records and receive information about finan-
cial affairs beyond certain financial information he had already received.
533
The
shareholder has previously indicated that he might disclose confidential infor-
mation to competitors.
534
The court held that most of the information sought
might, if disclosed to competitors, damage the interests of the corporation and its
shareholders because very little public information is available in the high tech-
nology industry.
535
Friedman v. Altoona Pipe and Steel Supply Co. held that determination of the
value of the plaintiff’s shares was a proper purpose under the Pennsylvania statute
and that production of summaries rather than the original records did not comply
with the statute.
536
The court in In re Pearson granted a personal representative
the right to inspect corporate records to determine the value of shares in connec-
tion with a sale under a shareholder’s agreement.
537
The court allowed inspection
of records covering three years rather than one year (proposed by the corporation)
or five years (proposed by the personal representative as appropriate for prepara-
tion of estate tax returns).
538
An earlier Indiana case, applying the common law,
Charles Hegewald Co. v. State ex rel. Hegewald, rejected the determination of
value for computing inheritance tax as a proper purpose for inspection stating the
following:
In this case, where [plaintiff] is not charged with any legal duty to ascer-
tain the value of her stock for inheritance tax purposes, but the duty to
learn all pertinent facts and fix such value is imposed by law upon a pub-
lic officer, who has full power to investigate and examine witnesses, and
would not be bound by any investigation which [plaintiff] might make or
any conclusion she might reach, the mere fact that she desires to know
such value in order that she may pay the inheritance tax does not charge
the corporation with a clear legal duty to submit its books to accountants
employed on her behalf. Neither does her desire to inform herself so that
she may report to the court by which she was appointed her conclusion as
to the value of the stock for inheritance tax purposes give her a clear le-
gal right, under the rules above laid down, to demand that the books be
submitted to examination by an accountant. Neither the facts alleged, the
531. Helmsman Mgmt. Servs., Inc. v. A & S Consultants, Inc., 525 A.2d 160, 165 (Del. Ch. 1987).
532. Eastland v. Fusion Sys. Corp., No. 11574, 1990 WL 126660, at *8 (Del. Ch. Aug. 29, 1990).
533. Id.
534. Id. at *7.
535. Id. at *6–7.
536. Friedman v. Altoona Pipe & Steel Supply Co., 460 F.2d 1212, 1214 (3d Cir. 1972).
537. Application of Pearson, 223 N.Y.S.2d 15, 16–17 (N.Y. Sup. Ct. 1961).
538. Id.
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facts proved[,] nor the facts found were sufficient to entitle [plaintiff] to
the relief asked.
539
However, where the value of shares owned by a decedent must be valued for
general estate administration purposes, the court sustained the personal representa-
tive’s right to examine books and was not required to accept accountants’ reports
that the decedent had accepted.
540
In Sanders v. Ohmite Holding, LLC, Sanders sought books and records from a
Delaware LLC.
541
When the LLC was formed in 1998 in connection with a mer-
ger, Sanders lent $2 million to one of the members and received a security interest
in the member’s units.
542
The loan was partially repaid in 2000, and Sanders re-
leased his lien on half of the units held as collateral.
543
In 2007, the member trans-
ferred his remaining units to Sanders.
544
Sanders was told by the member, and
believed, that the units transferred to Sanders represented a 7.75% interest in the
LLC.
545
In 2008, Sanders received a K-1 showing that he owned only a
0.000775% interest in the LLC.
546
After several attempts to obtain information and the LLC’s initial refusal to
acknowledge that Sanders was a member, Sanders sent a letter requesting books
and records relating to the dilution of the interest he had purchased.
547
The LLC
denied the request on the grounds that Sanders did not state any facts indicating
why he needed to evaluate the matters specified and could not make any assertion
that the dilution was improper because he was not a member at the time of the
transaction that caused the dilution.
548
After Sanders filed this action, the LLC gave him copies of tax returns and
unaudited financial statements for 2007-2009.
549
From these documents, Sanders
could reasonably infer that the LLC issued units in a related-party transaction at a
deep discount.
550
Sanders thus questioned whether the LLC received proper con-
sideration for the additional units issued and whether the LLC was being operated
exclusively for the benefit of its principal owner rather than the members as a
whole.
551
Sanders requested books and records to answer those questions, and the
LLC refused the request.
552
The LLC claimed that Sanders was not entitled to
obtain any books and records from before the date in 2007 when he became a
member.
553
The court noted that the provision in the LLC Agreement cited by the
company only limited the rights of an assignee.
554
Sanders was a member, not an
assignee, and the LLC Agreement did not limit the inspection rights of a member
539. Charles Hegewald Co. v. State, 149 N.E. 170, 173 (Ind. 1925).
540. Bankers Tr. Co. v. H. Rosenhirsch Co., 190 N.Y.S.2d 957, 959 (N.Y. Sup. Ct. 1959).
541. Sanders v. Ohmite Holdings, LLC, 17 A.3d 1186, 1190 (Del. Ch. 2011).
542. Id. at 1189.
543. Id.
544. Id.
545. Id. at 1189–90.
546. Id. at 1190.
547. Id.
548. Id. at 1191.
549. Id.
550. Id.
551. Id. at 1192.
552. Id.
553. Id.
554. Id. at 1192–93.
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under the Delaware LLC Act.
555
Looking to corporate law addressing the proper
purpose requirement, the court concluded that Sanders had a proper purpose for
his request.
556
The court rejected the LLC’s argument that Sanders could not have
a proper purpose for inspecting the books and records because he was not yet a
member at the time of the events he sought to investigate.
557
If the events he
sought to investigate were “reasonably related” to his interest as a member, then
he should be granted access.
558
Valuing his ownership and investigating potential wrongdoing are proper
purposes.
559
At this stage, Sanders only needed to have a credible basis to suspect
wrongdoing, a standard the court said was readily met in this case.
560
The court
also concluded that the books and records sought were reasonably required to
fulfill the stated proper purpose.
561
Minutes of membership or management meet-
ings relating to dilution, documents reflecting the number of units issued and con-
sideration for the units, filings on Schedule K-1, and books and records about the
opportunity of Sanders or his predecessor to buy units at the same price were all
necessary to evaluate whether the dilution was wrongful.
562
Financial reports and
tax returns going back to 2003 were necessary to evaluate whether there were
extenuating circumstances that required issuance of a large number of units for a
deep discount.
563
In Madison Avenue Investment Partners, LLC v. America First Real Estate
Investment Partners, L.P.,
564
two limited partners brought a books and records
action against three Delaware limited partnerships and their general partners.
565
The court described the plaintiff’s request, in part, as follows:
Since purchasing units in the Partnerships, [plaintiff] attempted on more
than one occasion to sell its units to the general partner, demanding a
premium to the market price in each instance. On January 30, 2001,
[plaintiff] contacted the general partner of Real Estate Investors to de-
mand that the partnership be liquidated. On March 22, 2001, [plaintiff]
demanded access to the Real Estate Investors’ books and records, with
the stated purpose of determining ‘whether to increase its holdings and
whether liquidation would be in the best interests of the respective lim-
ited partners and shareholders, and also . . . to contact the respective lim-
ited partners and shareholders to determine whether they wish to sell
their interests and to determine whether they wish to call Partnership or
shareholder meetings for the purpose of liquidating the entities.’
566
555. Id. at 1193.
556. Id.
557. Id.
558. Id.
559. Id.
560. Id. at 1194.
561. Id. at 1195.
562. Id.
563. Id.
564. Madison Ave. Inv. Partners, LLC v. Am. First Real Estate Inv. Partners, L.P., 806 A.2d 165
(Del. Ch. 2002).
565. Id. at 167.
566. Id. at 168.
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After analyzing the partnership agreements
567
and the applicable Delaware
statute, the court noted the following:
[t]he items Plaintiffs seek easily fall within the ambit of their statutory
right to ‘[t]rue and full information regarding the status of the business
and financial condition of the limited partnership’ and ‘[o]ther infor-
mation regarding the affairs of the limited partnership as is just and rea-
sonable.’ Because that right is not limited by the Partnership Agreements,
the court concludes that the items sought by Plaintiffs are ‘books and
records’ of the Partnerships.
568
The court then discussed whether the plaintiff had a proper purpose for its re-
quest.
569
Noting that valuing one’s investment is a proper purpose, the court then
discussed defendant’s assertions that plaintiff had a hidden, improper purpose.
570
The court stated the following:
To some extent, Defendants’ concern reflects a fear that Madison will at-
tempt to gain an unfair informational advantage over the others, includ-
ing existing limited partners, with the information it has requested. This
is a legitimate concern and one that Defendants are empowered by the
DRULPA to address. To allay these concerns and give effect to the statu-
tory rights of the general partners, the final order will condition the right
of access granted to Madison on the execution of a satisfactory confiden-
tiality agreement governing the treatment of the documents and infor-
mation made available to Plaintiffs.
571
The court then discussed what records should and should not be given to
plaintiff.
The court concluded that plaintiff was entitled to see limited partnership
agreements between Real Estate Investment Partners and its subsidiaries because
that was reasonably necessary to valuing plaintiff’s investment in that partnership.
567. Id. at n.1 (“SECTION 9.01. BOOKS AND RECORDS:
The Partnership shall maintain its books and records at its principal office. The Partnership’s
books and records shall be available during ordinary business hours for examination and copying
there at the reasonable request, and at the expense, of any Partner or Unit Holder or his duly au-
thorized representative, or copies of such books and records may be requested in writing by any
partner or Unit Holder or his duly authorized representative, in each case for any purpose reason-
ably related to such Partner’s or Unit Holder’s interest in the Partnership, provided that the rea-
sonable costs of fulfilling such request, including copying expenses, shall be paid by the Partner
or Unit Holder making such request. The Partnership’s books and records shall include the fol-
lowing: (a) a current list of the full name, last known home or business address and Partnership
Interest of each Partner and Unit Holder set forth in alphabetical order; (b) a copy of this Agree-
ment and the Certificate, together with executed copies of any powers of attorney pursuant to
which such Certificate, and any amendments thereto, have been executed; (c) copies of the Part-
nership’s federal, state and local income tax returns and reports, if any, for the three most recent
years; (d) copies of the financial statements of the Partnership for the three most recent years;
and (e) all appraisals, if any, obtained with respect to the Properties (which appraisals shall be
maintained for at least five years)”).
568. Id. at 173–74.
569. Id. at 174.
570. Id.
571. Id. at 176.
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At trial, plaintiff had testified that the basis of its need for the limited partnership
agreements with the subsidiary partnerships to determine the value of its shares
was to determine the percentage of cash flows from the subsidiary partnerships the
general partner was contractually entitled to receive. Plaintiff’s testimony showed
that the general partner received at least 1% and in some case as much as 10% of
all cash flows generated by the subsidiary partnerships. The general partner’s cash
flow percentages also sometimes changed due to the passage of time. Because
such a change would have a direct impact on the cash flows received by the entity
in which plaintiff had invested, this information was reasonably necessary for
plaintiff to value its investment.
572
The court concluded, however, that neither the production of all mortgage,
loan, note and debt agreements for the Partnerships (and the Real Estate Invest-
ment Partners subsidiaries) nor all non-public financial statements specifically
related to the real estate of the Partnerships, was not reasonably necessary to value
plaintiff’s investment.
573
The court accepted Madison’s argument that the aggregated financial state-
ments of the partnership as a whole mask the performance and value of the indi-
vidual properties and can make it difficult to value the partnership as a whole.
Accordingly, to the extent the books and records of Real Estate Investment Part-
ners contain such information, they will be made available to Plaintiffs.
574
Thomas & Betts Corporation v. Leviton Manufacturing Co. Inc. addresses a
demand by Thomas & Betts to inspect the records of Leviton Manufacturing.
575
Defendant objected, in part, on the ground that Thomas & Betts had previously
received information from Leviton.
576
Although the court stated that a sharehold-
er’s right to compel inspection is to be narrowly construed,
577
the court approved
plaintiff’s request:
I reject Leviton’s argument that all relief should be denied because
Thomas & Betts was twice able to place a value on Leviton. In both in-
stances, those valuations were based on assumptions predicated on min-
imal information and made for a different purpose--to buy shares (or, in
the second case, control) at the lowest possible price. Because of its posi-
tion as a buyer, and recognizing the incompleteness of its information,
Thomas & Betts used the low end of an extremely wide range of possible
values to make both offers. To put it differently, although the information
available to Thomas & Betts as a potential buyer enabled it to value the
Blumbergs’ shares at the low end of that range, now that Thomas & Betts
572. Id. at 178.
573. Plaintiff argued that such information would be pertinent if the Partnerships liquidated. Never-
theless, the court concludes that non-public financial statements specifically relating to the subsidiary
partnerships through which Real Estate Investment Partners invests are reasonably necessary to value
Madison’s investment in that partnership. According to trial testimony, the profits and loss information
for the subsidiaries that hold much of the valuable property of Real Estate Investment Partners, as well
as information relating to the level of debt on each property, is not included in the publicly available
information concerning the Partnerships. Id.
