Information – Shareholder Inspection Rights – Proper Purpose and Inspection Requests Flashcards
A shareholder’s right to _______ corporate records extends to documents that serve a secondary, _______ purpose in addition to a ______ purpose, and to documents created by _____ parties.
A shareholder’s right to INSPECT corporate records extends to documents that serve a secondary, IMPROPER purpose in addition to a PROPER purpose, and to documents created by THIRD parties.
Does a shareholder’s right to inspect corporate records extend to documents that serve a secondary, improper purpose in addition to a proper purpose, and to documents created by third parties?
Yes. Delaware Corporation Law § 220 provides that a shareholder has a right to inspect the books and records of a corporation for any proper purpose. This right is enforceable in the courts via a books and records action. Investigating suspected wrongdoing on the part of corporate directors is a proper purpose, though preparing for unrelated litigation is not. Once a proper purpose has been established, the shareholder is entitled to all records reasonably related to the stated purpose, even if some records also serve an improper purpose. In addition, documents produced by a third party or a subsidiary corporation are not exempt from the disclosure requirement, provided they are reasonably related to the stated purpose.
A stockholder seeking to inspect corporate books and records to investigate ________ corporate __________ is not required to specify the intended objectives of inspection in the inspection demand.
A stockholder seeking to inspect corporate books and records to investigate POSSIBLE corporate WRONGDOING is not required to specify the intended objectives of inspection in the inspection demand.
Is a stockholder seeking to inspect corporate books and records to investigate corporate wrongdoing required to specify the intended objectives of inspection in the inspection demand?
No. A stockholder seeking to inspect corporate books and records to investigate possible corporate wrongdoing is not required to specify the intended objectives of inspection in the inspection demand. Under DGCL § 220(c), a party requesting inspection of a corporation’s books and records must show that he is seeking the inspection for a proper purpose. A purpose is proper if it reasonably relates to stockholder interests, but it must amount to more than mere disagreement with a business decision or unsupported allegations of wrongdoing. A stockholder must establish by a preponderance of the evidence that there is a credible basis to believe that possible wrongdoing exists, and that further investigation is justified. The investigation of possible wrongdoing is inherently an activity that is related to stockholder interests. If a stockholder asserts that he is seeking corporate books and records under § 220 for the purpose of investigating corporate wrongdoing, he is not required to state his particular goals in inspecting the documents or how he specifically intends to use the information he obtains. If the sole purpose of an inspection is to obtain information for possible litigation and such litigation is futile for procedural reasons, then the court may deny inspection.