574. Id. at 179.
575. Thomas & Betts Corp. v. Leviton Mfg. Co., 685 A.2d 702, 704 (Del. Ch. 1995).
576. Id. at 714.
577. Id. (citing Willard v. Harrworth Corp., 258 A.2d 914, 915 (Del. Ch. 1969)); Catalano v. T.W.A.,
No. 5352, 1977 WL 2576, at *2 (Del. Ch. Nov. 3, 1977).
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is in the position of being a potential seller, it legitimately needs more
complete information. The fact that Thomas & Betts previously made
“low end” valuations of Leviton should not, therefore, bar its statutory
inspection right. See Carroll I.
578
Artic Financial Corporation v. OTR Express, Inc. criticized Thomas & Betts:
The district court cites to a chancery court opinion from Delaware,
Thomas & Betts Corp. v. Leviton Mfg. Co., Inc., 685 A.2d 702
(Del.Ch.1995). We refer to it as Thomas & Betts I. The case was ap-
pealed to the Delaware Supreme Court and reported in 681 A.2d 1026
(Del.1996). We refer to the Supreme Court decision as Thomas & Betts
II. In Thomas & Betts I, the chancery court rejected the corporation’s ar-
gument that the order for inspection should not be granted because the
demand lacked specificity. 685 A.2d at 708. The court noted the deposi-
tions, trial testimony, and post-trial memoranda established a proper pur-
pose. 685 A.2d at 708. The district court in the present case considered
the reasoning in this opinion but rejected it, finding it inapplicable be-
cause the Thomas & Betts I court was considering the request to see
stockholder lists.
However, it is clear Thomas & Betts I did not confine its analysis to
the four corners of the demand with respect to the inspection of corporate
books and records: ‘Leviton responds that Thomas & Betts’ waste and
mismanagement claims are so lacking in record support that they cannot
justify permitting it to inspect Leviton’s, or its subsidiaries’, books and
records.’
Apparently, the Thomas & Betts I court disagreed that the record
supported a finding that the corporation suffered from mismanagement,
but that does not mean the court did not consider what the record con-
tained. Thus, it is not clear what authority the district court in this case
could have relied upon to exclude consideration of the affidavit and dep-
osition testimony. Furthermore, a review of Thomas & Betts II shows
that the court did not limit itself to the four corners of the demand for
proof of a proper purpose.
Unfortunately, the district court also relied on Thomas & Betts I to
impose a higher burden of proof upon Arctic to justify its right to inspect
the books and records: ‘Where the demand for inspection seeks books
and record to investigate possible mismanagement, the evidentiary bur-
den is greater than normal and it rests with the shareholder. Thomas &
Betts, supra 685 A.2d at 710.’
The Thomas & Betts II court disapproved of that language in Thom-
as & Betts I: ‘The Court of Chancery incorrectly articulated the govern-
ing legal standard.’ (Emphasis added.) 681 A.2d at 1031. The court fur-
ther explained that ‘[a] general standard that a stockholder seeking in-
spection of books and records bears ‘a greater-than-normal evidentiary
burden’ is unclear and could be interpreted as placing an unduly difficult
obstacle in the path of stockholders seeking to investigate waste and
578. Thomas, 685 A.2d at 714.
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mismanagement.’ 681 A.2d at 1031-32. Rather, the Delaware court
called the burden of proof a normal one.
579
iv. Communicating with Other Shareholders
Crane Co. v. Anaconda Co. “held that a qualified shareholder may inspect a
corporation’s [share ledger] to ascertain the identity of fellow shareholders for the
avowed purpose of informing them directly of its exchange offer and soliciting
tenders of [shares].”
580
The court also held that the shareholder’s pending tender
offer involving over one fifth of the corporation’s common shares was not a pur-
pose unrelated to the business of the corporation for purposes of the New York
statute.
581
In NVF Co. v. Sharon Steel Corp., the court held that a shareholder who
intended to make an offer to purchase shares from other shareholders had stated a
“proper purpose” within the Pennsylvania statute for seeking access to the list of
shareholders even though the shareholder intended to offer to purchase the shares
for debentures and warrants.
582
Lopez v. SCM Corp. held that under the New York statute, “inspection of
shareholder lists to facilitate a proxy challenge to incumbent directors [was a
proper] purpose.”
583
A similar holding was made in Credit Bureau Reports. Inc. v.
Credit Bureau of St. Paul, Inc.
584
General Time Corp. v. Talley Industries, Inc.
held that the solicitation “of proxies for a slate of directors in opposition to man-
agement was a proper purpose” even though the target company alleged that the
shareholder would thereby violate the Securities and Exchange Act of 1934 and
the Investment Company Act of 1940.
585
In Fears v. Cattlemen’s Investment Co.,
the court held that solicitation of proxies from other shareholders of the corpora-
tion was a proper purpose under the Oklahoma statute even though the solicitation
was “made with the intent of gaining control of the management of the corpora-
tion.”
586
Nationwide Corp. v. Northwestern National Life Insurance Co. held simi-
larly.
587
Bond Purchase, L.L.C. v. Patriot Tax Credit Partners involved a request by a
plaintiff who was a “non-limited partner investor in [the] defendant through own-
ership of Beneficial Unit Certificates (“BUC$”) [for a] list of the names and ad-
dresses of the defendant’s partners and other BUC$ owners.”
588
The court ap-
proved the plaintiff’s request:
579. Artic Fin. Corp. v. OTR Express, Inc., 38 P.3d 701, 705–06 (Kan. 2002).
580. Crane Co. v. Anaconda Co., 346 N.E.2d 507 (N.Y. 1976).
581. Id. at 512. (similar holdings allowing inspection in connection with a tender offer include:
Johncamp Realty, Inc. v. Sanders, 415 N.Y.S.2d 192, 193 (N.Y. Sup. Ct. 1979); Alex, Brown & Sons
v. Latrobe Steel Co., 376 F. Supp. 1373 (W.D. Pa. 1974); and Crouse v. Rogers Park Apartments, Inc.,
99 N.E.2d 404, 408 (Ill. App. Ct. 1951)).
582. NVF Co. v. Sharon Steel Corp., 294 F. Supp. 1091, 1094 (W.D. Pa 1969).
583. Lopez v. SCM Corp., 420 N.Y.S.2d 225, 226 (N.Y. App. Div. 1979).
584. Credit Bureau Reports, Inc. v. Credit Bureau of St. Paul, Inc., 290 A.2d 691, 692 (Del. 1972).
585. Gen. Time Corp. v. Talley Indus., Inc., 240 A.2d 755, 756 (Del. 1968).
586. Fears v. Cattlemen’s Inv. Co., 483 P.2d 724, 728 (Okla. 1971).
587. Nationwide Corp. v. Nw. Nat’l Life Ins. Co., 87 N.W.2d 671, 683 (Minn. 1958) (other cases
upholding inspection for the purpose of soliciting general proxies in connection with the annual share-
holder’s meeting include: Schnell v. Chris-Craft Indus., Inc., 283 A.2d 852, 853 (Del. Ch. 1971); and
W. Air Lines, Inc. v. Kerkorian, 254 A.2d 240, 241–42 (Del. 1969)).
588. Bond Purchase, L.L.C. v. Patriot Tax Credit Props., L.P., 746 A.2d 842, 846 (Del. Ch. 1999).
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Although the plaintiff’s desire to use the list to conduct a mini-tender of-
fer for 4.9% of the defendant’s outstanding partnership interests is a
“proper purpose” under 6 Del. C. Section 17-305(a), plaintiff does not
have a statutory right to the list because the defendant’s general partner
in good faith believes that disclosing the list to the plaintiff is not in the
best interest of the defendant. The defendant, therefore, is entitled to de-
ny the plaintiff access to the list under 6 Del. C. Section 17-305(b). The
plaintiff, however, does have a contractual right to the list under section
14.1 of the partnership agreement, which grants the plaintiff, as a BUC$
owner, the right to inspect, copy or examine the defendant’s books and
records at all times. In arriving at this result, I conclude that in this in-
stance the term ‘books and records’ as used in section 14.1 includes a list
of the defendant’s partners and BUC$ owners. I also conclude that this is
an instance in which the ‘improper purpose defense’ can be implied as a
term of the partnership agreement, but that the defendant has failed to
meet its burden to establish the defense in this case. Specifically, the de-
fendant fails to prove that the plaintiff’s mini-tender offer in fact would
be adverse to the interests of the defendant.
589
Weber v. Continental Motors Corp. held that a minority shareholder’s desire
to communicate with other shareholders with respect to (l) the corporation’s con-
tinuance of dividend payments, and (2) an exchange offer was a proper purpose
under Virginia law.
590
Mite Corp. v. Heli-Coil Corp. held that communicating
with other shareholders in order to solicit offers to exchange common shares was
a proper purpose.
591
In Western Pacific Industries, Inc. v. Liggett & Myers, Inc., management of
Liggett & Myers denied Western Pacific’s request for a list of preferred share-
holders at a time when Western Pacific owned only common shares.
592
The court
held that Western Pacific was entitled, for any proper purpose, to a list of owners
of both preferred and common shares and that a proper purpose existed where the
shareholder sought inspection to purchase additional shares from other sharehold-
ers.
593
Nationwide Corp. v. Northwestern National Life Insurance Co. held that
inspection of the share ledger for the purpose of soliciting proxies by an unregis-
tered investment company did not conflict with the Investment Company Act of
1940, even though the purpose might be to gain control of a corporation engaged
in interstate commerce contrary to the Investment Company Act.
594
Alabama Gas
Corp. v. Morrow held that the Securities Exchange Act of 1934 did not affect
589. Id. at 846.
590. Weber v. Cont’l Motors Corp., 305 F. Supp. 404, 406–07 (S.D.N.Y. 1969).
591. Mite Corp. v. Heli-Coil Corp., 256 A.2d 855, 858 (Del Ch. 1969) (earlier cases upholding in-
spection for other communication purposes include State ex rel. Foster v. Standard Oil Co. of Kan., 18
A.2d 235, 237, 239 (Del. Super. Ct. 1941) (solicitation of shareholders to join in a derivative suit);
Hanrahan v. Puget Sound Power & Light Co., 126 N.E.2d 499, 503–04 (Mass. 1955) (dissemination of
information concerning a proposed corporate merger); and Kahn v. Am. Cone & Pretzel Co., 74 A.2d
160, 161 (Pa. 1950) (efforts to form a protective committee of preferred shareholders)).
592. W. Pac. Indus., Inc. v. Liggett & Myers, Inc., 310 A.2d 669, 670 (Del. Ch. 1973).
593. Id. at 671.
594. Nationwide Corp. v. Nw. Nat’l Life Ins. Co., 87 N.W.2d 671, 679, 683–84 (Minn. 1958).
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inspection rights granted by a state even when the purpose was future proxy so-
licitation.
595
Weigel v. O’Connor stated that the phrase “for any proper purpose” in the Il-
linois inspection statute included that it be made with an “honest motive” and “in
good faith,” and was a purpose which sought to protect the corporation’s interests
as well as those of the shareholder.
596
“A stockholder must be seeking something
more than satisfaction of his curiosity and must not be conducting a general fish-
ing expedition.”
597
The court further held that a single proper purpose was enough
to satisfy the statutory requirement.
598
The shareholder did not have to establish a
proper purpose with respect to each document that he wished to examine.
599
Fownes v. Hubbard Broadcasting, Inc. held that under Minnesota law a prima
facie case of good faith purpose was achieved by merely alleging the information
was sought for a proper purpose.
600
The court further held the statute permitted
multiple examinations of the same corporate books and records, and, where the
right to inspect existed, refusal could not be justified by the corporation offering a
substitute or refusing the request arguing that the information was available from
other sources, or that it was not needed.
601
Where a shareholder’s agent demanded
to inspect corporate records to acquire details of the business and the condition of
its affairs and to investigate whether there was mismanagement, the Ohio Su-
preme Court permitted the inspection stating the “specific purpose” required by
the statute must be liberally construed in the manner that bests protects the interest
of the shareholder.
602
Smith v. Conley held that a shareholder in a nonprofit corpo-
ration had stated a proper purpose for inspection of corporate records when he
alleged that he sought inspection to determine the performance of management,
the condition of the company, and whether proper records were being kept.
603
The
court also held that the fact that a similar inspection had been requested within one
year of the current request did not amount to evidence of unreasonable or repeti-
tive requests.
604
Shioleno v. Sandpiper Condominium Council of Owners, Inc. involved the
demand by plaintiff to inspect the books and records of defendant.
605
At the time
of his demand, plaintiff was a member of defendant’s board of directors.
606
595. Ala. Gas Corp. v. Morrow, 93 So. 2d 515, 518–19 (Ala. 1957).
596. Weigel v. O’Connor, 373 N.E.2d 421, 426 (Ill. App. Ct. 1978).
597. Id.
598. Id. at 428.
599. Id.
600. Fownes v. Hubbard Broad., Inc., 225 N.W.2d 534, 536 (Minn. 1975).
601. Id. at 536–37.
602. Grossman v. Cleveland Cartage Co., 157 N.E.2d 154, 157 (Ohio Ct. Com. Pl. 1959).
603. Smith v. Conley, 279 S.E.2d 491, 492 (Ga. Ct. App. 1981).
604. Id.
605. Shioleno v. Sandpiper Condos. Council of Owners, Inc., No. 13-07-00312-CV, 2008 WL
2764530, at *1 (Tex. Ct. App. July 17, 2008).
606. Id. at *1, *5–6 (The court provided a lengthy description of plaintiff’s failed efforts to inspect
defendant’s books and records:
Shioleno alleges and the record appears to suggest that: (1) Sandpiper repeatedly denied him ac-
cess to its books and records apparently maintained at its principal office in Corpus Christi; and
(2) Sandpiper continually provided incomplete information as to the financial health of the asso-
ciation as required by statute and by its bylaws. Shioleno testified that Sandpiper still had not
provided all the books and records referenced in the February 2, 2006 and March 27, 2006 re-
quests. Gosman [a forensic accountant hired by plaintiff] received 2,900 pages of a general ledg-
er in electronic form on March 28, 2006; he received an additional 465 pages of board minutes
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on March 30, 2006; and he received Sandpiper’s tax returns and the management contracts be-
tween CCMS and Sandpiper on April 6, 2006. However, Gosman testified that he did not receive
depreciation registers from Sandpiper until the week of the August 14, 2006 trial. Gosman fur-
ther testified to the following:
Q: [Shioleno’s counsel]: Had you had access to the books and records and the computer
files when you were down here [Corpus], would it have been necessary for a work effort,
I’ll call it, by CCMS to gather this stuff and copy it and give it to you?
A: [Gosman]: Well, no. That was the basis for my being here, was to ease the effort to pro-
duce this information. If the information is right there in a file cabinet, then it’s very simple
to say, “Well, the information is right there.” “If you want copies, fine. We’ll make you cop-
ies, you can make copies, but the information is right there.” See, the books and records that
we asked for are what’s kept in the normal course of business. It’s nothing that needs to be
newly created or pulled out of the ether [sic]. I mean, it’s the books and records that they
have to have to run their own business for their own financial reporting. So we aren’t asking
them to create anything, we were just simply asking access to what they already had. Q:
And I believe you testified before that you were denied that access?
A: In part, yes.
Q: All right.
A: I am the first one to agree we got a lot of information, but there were some really im-
portant parts left out.
Barbieri testified that he sent an e-mail on April 21, 2006, to John Holmgreen, Sandpiper’s tri-
al counsel, as a last attempt to enforce Shioleno’s inspection rights, requesting that Sandpiper
make the remaining books and records available for inspection. Barbieri noted in the e-mail that
he and Shioleno were in Corpus Christi from April 21 to 22 and that they could easily stop by
Sandpiper’s principal office and conduct the inspection of the remaining books and records. On
April 22, 2006, Holmgreen sent an e-mail to Barbieri granting access to Sandpiper’s remaining
books and records and computer files on Sunday, April 23.
Holmgreen also noted that Shioleno
could inspect Sandpiper’s computer systems on Saturday, April 22, at 10:00 p.m. However,
Barbieri and Shioleno were not able to inspect the records on these dates because they were
scheduled to leave Corpus Christi prior to 10:00 p.m. on April 22, as Barbieri had stated in his e-
mail to Holmgreen.
Then, on June 15, 2006, Holmgreen sent Barbieri another letter noting that Sandpiper had grant-
ed Shioleno access to the remaining books and records and computer systems from “Monday,
June 19, 2006, and continuing until Friday, June 23, 2006, from 8:30 a.m. until 5:00 p.m.”
Holmgreen further noted that “[t]he records to which this response applies are the records de-
scribed in ¶ 15 of Mr. Gosman’s communication of March 27, 2006, and ¶ ¶ 7, 8, and 12 of your
letter of April 21, 2006,” indicating that Sandpiper still had not complied with Shioleno’s initial
requests for inspection of its books and records.
Sandpiper relies heavily on an e-mail sent by Barbieri to Holmgreen on August 10, 2006, stat-
ing that the parties should arrange to inspect the computers and computer files at Sandpiper and
CCMS after the bench trial on August 14, 2006. Sandpiper argues that this statement confirms
“yet another of Appellee’s repeated offers, prior to the hearing, to have Appellants inspect its
computer systems.” (Emphasis in original.) On appeal, Sandpiper notes that on three separate oc-
casions, Shioleno was granted access to inspect its books and records: April 22, June 15, and
August 10.
While it appears Sandpiper tried to accommodate Shioleno’s schedule, in the end, according to
Barbieri’s August 10, 2006 e-mail, Sandpiper still had not produced much of the requested in-
formation, including: (1) backup or supporting information for the previously supplied general
ledger entries; (2) fixed asset and depreciation registers for all activity between September 30,
2002, and September 30, 2005; (3) all contracts and agreements involving Sandpiper and the ser-
vices of any employee, contractor, or company from October 2003 to August 2006; (4) all corre-
spondence between Sandpiper board members other than the minutes of the board of Directors[‘]
meetings; (5) all correspondence between Ron Park and Sandpiper from October 2003 to August
2006;
and (6) all work papers provided for the audit of Sand
piper, including the Resort Fund,
from September 30, 2003 through September 30, 2005.
Based on the foregoing, we conclude that Sandpiper failed to comply with section 82.114 of
the property code, article 1396-2.23, and section 3.11 of its own bylaws in making its books and
records available to Shioleno at a reasonable time after Shioleno’s initial request for inspection).
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v. Purposes for Which Inspection Has Been Denied
Chantiles v. Lake Forest II Master Homeowners Assoc.
607
holds that a direc-
tor’s rights to examine the voting records of the association are not absolute and
must be balanced against the member’s legitimate expectations of privacy in their
voting decisions.
608
The court upheld the trial court’s balancing of the two inter-
ests:
Chantiles states his purpose in inspecting the ballots was to determine
whether he had been shorted proxy votes. It was his intention to compare
the ballots with his own list of homeowners on which he monitored the
proxies promised him. He would later determine whether a judicial chal-
lenge would be brought. Chantiles wanted to compare the votes he be-
lieved he had been promised to the votes he actually received. We can
conceive of no greater violation of the privacy of the Association’s mem-
bers. Any neighbor may well have told Chantiles he would receive his or
her proxy votes, but actually cast his or her votes otherwise. To now give
Chantiles personal access to the names of those voting and how they vot-
ed certainly violates well-established social norms.
The trial court offered a reasonable resolution. It appointed Chantiles’s own
attorney to review and tally the ballots, provided he not disclose the name of any
individual voter, or how he or she voted, without further order of the court. Chan-
tiles refused this resolution, which strongly suggests his motive was not simply to
check the math, but to find out how his neighbors actually voted. He cannot now
complain that he was denied such an opportunity. The trial court’s order was ap-
propriate.
609
King v. DAG SPE Managing Member denied the request of Robert L. King to
investigate the books and records of defendant under both the Delaware statute,
610
and the common law.
611
The court based its holding on the fact that King was no
longer a director and that the Delaware statute had been construed to require the
director to be current in their position.
612
The court expressed doubt that the com-
mon law of inspection rights still applied in Delaware because Delaware courts
had enforced the common law only until 1981, when the Delaware statute was
enacted.
613
The court further held that, in any event, the common law cases cited
by King did not support his position.
614
In Thomas & Betts Corp. v. Leviton Manufacturing Co., the plaintiff, Thomas
& Betts, demanded inspection of an extensive list of Leviton’s corporate records
and documents.
615
Thomas & Betts had been rebuffed in several attempts to ac-
quire Leviton and, after the next to last such attempt, acquired a sizable minority
607. Chantiles v. Lake Forest II Master Homeowners Ass’n, 45 Cal. Rptr. 2d 1 (1995).
608. Id. at 7.
609. Id. at 7–8.
610. D
EL. CODE ANN. tit. 8, § 220(d) (2010).
611. King v. DAG SPE Managing Member, Inc., No. 7770-VCP, 2013 WL 6870348, at *9 (Del. Ch.
Dec. 23, 2013).
612. Id. at *6.
613. Id. at *7.
614. Id.
615. Thomas & Betts Corp. v. Leviton Mfg. Co., 681 A.2d 1026, 1029 (Del. 1996).
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stake in the company from a dissident shareholder.
616
When Leviton’s CEO (and
76.45% shareholder) once more refused to consider a sale of the company, Thom-
as & Betts’s CEO advised the board that he intended to request a review of all
Leviton’s books and records to start “either a dialogue or a lawsuit.”
617
Plaintiff’s
demand letter stated that inspection was sought for the purposes of (1) investigat-
ing waste and mismanagement; (2) facilitating its use of the equity method of
accounting for its Leviton investment; and (3) assisting in the valuation of its
Leviton shares.
618
The Court of Chancery held that Thomas & Betts was not moti-
vated by its stated purposes but, rather, by the improper purpose of gaining lever-
age in its continuing attempt to acquire Leviton.
619
The Supreme Court of Delaware affirmed.
620
Although inspection of books
and records to investigate waste and mismanagement is a proper purpose, the
shareholder seeking inspection bears the burden of proving a proper purpose ex-
ists in fact.
621
That burden is only met if the shareholder presents some credible
basis from which the court may infer that waste or mismanagement may have
occurred.
622
Plaintiff also failed to carry its burden with respect to its second stat-
ed purpose, facilitating equity accounting.
623
Plaintiffs need to account for its
Leviton investment by a particular method concerns its relationship with its own
shareholders and is, thus, an individual purpose unrelated to plaintiff’s interest as
a shareholder in Leviton.
624
Moreover, utilization of equity accounting for a mi-
nority interest depends upon a rebuttable presumption that the shareholder exer-
cises a degree of control.
625
That presumption is rebutted by the controlling share-
holder’s hostility to plaintiff.
626
Plaintiff, however, was entitled to limited inspec-
tion for the purpose of valuing its shares in Leviton.
627
Retail Property Investors, Inc. v. Skeens found that a shareholder had not
made out a proper purpose to inspect a shareholder’s list in order to contact other
shareholders regarding a possible lawsuit against the issuer and its directors for
alleged misrepresentation, mismanagement, and termination of dividends.
628
The
stockholder testified that he wanted to learn what representations had been made
to other shareholders and solicit them to join the proposed lawsuit.
629
A director of
defendant testified that production of the list would jeopardize a confidential pro-
posed restructuring of the issuer.
630
The court held that the plaintiff had not carried
his common law burden of showing that inspection would not adversely affect the
corporation’s interests.
631
In fact, plaintiff testified that he had not considered
616. Id.
617. Id.
618. Id. at 1030.
619. Id.
620. Id. at 1028.
621. Id. at 1031.
622. Id.
623. Id. at 1033.
624. Id.
625. Id. at 1034.
626. Id.
627. Id. at 1035.
628. Retail Prop. Inv’rs, Inc. v. Skeens, 471 S.E.2d 181, 183 (Va. 1996).
629. Id. at 182.
630. Id. at 182–83.
631. Id. at 183.
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whether his receipt of the shareholder’s list would be injurious to the corpora-
tion.
632
In Shabshelowitz v. Fall River Gas Co., the stockholder’s motivation for in-
specting the list of shareholders was to obtain the names of those who might sell
their stock to him.
633
The court held that state law did not entitle the stockholder to
inspection for this purpose, as stock trading for investment purposes is not “rela-
tive to the affairs of the corporation” as required by statute.
634
Weisman v. Western Pacific Industries, Inc. found insufficient under the Del-
aware statute a demand for inspection that stated as its purpose “to communicate
with other holders of shares of WPI’s common stock with respect to the manage-
ment of WPI and the conduct of its affairs.”
635
The court held that unless a de-
mand unspecific in itself as to purpose can be given an expanded reading in light
of the surrounding circumstances, such as an impending meeting or tender offer,
the demand failed to meet the requirement of the statute that a proper purpose can
be stated.
636
The court relied on Northwest Industries, Inc. v. B.F. Goodrich Co.,
where the purpose stated, “to communicate with other stockholders” of a company
with reference to a special meeting of the stockholders was held insufficient as a
“proper purpose” because it failed to state the substance of the shareholder’s in-
tended communication, and, thus, made it impossible for the corporation or a
court to determine whether there was a reasonable relationship between its pur-
pose and the shareholder’s interest.
637
In National Consumers Union v. National Tea Co., a consumer’s organization
and an individual each owned one share of the corporation’s stock.
638
They assert-
ed that they wanted to examine the corporation’s books and records in order to
solicit proxies.
639
Since there was evidence showing they previously engaged in a
course of conduct inimical to the corporation’s interests and indicating that they
desired to go on a “fishing expedition” through the books and records searching
for further ammunition to “sensitize” the corporation to consumer demands, the
court held that a proper purpose had not been shown.
640
In Keeneland Assoc. v. Pessin, a corporation refused to register a new share-
holder on its books on the grounds that he was a competitor of the corporation
because as a shareholder he or she thereafter has access to confidential infor-
mation.
641
The court rejected this argument, stating that an intent to destroy a cor-
poration, to bring vexatious suits, or to take unfair advantage for competition rea-
sons would not be “proper corporate purposes” for inspection of books and rec-
ords under the Kentucky statute.
642
State ex rel. Pillsbury v. Honeywell, Inc. held that “a shareholder who bought
shares in a corporation solely for the purpose of bringing a suit to compel produc-
tion of corporate books and records” and impressing his opinions on management
632. Id. at 182.
633. Shabshelowitz v. Fall River Gas Co., 588 N.E.2d 630, 631 (Mass. 1992).
634. Id. at 633.
635. Weisman v. W. Pac. Indus., Inc., 344 A.2d 267 (Del. Ch. 1975).
636. Id. at 269.
637. Id. at 268 (citing Nw. Indus., Inc. v. B.F. Goodrich Co., 260 A.2d 428 (Del. 1969)).
638. Nat’l Consumers Union v. Nat’l Tea Co., 302 N.E.2d 118, 120 (Ill. App. Ct. 1973).
639. Id. at 121.
640. Id.
641. Keeneland Assoc. v. Pessin, 484 S.W.2d 849, 850 (Ky. 1972).
642. Id. at 852.
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and other shareholders as to the desirability of producing napalm, was “motivated
by preexisting social and political beliefs [rather than] concern for the economic
well-being of the corporation.”
643
The shareholder, therefore, did not have a prop-
er purpose.
644
The court further held that a trial court need not accept the share-
holder’s expressed purposes but may make an independent assessment of the pur-
pose.
645
The defendant corporation in a Delaware case sought to argue on the basis
of Pillsbury that the shareholders had an improper purpose in addition to their
stated proper purpose and that one of the plaintiffs was a competitor.
646
The Del-
aware Supreme Court held that the Pillsbury case was inconsistent with the Dela-
ware case law applying 8 Del. C. § 220.
647
The Delaware Supreme Court noted
643. State ex rel. Pillsbury v. Honeywell, Inc., 191 N.W.2d 406, 407 (Minn. 1971)
644. Id.
645. Id.
646. Credit Bureau Reports, Inc. v. Credit Bureau of St. Paul, Inc., 290 A.2d 691 (Del. 1972).
647. Id. D
EL. CODE ANN., tit. 8, §220 (1967) states:
(a) As used in this section, “stockholder” means a stockholder of record of stock in a stock cor-
poration and also a member of a nonstock corporation as reflected on the records of the nonstock
corporation. As used in this section, the term “list of stockholders” includes lists of members in a
nonstock corporation.
(b) Any stockholder, in person or by attorney or other agent, shall, upon written demand under
oath stating the purpose thereof, have the right during the usual hours for business to inspect for
any proper purpose the corporation’s stock ledger, a list of its stockholders, and its other books
and records, and to make copies or extracts therefrom. A proper purpose shall mean a purpose
reasonably related to such person’s interest as a stockholder. In every instance where an attorney
or other agent shall be the person who seeks the right to inspection, the demand under oath shall
be accompanied by a power of attorney or such other writing which authorizes the attorney or
other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in this State or at its principal place of business.
(c) If the corporation, or an officer or agent thereof, refuses to permit an inspection sought by a
stockholder or attorney or other agent acting for the stockholder pursuant to subsection (b) of this
section or does not reply to the demand within 5 business days after the demand has been made,
the stockholder may apply to the Court of Chancery for an order to compel such inspection. The
Court of Chancery is hereby vested with exclusive jurisdiction to determine whether or not the
person seeking inspection is entitled to the inspection sought. The Court may summarily order
the corporation to permit the stockholder to inspect the corporation’s stock ledger, an existing list
of stockholders, and its other books and records, and to make copies or extracts therefrom; or the
Court may order the corporation to furnish to the stockholder a list of its stockholders as of a
specific date on condition that the stockholder first pay to the corporation the reasonable cost of
obtaining and furnishing such list and on such other conditions as the Court deems appropriate.
Where the stockholder seeks to inspect the corporation’s books and records, other than its stock
ledger or list of stockholders, such stockholder shall first establish (1) that such stockholder has
complied with this section respecting the form and manner of making demand for inspection of
such documents; and (2) that the inspection such stockholder seeks is for a proper purpose.
Where the stockholder seeks to inspect the corporation’s stock ledger or list of stockholders and
such stockholder has complied with this section respecting the form and manner of making de-
mand for inspection of such documents, the burden of proof shall be upon the corporation to es-
tablish that the inspection such stockholder seeks is for an improper purpose. The Court may, in
its discretion, prescribe any limitations or conditions with reference to the inspection, or award
such other or further relief as the Court may deem just and proper. The Court may order books,
documents and records, pertinent extracts therefrom, or duly authenticated copies thereof, to be
brought within this State and kept in this State upon such terms and conditions as the order may
prescribe.
(d) Any director (including a member of the governing body of a nonstock corporation) shall
have the right to examine the corporation’s stock ledger, a list of its stockholders and its other
books and records for a purpose reasonably related to the director’s position as a director. The
Court of Chancery is hereby vested with the exclusive jurisdiction to determine whether a direc-
tor is entitled to the inspection sought. The Court may summarily order the corporation to permit
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that General Time Corporation v. Talley Industries, Inc. held that under Del. C. §
220, “the desire to solicit proxies for a slate of directors in opposition to manage-
ment is a purpose reasonably related to the stockholder’s interest as a stockhold-
er,” and “any further or secondary purpose in seeking the list is irrelevant.”
648
Willard v. Harrworth Corp. held that a shareholder’s demand for inspection
of a list of shareholders who had not surrendered their shares for cancellation
under a reorganization plan was not for a proper purpose.
649
The corporation was
no longer in existence as a viable corporation and could not be revived; the share-
holder sought to call a shareholder’s meeting to seek revival.
650
In White v. Jacobsen Manufacturing Co., the plaintiff was seeking an inspec-
tion under the Wisconsin statute not only to communicate with other shareholders
but also to secure a broker’s profit.
651
The court found the purpose to be improper
and dismissed the action.
652
Hagy v. Premier Manufacturing Co. held it improper to exclude evidence that
tended to show that a shareholder’s demand for inspection of the corporate books
and records was for the purpose of aiding a competitor in which he was a share-
holder; a mandatory injunction granted below was reversed.
653
In Young v. Columbia Broadcasting System, Inc., the shareholder’s applica-
tion to inspect share ledgers and request for a postponement of the annual meeting
was refused on the grounds that it was part of a “campaign of general harassment”
of the corporation and its management, and that it was not intended to promote the
interest of the corporation but was instead in furtherance of the interest of another
corporation of which the shareholder was president and a substantial sharehold-
er.
654
Everest Investors, LLC v Investment Associates, II denied plaintiffs’ request
because neither of the plaintiffs’ status as assignees or attorneys-in-fact gave them
the status of limited partners.
655
Kahala Royal Corporation v Goodsill Anderson Quinn & Stifel, LLP involved
a continuous dispute over mismanagement and access to records.
656
Kahala Royal
Corporation (“KRC”) and non-party, Mandarin Oriental Holdings (USA), Inc.
(“MOHUSA”) were the general partners of Kahala Hotels Associates Limited
Partnership (“KHALP”).
657
KHALP owned the Kahala Mandarin Oriental Hotel
(the “Hotel”).
658
However, affiliates of MOHUSA managed the hotel on a day-to-
day basis.
659
KHALP became dissatisfied with the management of MOHUSA’s
the director to inspect any and all books and records, the stock ledger and the list of stockholders
and to make copies or extracts therefrom. The Court may, in its discretion, prescribe any limita-
tions or conditions with reference to the inspection, or award such other and further relief as the
Court may deem just and proper.
648. Gen. Time Corp. v. Talley Indus., Inc., 240 A.2d 755, 756 (Del. 1968).
649. Willard v. Harrworth Corp., 258 A.2d 914, 916 (Del Ch. 1969).
650. Id.
651. White v. Jacobsen Mfg. Co., 293 F. Supp. 1358, 1360 (E.D. Wis. 1968).
652. Id. at 1358.
653. Hagy v. Premier Mfg. Co., 172 A.2d 283, 338–39 (Pa. 1961).
654. Young v. Columbia Broad. Sys., Inc., 215 N.Y.S.2nd 950, 952 (N.Y. Sup. Ct. 1959).
655. Everest Inv’rs, LLC v. Inv. Assocs., II, No. CX-96-554, 1996 WL 509840, at *1 (Minn. Ct. App.
Sept. 10, 1996).
656. Kahala Royal Corp. v Goodsill Anderson Quinn & Stifel, 151 P.3d 732, 735 (Haw. 2007).
657. Id.
658. Id.
659. Id.
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affiliates and was also concerned that MOHUSA would exercise its right to put its
interest in KHALP to KRC.
660
“Both the [p]artnership [a]greement and the [Hotel
m]anagement [a]greements require[d] all disputes . . . under the agreements to be
submitted to arbitration.”
661
“On February 12, 2001, KRC, on behalf of itself and
KHALP, sought MOHUSA’s permission to inspect and review KHALP’s books
and records.”
662
“According to KRC, such inspection was necessary in order to
prepare for and substantiate the claims asserted” in the arbitrations that had been
commenced approximately a month earlier.
663
The court described MOHUSA’s
response to KRC’s request as follows:
According to a February 16, 2001 letter sent by Jones Day to KRC’s
counsel, Jones Day informed KRC’s counsel that it was retained by
MOHUSA and the Mandarin Managers to represent them ‘in connection
with the disputes alleged by [KRC] . . . to have risen under the [Partner-
ship Agreement] and/or the [Managers Agreements] pertaining to the
[Hotel].’ Subsequently, the Lawyers, particularly Goodsill, undertook the
management of the inspection process of KHALP’s books and records.
The inspection process established by Goodsill--which was allegedly act-
ing under the direction of and/or in coordination with Jones Day--
required Peterson Consulting ‘to request information and/or documents
and/or to pose specific questions about the particular records in writing.’
Litigation paralegals management employed by Goodsill. During or after
such review, the requests were transmitted to the Hotel’s accounting
staff, ‘who would, to the extent that they were able to do so, retrieve the
records, create reports on requested information[,] or answer the posed
questions.’
664
The court then noted “KRC’s claim that the inspection process imposed by
Goodsill limited its review of the books and records, MOHUSA maintained that
the inspection process ‘acted to facilitate’ KRC’s request to review such books
and records.”
665
Additional contention developed between KRC and MOHUSA
because Goodsill charged $47,920.74 for his work in connection with the inspec-
tion process.
666
KHALP ultimately paid Goodsill’s invoice.
667
On May 30, 2001, KRC requested MOHUSA’s permission to further inspect
KHALP’s books and records. KRC sought “an extensive list of particularized
information from the books and records about specific areas of management prac-
tice.”
668
“By letter dated August 2, 2001, MOHUSA denied KRC’s request for
further inspection ‘citing its duty to conserve the resources of the Hotel in the
absence of a good faith business purpose being shown by [KRC] as to why the
information should be generated.’”
669
660. Id.
661. Id. at 764, n. 6.
662. Id. at 737.
663. Id.
664. Id.
665. Id. at 737–38.
666. Id. at 738.
667. Id.
668. Id.
669. Id.
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On April 2, 2003, an arbitration panel issued an order granting in part and
denying in part KRC’s claims. The order stated the following:
Turning first to the claim [that KRC] was denied appropriate access to
the books and records of [KHALP], the panel is in agreement with
[KRC] . . . . In the panel’s view, while . . . [KRC]’s right to inspect the
books and records is not as unfettered as that appropriate for an auditor, it
is certainly greater in contextual environment than that which was af-
forded by [MOHUSA]’s procedures for inspection . . . . Without ascrib-
ing any particular motivation to the attorney review process incorporated
into [MOHUSA]’s procedure, it is clear that such a review was not in-
tended to improve [KRC]’s access to books and records that by law and
under the [Partnership] Agreement [KRC] was entitled to expect . . . .
670
In Florida R&D Fund Investors, LLC v. Florida BOCA/Deerfield R&D Inves-
tors LLC, a member of Defendant Florida BOCA/Deerfield R&D Investors, LLC
(the “Joint Venture”) brought a books and records action under 6 Del. C. § 18-305
and the Joint Venture’s LLC agreement seeking access to the books and records of
other members of the Joint Venture.
671
The Chancery Court denied the request.
672
In Dines v. Harris, the Colorado Supreme Court reversed a judgment in favor
of plaintiff G. W. Harris, who sought to compel officers of the Colorado & Utah
Coal Company to allow petitioner to inspect all the books, accounts, and papers of
the corporation.
673
The plaintiff apparently admitted that he was not acting in good
faith or for a proper purpose when he made his demand.
674
The court applied the
following statute:
It shall be the duty of the directors or trustees of every corporation, ex-
cept railroad and telegraph companies, to cause to be kept at its principal
office or place of business in this state, correct books of account of all its
business, and any stockholders in such corporation shall have the right, at
all reasonable times, to inspect and examine all the books, accounts and
papers of the corporation, and shall have the right as aforesaid to demand
of any officer, clerk, cashier, or agent of any such corporation having in
his control or custody any such books, accounts, or papers, as such
stockholders may desire to examine or inspect; and upon such demand
being made in writing, every such officer, clerk, cashier or agent shall be
bound to produce such books, accounts and papers to such stockholders,
and afford due opportunity to examine and inspect the same; and such
stockholders shall have the right to take copies or make extracts there-
from, but shall not remove from the office of the corporation any such
books, accounts and papers.
675
670. Id. at 739.
671. Fla. R & D Fund Inv’rs, LLC v. Fla. BOCA/Deerfield R & D Inv’rs LLC, C.A. No. 8400–VCN,
2013 WL 4734834, at *1 (Del. Ch. Aug. 30, 2013).
672. Id. at *9.
673. Dines v. Harris, 291. P. 1024, 1030 (Colo. 1930).
674. Id. at 1026.
675. Id.
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The court apparently concluded independently that plaintiff was not acting in
good faith.
676
Donovan v. Ficus Investments, Inc. approved in part and denied in part plain-
tiff’s request to examine the books and records of Private Capital Group, LLC
(“PCG”), a Florida LLC.
677
Plaintiff was the minority member of PCG and the
defendant was the majority and managing member.
678
The court issued an earlier
order in the case stating as follows:
The order was intended ‘to provide [Donovan] with his rightful, contrac-
tually and statutorily mandated access, but to do so subject to a protocol
that would not only prevent the disgruntled LLC member from disrupting
or interfering with PCG’s business, but that would also protect the integ-
rity/confidentiality of any inspected books, records or documents.’ The . .
. [o]rder established what documents Donovan is entitled to, namely, ‘all
books, records and documents that are reasonably related to Donovan’s
membership interest, i.e. those pertaining to the profits, losses, distribu-
tions, assets, including mortgage portfolios, liabilities, and tax obliga-
tions of the Company (the Related Documents[].’ It also clarifies which
books and records Donovan’s representatives will not have access to,
namely, ‘personnel records, administrative records, client files, and any
privileged communications or documents subject to work product protec-
tion’, and provides that ‘Donovan’s representatives shall not have access
to PCG’s computer system.’
679
The court dismissed plaintiff’s claim against defendant:
[B]y the express language of the Statute, the duty to provide access to
books and records only applies to the LLC in question, not to its manag-
ers. Multiple Florida courts of appeal have endorsed this interpretation,
holding that the LLC is the only entity that can be held liable for the de-
nial of access to the LLC’s books and records.
680
After discussing the information rights provisions of the Florida LLC Act, the
court dismissed plaintiff’s action against PCG stating: “The claim against PCG is
also untenable. The Statute does not entitle members of LLCs to the ‘unfettered
access’ to books and records which Plaintiff demands.”
681
The court further held
that plaintiff’s claims for damages was untenable because the applicable infor-
mation rights statute did not provide for money damages, and no court interpreting
the statute had held for money damages.
682
The court did not dismiss one of plain-
tiff’s claims, but ordered that it be consolidated with another pending action.
683
676. Id.
677. Donovan v. Ficus Invs., Inc., 872 N.Y.S.2d 690 (N. Y. Sup. 2008).
678. Id.
679. Id.
680. Id.
681. Id.
682. Id.
683. Id.
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Gaughan v. National Cutting Horse Association
684
affirmed the trial court’s
grant of summary judgment to the defendant:
Later, the trial court granted the NCHA’s motion for summary judgment
. . . and incorporated [its previously issued] protective order into the fi-
nal judgment. Gaughan contends . . . that the trial court erred by entering
the protective order and thereby prohibiting her from disclosing docu-
ments designated as confidential by the NCHA, by granting summary
judgment for the NCHA on the ground that the NCHA’s records are enti-
tled to confidential treatment under the law.
685
In Humble Oil & Refining Co. v. Daniel,
686
the Attorney General of Texas in-
tervened in a case in which Humble Oil & Refining was seeking to enjoin “the
enforcement of certain tax assessments and collection thereof for the year 1950”
by Montgomery County, Texas.
687
The court held that the Attorney General had
intervened in the Montgomery County case as a private litigator and, therefore,
did not have the broad authority to inspect the books and records of Humble Oil &
Refining granted by the then applicable visitation statute.
688
C. Records Required to be Available for Inspection
i. Availability of NOBO Lists and Other Lists of Shareholders
RB Associates of New Jersey v. The Gillette Company addressed the issue of
the availability of NOBO lists (lists of beneficial owners of corporation’s stock
who did not object to disclosure of their names and addresses by registered owner
of stock to corporation for purpose of facilitating direct communication on corpo-
rate matters).
689
The court said that while Cede’s
690
lists of registered owners must
be procured for a requesting shareholder when they do not already exist, the same
is not true for NOBO lists.
691
However, if the corporation has already obtained a
NOBO list, it must be made available to the requesting shareholder.
692
In Berger
v. Pubco Corp., the court stated “[u]nder Delaware law, the right of inspection of
a shareholder extends only to material that fairly can be said to be in the corpora-
684. Gaughan v. Nat’l Cutting Horse Ass’n, 351 S.W.3d 408 (Tex. Ct. App. 2010).
685. Id. at 410–11.
686. Humble Oil & Ref. Co. v. Daniel, 259 S.W.2d 580 (Tex. Civ. App. 1953).
687. Id. at 581.
688. The then applicable statute stated:
Every corporation, domestic or foreign, doing business in Texas, shall permit the Attorney Gen-
eral or any of his authorized assistants or representatives, to make examination of all the books,
accounts, records, minutes, letters, memoranda, documents, checks, vouchers, telegrams, consti-
tution and by-laws, and other records of said corporation as often as he may deem necessary.
Id. at 587.
689. RB Assocs. of N.J. v. The Gillette Co., CIV. A. No. 9711, 1988 WL 27731, at *1 (Del. Ch. Mar.
22, 1988).
690. Cede & Co. is the nominee name of The Depositary Trust Company, a large clearing house that
holds shares in its name for banks, brokers, and institutions. Cede & Co., N
ASDAQ,
https://www.nasdaq.com/investing/glossary/c/cede (last visited March 22, 2018).
691. The Gillette Co., 1988 WL 27731, at *6–7.
692. Id.
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tion’s possession. A Cede list can be produced almost instantaneously and is,
therefore, in the possession of the company even if it has not been produced.”
693
In Scott v. Multi-Amp Corp., the court refused to apply a “literal reading” of
the New Jersey Business Corporation Act that would permit a corporation to deny
access to information that the corporation possessed about the beneficial owner-
ship of shares held by Cede & Co.
694
The court, relying in part on policies estab-
lished under the Securities Exchange Act of 1934, held that fairness required
management to make this information available to the insurgents “so that this
proxy solicitation campaign can be waged on equal terms by both sides.”
695
The
court denied disclosure of similar information about the names of shareholders
owning street name shares on the grounds that such shareholders should have their
desire for privacy respected and because the corporation did not have the infor-
mation sought.
696
The court rejected an argument that the New Jersey statute per-
mitting stockholder inspection of shareholder records should be read narrowly to
include only a list of shareholders of record on the corporate books.
697
The court
in Bell v. Arnold held that shareholder lists were part of the corporate books and
records that shareholders had a fundamental right to inspect for any proper pur-
pose.
698
ii. Interim Financial Statements
Bitters v. Milcut, Inc. held that interim corporate financial statements were
not within the phrase “books and records of account.”
699
State ex rel. Jones v.
Ralston Purina Co. held that a preliminary profit and loss statement, a monthly
profit analysis report, and a monthly tentative balance sheet were analyses or ten-
tative studies prepared purely for the information of the management, and, being
in the nature of confidential inter-office communication, were not comprehended
within the meaning of “books” with respect to which shareholders have statutory
inspection rights.
700
Similarly, Barnett v. Barnett Enterprises, Inc. held that statutory inspection
rights, even if not lost by a shareholder demanding appraisal, did not extend to
valuation estimates prepared by the corporation’s experts for use in the appraisal
proceeding.
701
However, E.I.F.C. Inc. v. Atnip. granted inspection rights to dis-
senting shareholders who elected appraisal rights in a consolidation.
702
The court
found a proper purpose under Kentucky law since examination of the records in
question was the only way the dissenter could find out what others had paid for
shares in an open, competitive market.
703
693. Berger v. Pubco Corp., CIV. A. No 3414-CC, 2008 WL 4173860, at *3 (Del. Ch. Sept. 8, 2008).
694. Scott v. Multi-Amp Corp., 386 F. Supp. 44, 51 (D. N.J. 1974).
695. Id.
696. Id.
697. Id.
698. Bell v. Arnold, 487 P.2d 545, 549 (Colo. 1971).
699. Bitters v. Milcut, Inc., 343 N.W.2d 418, 419 (Wis. 1983).
700. State ex rel. Jones v. Ralston Purina Co., 358 S.W.2d 772, 778 (Mo. 1962).
701. Barnett v. Barnett Enters., Inc., 182 So. 2d 728, 730 (La. Ct. App. 1966).
702. E. I. F. C., Inc. v. Atnip, 454 S.W.2d 351, 351–52 (Ky. Ct. App. 1970).
703. Id. at 352.
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iii. Communications with Attorneys
In Fogarty v. Parker, Poe, Adams, and Bernstein, L.L.P., the Alabama Su-
preme Court issued a modified opinion replacing its prior opinion of August 18,
2006.
704
In its modified opinion, the court reached the same conclusions regarding
the claims asserted by minority members of an Alabama LLC against a North
Carolina law firm and two of its attorneys based on the attorneys’ role in denying
them access to the books and records of the LLC.
705
The plaintiffs alleged that the
attorneys threatened legal action against them if they (1) continued to seek access
to the LLC’s records; (2) misrepresented Alabama law by stating that Alabama
law did not entitle them access to the LLC’s books and records; and (3) removed
the books and records from Alabama to prevent the plaintiffs from having access
to them.
706
The court held that the Alabama Legal Services Liability Act (“ALSLA”) was
not the exclusive remedy for the minority members’ claims because the ALSLA
applies only to allegations of legal malpractice, i.e., claims against legal services
providers that arise from the performance of legal services.
707
The court stopped
short of saying, as it had in its original opinion, that the ALSLA applies only to
claims brought by the one who receives legal services; however, the court stated
that it appeared the ALSLA did not apply to the plaintiffs’ claims because the
plaintiffs’ complaint did not allege tortious conduct resulting from the receipt of
legal services from the attorneys, and because the attorneys expressly stated that
they never provided legal services to the plaintiffs.
708
Furthermore, the ALSLA
did not apply to the attorneys because they were not licensed to practice law in
Alabama, and the ALSLA applies only to attorneys licensed in Alabama.
709
The court next held that Alabama recognizes a private cause of action for the
unauthorized practice of law in Alabama, and concluded that the plaintiffs stated a
claim for relief by alleging that the attorneys were not licensed in Alabama and
that the plaintiffs were injured as a result of representations made concerning Ala-
bama law for the majority owners and the LLC itself.
710
The court also found that
the plaintiffs stated a claim against the attorneys based on the statutory inspection
provisions of the Alabama Limited Liability Company Act.
711
The court pointed out that the statute provides for personal liability of “any
agent, member, or manager” of an LLC who refuses to permit a member to inspect
the books and records without reasonable cause.
712
The plaintiffs alleged that the
attorneys were acting as the LLC’s agent and that they refused to permit the plain-
tiffs to inspect certain records without reasonable cause; therefore, the allegations
supported a claim for relief under the statute, which provides for a penalty in an
amount up to 10% of the fair market value of the membership interest of the
member in addition to other damages.
713
704. Fogarty v. Parker, Poe, Adams and Bernstein, L.L.P., 961 So. 2d 784 (Ala. 2007).
705. Id. at 794.
706. Id.
707. Id. at 788–89.
708. Id. at 789.
709. Id.
710. Id. at 790–91.
711. Id. at 794.
712. Id. at 793–94.
713. Id.
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The Delaware Supreme Court has held that if a stockholder has shown that
particular documents are essential to its inspection, then the stockholder can over-
come the attorney-client privilege and work product doctrine by making the show-
ing required by Garner v. Wolfinbarger.
714
iv. Foreign Law Not a Defense
In Southpaw Credit Opportunity Master Fund LP v. Advanced Battery Tech-
nologies, Inc., a master recommended to the court that, in the circumstances of the
case, a plaintiff stockholder, who sought to inspect the books and records of a
publicly traded company that was delisted from the NASDAQ and has not com-
plied with the disclosure obligations of a public company, be permitted to exam-
ine certain books and records even though that the company was headquartered in
China.
715
The master stated the following:
I recommend that the Court enter an order requiring ABAT to permit
Southpaw to inspect books and records within the date ranges identified
above for the nine categories listed in Paragraph IV(b) of its Demand,
which are: (i) revenue, (ii) income before tax, (iii) new income, (iv) earn-
ings per share, (v) cash and equivalents, (vi) total assets, (vii) current as-
set figures, (viii) current liability figures, and (ix) stockholder equity.
716
The master further stated as follows:
ABAT has not, however, carried its burden of proving the substance
of the foreign law that the company relies on as a basis to preclude in-
spection.
At most, ABAT has shown that Management Measures exist
that may preclude the company from exporting some set of its subsidiar-
ies’ books and records. ABAT has not, however, shown (1) what books
and records requested in the Demand fall within the scope of the Man-
agement Measures, or (2) whether the restrictions in the Management
Measures apply to both photocopies and originals. Although ABAT has
shown there is some ambiguity in the Management Measures, even
among attorneys who regularly practice in the PRC, ABAT has not of-
fered anything more concrete than uncertified translations of excerpts of
the Management Measures and a half-page overview in a law firm-
generated client alert. In my view, that is not sufficient to excuse ABAT
from its obligations under Delaware law.
Second, even if ABAT had established that foreign law prohibited it
from obtaining its subsidiaries’ books and records and exporting them to
the United States, ABAT has not shown that it cannot produce the rec-
ords Southpaw seeks for inspection. As a preliminary matter, ABAT has
not established that it does not have within its possession all of the books
714. Garner v. Wolfinbarger, 430 F.2d 1093, 1103–04 (5th
Cir. 1970); see Wal-Mart Stores, Inc. v.
Ind. Elec. Workers Pension Tr. Fund IBEW, 95 A.3d 1264, 1280 (Del. 2014).
715. Southpaw Credit Opportunity Master Fund LP v. Advanced Battery Techs., Inc., C.A. No. 9542-
ML, 2015 WL 915486, at *1 (Del. Ch. Feb. 26, 2015).
716. Id. at *6.
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and records I have determined Southpaw is entitled to inspect. ABAT’s
witness testified that, based upon the work reports its subsidiaries send
each quarter, ABAT prepares a consolidated summary that contains most
of the financial information that Southpaw seeks to inspect for purposes
of valuing its stock.
ABAT does not argue those consolidated summaries
are subject to the Management Measures, and the source on which
ABAT relies indicates such derivative materials may be exported. There-
fore, it seems likely that ABAT could produce for inspection the infor-
mation necessary and essential to Southpaw’s requests, without resorting
to exporting ‘accounting archives.’
717
Finally, the master stated that it would be appropriate to impose a confidenti-
ality agreement on the plaintiff.
718
The master did not think it appropriate to im-
pose trading restrictions on plaintiff nor should the court attempt to craft a confi-
dentiality order that would allow the parties to be sure they were in compliance
with federal securities law.
719
v. The Meaning of “Books and Records of Account”
In Meyer v. Ford Industries, Inc., the court relied on decisions of Illinois
courts and the perceived intent of the drafters of the MBCA
720
to hold that the
term “books and records of accounts” was not limited to any ordinary, literal, or
limited sense, but should be construed broadly to extend to all records, contracts,
papers, and correspondence to which the common law right of inspection of a
shareholder may properly apply.
721
However, in Riser v. Genuine Parts Co., the
court held that it was in the discretion of the trial court whether records other than
“books and records of account” should be made available for inspection.
722
In Kasten v. Doral Dental USA, LLC, addressing an issue of first impression
in Wisconsin, the court of appeals certified to the Wisconsin Supreme Court the
following issues: (1) whether the Wisconsin Limited Liability Company Act (as in
effect in 2003-2004) grants members a broad right of access to LLC records that,
absent contrary language in the operating agreement, embraces informal and non-
financial records; and (2) if the statute grants a broad inspection right, whether e-
mails may be classified as “records” that are subject to a member’s inspection.
723
An LLC member sought access to e-mails and drafts of certain documents, and the
LLC opposed the member’s access.
724
The trial court held that the member was
not entitled to inspect the drafts and e-mails.
725
The court of appeals discussed the
arguments made by each side and appeared to lean toward a broad reading of the
statute consistent with the member’s position, but the court did not reach a conclu-
717. Id. at *8.
718. Id. at *9.
719. Id. at *1.
720. M
ODEL BUS. CORP. ACT (AM. BAR ASS’N 2006) (the predecessor of the RMBCA).
721. Meyer v. Food Indus., Inc., 538 P.2d 353, 356 (Or. 1975); Bank of Heflin v. Miles, 318 So. 2d
697, 701 (Ala. 1975).
722. Riser v. Genuine Parts Co., 258 S.E.2d 184, 187 (Ga. Ct. App. 1979).
723. Kasten v. Doral Dental Usa, LLC, No. 2005AP995, 2006 WL 861382, at *1 (Wis. Ct. App. Apr.
5, 2006).
724. Id.
725. Id.
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sion and deferred instead to the supreme court as the proper judicial authority to
decide such a novel and significant issue.
726
The court examined the provisions of the Wisconsin LLC statute and the op-
erating agreement of the LLC in question and observed that the operating agree-
ment appeared to grant inspection rights similar to the statute.
727
The court stated
that the LLC’s argument that the statute limited member inspection rights to the
enumerated records required to be kept under the statute seemed inconsistent with
the statute, which goes further and provides that, unless otherwise stated in the
operating agreement, a member’s right to inspect and copy records extends to
“any other records” of the LLC.
728
The court acknowledged that the LLC statute
borrowed liberally from the corporate and limited partnership statutes, which limit
inspection rights to specified formal documents.
729
The court pointed out, howev-
er, that the LLC statute, unlike the limited partnership and corporate statutes, ex-
plicitly refers to “any other limited liability company record” and states that a
member may inspect such other records unless otherwise provided in the operat-
ing agreement.
730
The court also commented that courts have tended to define the
scope of the inspection right broadly in corporate and partnership cases.
731
With regard to the possible status of e-mails as “records,” the court observed
that cases suggesting a broad right of access extending to “correspondence” were
decided before e-mail became a primary source of business communication.
732
The court noted that e-mail correspondence is often more frank and unguarded
than written correspondence and that it, thus, may not be appropriate to character-
ize an e-mail message as a company record.
733
On the other hand, the court stated
that distinguishing between e-mail and other informal records, such as corre-
spondence, may be a distinction without a difference.
734
The court noted that e-
mail has been admitted into evidence as “records” or “documents” in other con-
texts and that the Uniform Limited Liability Company Act defines records broadly
to include information stored in an electronic form.
735
In Mickman v. American International Processing, L.L.C., a member sought
copies of the general ledgers of two Delaware LLCs.
736
The court analyzed the
operating agreements, which provided members “access to all books and records”
upon one day’s written notice.
737
Looking to the corporate context for guidance,
the court concluded that “all books and records” included general ledgers, noting
that other courts had construed the narrower terms “books and records” and
“books of account” to include general ledgers.
738
Next, relying on corporate cases,
the court construed “access” to have its ordinary meaning, which includes the
726. Id. at *3–4.
727. Id. at *2.
728. Id.
729. Id. at *3.
730. Id.
731. Id.
732. Id. at *4.
733. Id.
734. Id.
735. Id.
736. Mickman v. Am. Int’l Processing, L.L.C., C.A. No. 3869-VCP, 2009 WL 2244608, at *1 (Del.
Ch. July 28, 2009).
737. Id. at *2.
738. Id.
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right to make copies.
739
The court also commented that the plaintiff’s offer to
enter into a confidentiality agreement should minimize any genuine concern about
an improper purpose.
740
Sachs v. Adeli held that a minority member of a Delaware LLC had the right
to obtain state sales tax records based on statutory inspection rights of LLC mem-
bers under New York LLC statute.
741
The court noted that the result would be the
same under Delaware law.
742
D. What is Reasonable Access?
In NAMA Holdings, LLC v. World Market Center Venture, LLC, NAMA
Holdings, LLC (“NAMA”), an indirect owner of a Delaware LLC, brought an
action to inspect the LLC’s books and records pursuant to provisions in the LLC’s
operating agreement.
743
NAMA argued that the operating agreement granted
NAMA an unrestricted right of access to sensitive and proprietary information,
but the LLC sought to limit the classes of documents available to NAMA and to
require NAMA to execute a confidentiality agreement before granting access.
744
The court concluded that, under the terms of the operating agreement, the manag-
ing members retained substantial discretion to determine the scope of access to
information.
745
Under the operating agreement, NAMA, as an explicit third party beneficiary,
was entitled to “reasonable access at reasonable times” to books and records that
the agreement required the managing members to maintain.
746
The court stressed
the freedom of contract enjoyed under the Delaware LLC statute and character-
ized NAMA’s argument that the contractual inspection provision should be con-
strued to mirror the statutory inspection provision as a “non-starter.”
747
The court
stated that the statute might be a useful referent to resolve ambiguity, but the stat-
ute should not be used to overshadow the express contractual agreement reached
by the parties in this case.
748
The court explained that inclusion of the term “rea-
sonable” to describe the scope of NAMA’s access was inconsistent with NAMA’s
argument that it had an unconditional right of access.
749
The court stated that the
reasonableness limitation on the right of access indicated the parties contemplated
someone making a judgment call as to exactly what would constitute “reasonable
access.”
750
The court noted that the operating agreement vested the managing members
with typical management authority, and the court concluded that the managing
members had the power to determine what constitutes “reasonable access” in the
absence of explicit language in the inspection provision vesting someone other
739. Id. at *3.
740. Id.
741. Sachs v. Adeli, 804 N.Y.S.2d 731, 733–35 (N.Y. App. Div. 2005).
742. Id. at 735.
743. NAMA Holdings, LLC v. World Mkt. Center Venture, LLC, 948 A.2d 411, 412 (Del. Ch. 2007).
744. Id. at 417.
745. Id. at 412.
746. Id. at 416.
747. Id. at 418 n. 17.
748. Id. at 418.
749. Id. at 419.
750. Id.
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than the managing members with such right.
751
The court found that the LLC’s
limitation of the scope of NAMA’s inspection to non-sensitive information, pro-
hibition on photocopying of the LLC’s books and records, and insistence upon
execution of a confidentiality agreement were all reasonable limitations under the
circumstances.
752
The court concluded, however, that it was not reasonable to
require NAMA to conduct its inspection through a specified individual alone ra-
ther than another duly authorized representative of NAMA.
753
The court agreed
with NAMA that a party with an inspection right must be able to enlist the sophis-
ticated help of attorneys, accountants, and other experts in meaningfully evaluat-
ing complex information if the inspection right is to have any substantive force.
754
In Degennaro v. Midtown Bridge, LLC, a member of a New Jersey LLC
sought to inspect the LLC’s financial records.
755
The LLC’s operating agreement
required the LLC to maintain books and records and to permit members to visit
the properties of the LLC and discuss the business and affairs of the LLC with the
managers.
756
The operating agreement also required the managers to prepare and
provide to the members certain financial reports, and stated that the members had
any right to inspect the LLC’s financial records.
757
The court found that furnishing
the reports was all that was required because the New Jersey LLC statute states
that a member may obtain “true and full information regarding the status of the
business and financial condition” of the LLC “subject to such reasonable stand-
ards . . . as may be set forth in an operating agreement.”
758
TravelCenters of America , LLC v. Brog dismissed a claim or access to any
and all books and records of a Delaware LLC for failure to allege proper purpose
(relying on corporate case law regarding the burden to establish proper purpose
for inspection) and concluded that, even assuming proper purpose had been plead-
ed, the books and records inspection counterclaim should not be consolidated with
the expedited declaratory judgment action regarding validity of defendants’ notice
of intent to present business and nominate directors in view of the bylaw’s ad-
vance notice provision.
759
Stewart v. BF Bolthouse Holdco, LLC involved former employees of an LLC
who sued the LLC and its board of managers for breach of contract, breach of
fiduciary duty, and breach of the implied covenant of good faith and fair dealing
in connection with the LLC’s exercise of its right to repurchase the plaintiffs’
membership units in the LLC when the plaintiffs voluntarily terminated their em-
ployment.
760
Based on the board’s valuation of the units at $0.00, the LLC can-
celled the plaintiffs’ units without paying any consideration.
761
The plaintiffs
claimed that the board of managers acted in bad faith in valuing the units at $0.00,
751. Id.
752. Id. at 420–21.
753. Id. at 421.
754. Id.
755. Degennaro v. Midtown Bridge, LLC, No. A-6209-99T2 (N.J. Super. Ct. App. Div. Oct. 26,
2001).
756. Id.
757. Id.
758. Id.
759. TravelCenters of Am., LLC v. Brog, No. 3516-CC, 2008 WL 868107, at *1 (Del. Ch. Mar. 31,
2008).
760. Stewart v. BF Bolthouse Holdco, LLC, No. 8119-VCP, 2013 WL 5210220, at *1 (Del. Ch. Aug.
30, 2013).
761. Id.
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and that such action violated both the purchase agreement that governed the re-
purchase of the units (which required the board of managers to determine the val-
ue in good faith) and the LLC agreement (which provided that the board owed to
the LLC and its members the duties owed by corporate directors to the corporation
and its shareholders).
762
The relief sought by the plaintiffs included a declaratory
judgment invalidating the repurchase and an order restoring their ownership of
units in the LLC.
763
The court denied in part, and granted in part the defendants’ motion to dis-
miss the breach of contract claims, and the court granted the motion to dismiss the
claims for breach of fiduciary duty and breach of the implied covenant of good
faith and fair dealing because the latter claims were duplicative of the breach of
contract claims.
764
Among the plaintiffs’ breach of contract claims was a claim
that the LLC breached the LLC agreement by failing to provide the plaintiffs with
year-end financial information.
765
The court dismissed this claim on the ground
that the plaintiffs were not members on the date established by the LLC Agree-
ment for determining if a member was entitled to the year-end financial infor-
mation.
766
In Janousek v. Slotky, the plaintiff, a 40% member of a member-managed
LLC, sued the majority members and the LLC, asserting claims individually and
on behalf of the LLC.
767
The plaintiff pled in the alternative that he was and is not
currently a member, but the defendants unequivocally maintained in their verified
pleadings that the plaintiff remained a member of the LLC.
768
The LLC moved for
a protective order to prevent disclosure of materials protected by the attorney-
client privilege until the plaintiff’s membership status was determined.
769
The
plaintiff filed a motion to compel production of the withheld documents.
770
The
trial court granted the motion to compel, and the defendants appealed.
771
The court of appeals discussed the plaintiff’s rights to information under the
Illinois LLC statute and the operating agreement in the course of applying Illinois
Supreme Court Rule 201, which governed the discovery dispute.
772
Determining
whether the defendants established the existence of a privilege required the court
to examine whether the defendants could have reasonably believed that the com-
munications sought would remain confidential, and the court pointed out that both
the operating agreement and the Illinois LLC statute specifically granted members
the right to inspect the LLC’s books and records.
773
Thus, the defendants and their
counsel could not have reasonably believed that records of communications re-
garding the LLC’s business could be kept confidential from the plaintiff.
774
Even
762. Id.
763. Id.
764. Id.
765. Id.
766. Id.
767. Janousek v. Slotky, 980 N.E.2d 641, 643 (Ill. App. Ct. 2012).
768. Id.
769. Id. at 645.
770. Id.
771. Id. at 646–47.
772. Id. at 649.
773. Id. at 650.
774. Id.
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assuming the plaintiff ceased to be a member, he would be entitled under the Illi-
nois LLC statute to inspect records pertaining to the period of his membership.
775
The court rejected the defendants’ suggestion that the records could not in-
clude correspondence with attorneys, noting that the statutory list of required rec-
ords does not constitute an exclusive definition of records or state that members
have no rights to see other types of records created or kept by the LLC.
776
The
court also concluded that the statutory requirement of a proper purpose did not
help the defendants because, regardless of the plaintiff’s purpose as to any specific
request, the fact that there are circumstances under which members or former
members have a clear right to the records means that the defendants could not
reasonably believe the records regarding the LLC’s communications with its at-
torneys would be confidential from the plaintiff during a period in which he could
demand access to the records for a proper purpose.
777
The court also noted that the LLC statute does not define what constitutes a
proper purpose, and the defendants, who bore the burden of demonstrating that the
information sought was privileged, did not outright assert that the plaintiff sought
the records for an improper purpose.
778
Since the LLC statute and the operating
agreement provided the plaintiff with management rights, it seemed “inarguable”
to the court that the plaintiff had a proper purpose in protecting the LLC’s finan-
cial interests as well as his own.
779
Finally, the court reiterated that the plaintiff’s
right to obtain records in discovery during litigation was governed not by the Illi-
nois LLC statute or the operating agreement, but by Illinois Supreme Court Rule
201, which required only that the plaintiff was seeking disclosure for the purpose
of obtaining relevant evidence.
780
Somerville S Trust v. USV Partners, LLC involved a member’s demand for
information from a Delaware LLC.
781
The court’s examination of this issue led the
court to observe the following:
Somerville next claims that Earls mismanaged USV by not observing le-
gal formalities while operating the business. In effect, Somerville argues,
Earls used USV as his alter ego. The defendants make no effort to rebut
that claim, and I find independently that Somerville’s evidence support-
ing that claim is credible, Earls testified that USV had no officers, direc-
tors, or employees, that USV had no office, and that USV’s address was
Earls’s home address. Moreover, USV’s documents were kept at USV’s
office, at Earls’s personal accountant’s office, and at his home.
In a previous arbitration proceeding brought against Earls for his man-
agement of an unrelated single-purpose entity, the arbitrators found that
there, as here, Earls was the ‘sole shareholder, director, officer, and deci-
sion-maker of the PC, which has no office or employees. Either Earls or
775. Id.
776. Id. at 650–51.
777. Id. at 651.
778. Id.
779. Id.
780. Id.
781. Somerville S Tr. v. USV Partners, LLC, No. Civ. A. 19444-NC, 2002 WL 1832830, at *1 (Del.
Ch. Aug. 2, 2002)
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his accountant maintains PC’s books and records and its mailing address
is that of Earls’s office or residence.’ In that case, the arbitration panel al-
so found (as Somerville claims here) that Earls had improperly used the
entity’s assets to secure debts, which the panel characterized as a ‘perva-
sive disregard of corporate formalities, all of which is probative in sup-
porting the conclusion that the LLC, PC, and the Trust were in fact mere-
ly alter egos of Earls.’
782
E. Protecting Sensitive Information
i. Restrictions Permitted by Statute
This article discussed restrictions permitted by corporate statutes,
783
LLC
statutes,
784
and limited partnership statutes above.
785
ii. Restrictions in Governing Documents Approved by Case Law
In NAMA Holdings, LLC v. World Market Center Venture, LLC, NAMA
Holdings, LLC (“NAMA”), an indirect owner of a Delaware LLC, brought an
action to inspect the LLC’s books and records pursuant to provisions in the LLC’s
operating agreement.
786
NAMA argued that the operating agreement granted
NAMA an unrestricted right of access to sensitive and proprietary information,
but the LLC sought to limit the classes of documents available to NAMA and to
require NAMA to execute a confidentiality agreement before granting access.
787
The court concluded that, under the terms of the operating agreement, the
managing members retained substantial discretion to determine the scope of ac-
cess to information.
788
Under the operating agreement, NAMA (as an explicit third
party beneficiary) was entitled to “reasonable access at reasonable times” to books
and records that the agreement required the managing members to maintain.
789
The court stressed the freedom of contract enjoyed under the Delaware LLC stat-
ute and characterized NAMA’s argument that the contractual inspection provision
should be construed to mirror the statutory inspection provision as a “non-
starter.”
790
The court stated that the statute might be a useful referent to resolve ambigui-
ty, but the statute should not be used to overshadow the express contractual
agreement reached by the parties in this case.
791
The court explained that inclusion
of the term “reasonable” to describe the scope of NAMA’s access was incon-
sistent with NAMA’s argument that it had an unconditional right of access.
792
The
782. Id. at *7.
783. See supra notes 120-21 and accompanying text.
784. See supra notes 140–214 and accompanying text.
785. See supra notes 391–420 and accompanying text.
786. NAMA Holdings, LLC v. World Mkt. Center Venture, LLC, 948 A.2d 411, 412 (Del. Ch. 2007).
787. Id. at 417.
788. Id. at 419.
789. Id. at 416.
790. Id. at 418 n. 17.
791. Id.
792. Id. at 419.
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court stated that the reasonableness limitation on the right of access indicated the
parties contemplated someone making a judgment call as to exactly what would
constitute “reasonable access.”
793
The court noted that the operating agreement
vested the managing members with typical management authority, and the court
concluded that the managing members had the power to determine what consti-
tutes “reasonable access” in the absence of explicit language in the inspection
provision vesting someone other than the managing members with such right.
794
The court found that the LLC’s limitation of the scope of NAMA’s inspection
to non-sensitive information, prohibition on photocopying of the LLC’s books and
records, and insistence on execution of a confidentiality agreement were all rea-
sonable limitations under the circumstances.
795
The court concluded, however,
that it was not reasonable to require NAMA to conduct its inspection through a
specified individual alone rather than another duly authorized representative of
NAMA.
796
The court agreed with NAMA that a party with an inspection right
must be able to enlist the sophisticated help of attorneys, accountants, and other
experts in meaningfully evaluating complex information if the inspection right is
to have any substantive force.
797
In Degennaro v. Midtown Bridge, LLC, a member of a New Jersey LLC
sought to inspect the LLC’s financial records.
798
The LLC’s operating agreement
required the LLC to maintain books and records and to permit members to visit
the properties of the LLC and discuss the business and affairs of the LLC with the
managers.
799
The operating agreement also required the managers to prepare and
provide to the members certain financial reports, but it did state that the members
had any right to inspect the LLC’s financial records.
800
The court found that fur-
nishing the reports was all that was required because the New Jersey LLC statute
states that a member may obtain “true and full information regarding the status of
the business and financial condition” of the LLC “subject to such reasonable
standards . . . as may be set forth in an operating agreement.”
801
This article discussed corporate statutes that impose sanctions for failure to
provide access to books and records and corporate statutes that penalize share-
holders for misuse of information above.
802
Texas imposes penalties for the unjus-
tified refusal of a LLC
803
or limited partnership
804
to honor a member’s, limited
partner’s, or limited partner’s assignee’s right to inspect books and records.
793. Id.
794. Id.
795. Id. at 412.
796. Id.
797. Id.
798. Degennaro v. Midtown Bridge, LLC, No. A-6209-99T2 (N.J. Super. Ct. App. Div. Oct. 26,
2001).
799. Id.
800. Id.
801. Id.
802. See supra notes 121 –176 and accompanying text.
803. See supra notes 305–06 and accompanying text.
804. See supra notes 363-64 and accompanying text.
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iii. Inspection Rights versus Discovery Rights in Litigation
In San Antonio Models, Inc. v. Peeples, after the corporation refused to allow
a shareholder to inspect corporate books and records on grounds of lack of good
faith and proper purpose, the shareholder sought to obtain information about the
corporation’s affairs through the litigation discovery process.
805
The court rejected
the corporation’s argument that discovery of the corporation’s books and records
in the litigation process would deprive it of its right to a jury trial on the issues of
good faith and proper purpose, noting that the rights of a party in litigation to dis-
covery were totally independent of the corporate statute inspection rights and were
governed by different principles.
806
The Delaware Supreme Court has held that the Delaware shareholder inspec-
tion rights statute “does not open the door to the wide-ranging discovery that
would be available in litigation.”
807
iv. Who is Entitled to Inspect?
Holtzman v. Gruen Holding Corp. granted the plaintiff shareholder’s request
for inspection of the corporation’s records, holding that current stockholders of
record may seek inspection rights despite the possibility that he might later lose
his shareholder status in another proceeding.
808
The plaintiff was terminated from
his position as chairman and chief executive officer of the corporation, and as a
result was required to sell his stock back to the corporation, pursuant to a share-
holder’s agreement.
809
The plaintiff sued to enjoin the sale of his stock, challeng-
ing the grounds of his termination.
810
The court stated that the law accorded the
plaintiff prima facie stockholder status because his name appeared on the compa-
ny’s stock ledger.
811
Macklowe v. Planet Hollywood, Inc. held that stockholders entitled to demand
inspection of corporate records included any stockholder and, thus, the plaintiff,
the record owner but not the beneficial owner of stock in the corporation, was
entitled to inspect the corporation’s records provided his primary purpose for in-
spection was proper.
812
Benincasa v. Garrubbo held that the facts that the name of the person seeking
to compel disclosure of corporate records did not appear on the stockholders’
record and that he did not physically possess stock certificates were not disposi-
tive of whether he had required ownership.
813
Cenergy Corporation v. Bryson Oil and Gas P.L.C. held that a shareholder
was entitled to inspect the corporate stock ledger even though its affidavit provid-
ed in connection with a request for inspection was made at a time when the share-
805. San Antonio Models, Inc. v. Peeples, 686 S.W.2d 666, 667 (Tex. Ct. App. 1985).
806. Id. at 671.
807. Saito v. McKesson HBOC, Inc., 806 A.2d 113, 114 (Del. 2002).
808. Holtzman v. Gruen Holding Corp., No. CIV. A. 13500, 1994 WL 444756, at *3 (Del. Ch. Aug.
5. 1995).
809. Id. at *1.
810. Id.
811. Id. at *2.
812. Macklowe v. Planet Hollywood, Inc., No. Civ. A. 13450, 1994 WL 560804, at *3 (Del. Ch.
Sept. 29, 1994).
813. Benincasa v. Garrubbo, 529 N.Y.S.2d 797, 799 (N.Y. App. Div. 1988).
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holder was only a beneficial owner.
814
The court explained that (1) the shareholder
subsequently qualified as a record shareholder under Nevada’s GCLG §
78.105(2); (2) the change in status did not change its purpose in seeking the stock
ledger; (3) the affidavit met the statement of purpose requirement; and (4) the
corporation did not demand any other affidavits.
815
In the Matter of B & F Towing and Salvage Company, Inc. held that the fami-
ly court had the authority to order nonparty corporations to comply with reasona-
ble discovery demands by persons outside the corporation.
816
In this case, the
litigant’s discovery was limited to those records necessary and essential to the
valuation process.
817
Holdgreiwe v. The Nostalgia Network Inc. granted a director’s demand to
have access to the books and records of the corporation of which he was a direc-
tor.
818
The director stated a proper purpose in seeking access to determine whether
there had been mismanagement and the corporation had failed to carry its burden
of proving improper purpose.
819
Pan Ocean Navigation, Inc. v. Rainbow Navigation, Inc. held that a corpora-
tion that did not maintain a stock ledger and ignored other corporate formalities
could not object to inspection of its books and records on the ground that the
shareholder seeking inspection was not a shareholder of record, but a subsidiary of
the shareholder of record.
820
Once a court is forced to inquire into the underlying
facts concerning stock ownership because the corporation has maintained no stock
ledger, there is little utility in insisting that a valid demand is one made by a
shareholder rather than a wholly owned subsidiary of the shareholder.
821
In affirm-
ing, the Delaware Supreme Court held that when the stock ledger is blank or non-
existent, the Court of Chancery has the power to consider other evidence to ascer-
tain and establish record stockholder status, which is a “mandatory condition
precedent to the right to make a demand for inspection” under Delaware law.
822
The court stated that corporations have an affirmative duty to maintain a stock
ledger.
823
State ex. rel. Schultz v. Schultz involved a demand to inspect books and rec-
ords brought by an “equitable trustee” and the beneficiaries of a constructive
trust.
824
The record ownership was in a third person.
825
The interest of the plain-
tiffs had been adjudicated in a prior proceeding.
826
The Missouri statute limited
inspection rights to “record-owners.”
827
The court quashed a writ of mandamus
814. Cenergy Corp. v. Bryson Oil & Gas P.L.C., 657 F. Supp. 867, 869 (D. Nev. 1987).
815. Id.
816. Petition of B & F Towing & Salvage Co., 551 A.2d 45, 48 (Del. 1988).
817. Id. at 51.
818. Holdgreiwe v. Nostalgia Network, Inc., No. Civ. A. 12914, 1993 WL 144604, at *7 (Del. Ch.
Apr. 29, 1993).
819. Id. at *4.
820. Pan Ocean Navigation, Inc. v. Rainbow Navigation, Inc., 535 A.2d 1357, 1359 (Del. 1987).
821. Id. at 1361.
822. Id. at 1360.
823. Id. at 1359.
824. State ex rel. Schultz v. Schultz, 710 S.W.2d 507, 509 (Mo. Ct. App. 1986).
825. Id. at 508.
826. Id.
827. Id.
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compelling inspection on the ground that the prior judicial opinion did not make
the plaintiffs “record-owners.”
828
Brenner v. Hart Systems, Inc. held that under New York law, a director has an
absolute and unqualified right to examine the books and records of the corporation
which is not affected by hostility between the director and the balance of corpo-
rate management.
829
To the same effect is Lau V. DSI Enterprises, Inc., holding
that under New York law, a director has an absolute and unqualified right to in-
spect corporate records.
830
Tolksdorf v. Langenbacher Furniture Corp. held that the former owner of a
one-half interest in a corporation who sold his interest in a transaction in which
the purchase price was to be paid over several years was nevertheless entitled to
inspect the corporate books and records in view of the fact that a proposal to dis-
solve the corporation was pending which might have affected his ability to collect
the balance of the purchase price.
831
Knaebel v. Heiner held that a shareholder who agreed to sell his shares for
shares in another corporation remained a shareholder until the exchange took
place and, therefore, retained the inspection rights of shareholders.
832
Naquin v. Air Engineered Systems & Services, Inc. involved a demand to in-
spect records by a shareholder owning 33% of the corporation’s outstanding
shares.
833
After the demand was received, the corporation issued additional shares
to the other shareholders to reduce the ownership of the demanding shareholder to
below the statutory minimum.
834
The court held the eligibility of a shareholder
should be established at the time of the demand, and the subsequent issuance of
shares did not deprive the demanding shareholder of his statutory right to inspect
the corporate books.
835
Fritz v. Belcher Oil Co. upheld the inspection rights of individuals who were
shareholders of record of the requisite number of shares at the time they demand-
ed the right to examine corporate records and at the time the corporation refused,
even though they later sold their shares pursuant to a tender offer.
836
The court
considered the Florida statute in light of its derivation from § 52 of the 1969 Mod-
el Business Corporation Act and the Illinois Business Corporation Act, and stated
that it was proper to rely on judicial constructions in other states, particularly
where a uniform law was involved and doing so would promote the uniformity of
the law.
837
In the absence of Florida decisions, the court relied upon McCormick v.
Statler Hotels Delaware Corp., which held that under the Illinois statute, a share-
holder had a cause of action when he was refused permission to inspect the corpo-
rate books for a proper purpose and need not be a shareholder at the time of trial
of his action for the statutory penalty.
838
828. Id. at 509.
829. Brenner v. Hart Sys., Inc., 493 N.Y.S.2d 881, 885 (N.Y. App. Div. 1985).
830. Lau v. DSI Enters., Inc., 477 N.Y.S.2d 151, 152 (N.Y. App. Div. 1984).
831. Tolksdorf v. Langenbacher Furniture Corp., 487 N.Y.S.2d 43, 44 (N.Y. App. Div. 1985).
832. Knaebel v. Heiner, 645 P.2d 201, 204 (Alaska 1982).
833. Naquin v. Air Engineered Sys. & Servs., Inc., 423 So. 2d 713, 714–15 (La. Ct. App. 1982).
834. Id.
835. Id. at 716.
836. Fritz v. Belcher Oil Co., 363 So. 2d 155, 158 (Fla. Dist. Ct. App. 1978).
837. Id. at 157.
838. McCormick v. Slater Hotels Del. Corp., 203 N.E.2d 697, 703 (Ill. App. Ct. 1964).
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Haller v. Chiles, Heider & Co. involved a shareholder’s demand for inspec-
tion rights while litigation concerning the corporation’s purchase of his shares was
pending.
839
The outcome of the litigation was that the corporation had validly
exercised its option.
840
Therefore, the court concluded that the plaintiff was not a
shareholder at the time of demand, which occurred after the shareholder had ten-
dered his shares to the corporation and received payment therefor.
841
Alex, Brown & Sons v. Latrobe Steel Co. held that under the Pennsylvania
statute the fact that the plaintiff was a registered securities broker-dealer did not
prevent it from exercising its statutory right to obtain a shareholder’s list.
842
The
plaintiff wanted the list so it could communicate a tender offer to the sharehold-
ers.
843
If successful, the plaintiff would earn commissions to the extent sharehold-
ers tendered their shares pursuant to the offer.
844
Shelters, Inc. v. Mankin held that a shareholder of record who entered into an
executory contract for the sale of his shares was entitled to inspection rights.
845
Lenahan v. National Computer Analysis Corp. held that a director who was
not a shareholder was not entitled to a list of shareholders under the Delaware
statute pertaining to inspection rights of shareholders of record.
846
Landgarten v. York Research Corporation held that a shareholder in a parent
corporation may inspect certain records of a subsidiary, due to evidence of possi-
ble fraud concerning transfer of funds from subsidiary to parent.
847
v. Inspection by Agent of Shareholder
Henshaw v. American Cement Corp. held that when inspection was to be
made by a person other than the shareholder, the corporation may require evi-
dence of that person’s authority to act on behalf of the shareholder.
848
In this case,
the shareholder’s “demand, under oath, met that requirement by naming his agents
and attorneys who were to make the inspection.”
849
F. Miscellaneous Issues
i. Effect of Failing to Follow Limited Partnership Statute Pro-
cedures
Keller v. United States addressed an argument by the government that the
transfer of bonds by two trusts as limited partners to a family limited partnership
formed shortly before the death of the decedent trustee of the trusts was not effec-
tive because the schedule to the limited partnership agreement showing contribu-
839. Haller v. Chiles, Heider & Co., 252 N.W.2d 157 (Neb. 1977).
840. Id. at 159.
841. Id.
842. Alex, Brown & Sons v. Latrobe Steel Co., 376 F. Supp. 1373, 1374 (W.D. Pa. 1974).
843. Id.
844. Id.
845. Shelters, Inc. v. Mankin, 204 S.E.2d 810 (Ga. Ct. App. 1974).
846. Lenahan v. Nat’l Comput. Analysts Corp., 310 A.2d 661 (Del. Ch. 1973).
847. Landgarten v. York Research Corp., 1988 WL 7392, at *6 (Del. Ch. Feb. 3, 1988).
848. Henshaw v. Am. Cement Corp., 252 A.2d 125, 128 (Del. Ch. 1969).
849. Id.
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tions was left blank and there was no other formal documentation of the trans-
fer.
850
One of the government’s arguments on appeal was that the record keeping
requirements of the Texas Revised Limited Partnership Act required the schedule
to the partnership agreement showing contributions to be filled out before the
decedent’s death.
851
The court discussed the statutory record keeping provision
and concluded that it was more sensibly construed as a mandatory record keeping
provision, the breach of which may give rise to a suit for violating duties between
partners, as opposed to a provision that invalidates noncompliant property trans-
fers.
852
ii. State Court Order Requiring Members to Turn Over Docu-
ments Did Not Violate Automatic Stay
In re Resource Energy Technologies, LLC holds that a state court discovery
order requiring members of debtor LLC to turn over documents of the LLC did
not violate automatic stay because members have rights to access, inspect, and
copy LLC information under Kentucky law in their capacities as members and
such action is not an act to obtain possession of or exercise control over property
of the estate.
853
VII. CONCLUSION AND RECOMMENDATIONS
This article has attempted to provide a useful survey of the law governing the
inspection of books and records of corporations and unincorporated entities. In
some instances, a reader may find it difficult to reconcile the cases. For example,
Shabshelowitz v. Fall River Gas Co. held that a shareholder did not have a proper
purpose where the shareholder sought to obtain names of shareholders who might
sell their stock to him.
854
By contrast, in NVF Co. v. Sharon Steel Corp, the court
held that a shareholder who intended to make an offer to purchase shares of other
shareholders stated a “proper purpose” within the Pennsylvania statute for seeking
access to the list of shareholders, even though the shareholder intended to offer to
purchase the shares for debentures and warrants.
855
This article has noted cases in which a LLC was able to restrict examination
of its books and records by imposing a reasonableness requirement.
856
Unincorpo-
rated entity statutes often expressly permit restrictions.
857
The author believes that
850. Keller v. United States, 697 F.3d 238, 247 (5th Cir. 2012).
851. Id. at 241.
852. Id. at 244.
853. In re Resource Energy Techs., LLC, 419 B.R. 746, 748 (Bankr. W.D. Ky. 2009).
854. See supra note 634 and accompanying text.
855. See supra note 582 and accompanying text.
856. See supra notes 140–214 and accompanying text.
857. See discussion of statutes supra notes 140–214, 391-420–42 and accompanying text, see e.g.,
D
EL. CODE ANN. tit. 18 § 305(c) (2017) (provides that the manager of a limited liability company may
keep confidential from the members any information the manager reasonably believes to be “in the
nature of trade secrets or other information the disclosure of which the manager in good faith believes
is not in the best interest of the limited liability company or could damage the limited liability compa-
ny or its business or which the limited liability company is required by law or by agreement with a
third party to keep confidential). T
EX. BUS. ORGS. CODE ANN. § 101.054(e) (West 2017) (stating that a
company agreement “may not unreasonably restrict a person’s right of access to records and infor-
mation.” The author believes a restriction that would be permitted under the Delaware statute would be
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LLC statutes could be improved by uniformly requiring that books and records be
available to assignees.
858
Eighteen LLC statutes limit inspection rights to mem-
bers.
859
In the case of an assignee of a disabled or deceased member, the assignee
may be hampered in carrying out his or her duties without access to the LLC’s
books and records. The Revised Uniform Limited Partnership Act provides a rea-
sonable solution to this problem.
860
By the author’s count, however, only about
three-fourths of the limited partnership statutes provide inspection rights to the
legal representative of a deceased or incapacitated partner. For the same reasons
stated for members, the author submits that all limited partnership statutes should
be amended to so provide.
The author also believes that all LLC and limited partnership statutes should
permit inspection through an agent. The statutes should be drafted so that in an
appropriate case, the company agreement or partnership agreement could impose
reasonable restrictions on the use of agent to inspect books and records.
·
a reasonable restriction under Texas law.). Colorado and New York law are similar. COLO. REV. STAT.
§ 7-80-408(3) (2007); N.Y.
LTD. LIAB. CO. LAW § 1102(c) (McKinney 1994). The California limited
partnership statute permits similar restrictions. C
AL. CORP. CODE § 15904.06(g) (West 2008). The
California limited liability statute does not contain such a provision. R
EVISED UNIF. LTD. LIAB. CO.
ACT § 401(a)(2)(B) (UNIF. LAW COMM’N 2013) permits such a provision (California must have decid-
ed to omit that provision when it adopted RULLCA). See supra notes 135–36 and accompanying text.
858. Texas already does so. T
EX. BUS. ORGS. CODE ANN. § 101.502. California does also. CAL.
CORP. CODE § 17704.10(a).
859. See supra notes 246–48 and accompanying text.
860. R
EVISED UNIF. LTD. P’SHIP ACT § 304(k) (UNIF. LAW COMM’N 2013) (Providing that the in-
spection rights stated in that section do not extend to a person as a transferee, but may be exercised by
the legal representative of an individual under legal disability who is a limited partner or person disso-
ciated as a limited partner. Moreover, § 304(f) states that if a limited partner dies, § 704 applies, it
provides: If a partner dies, the deceased partner’s personal representative or other legal representative
may exercise the
rights of a transferee as provided in § 702 and, for the purposes of settling the estate,
may exercise the rights of a current limited partner under § 304.). See supra note 70 and accompanying
text.
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