Shareholder Inspection Rights Flashcards
Shareholder Inspection Rights
- Shareholders are the owners of the corporation and should have the right to inspect its books and records in order to determine the condition of their investment.
- Such access should not, however, be used to harm the company or expose its confidential information
• A shareholder owning a single stock shouldn’t be allowed the formula to Coca-Cola
Haywood v. AmBase Corp. (2005) summary
Plaintiffs Haywood and Cronin were beneficial owners of defendant AmBase common stock. Ambase was a publicly held Delaware corporation, and its primary purpose at the time was to pursue pending litigation against the US government based on the impact of the Financial Institutions Reform, Recovery and Enforcement Act. Richard Bianco was the chairman and chief executive officer of AmBase. Haywood and Cronin brought an action for inspection of the books and records of AmBase after learning that Bianco was receiving compensation and benefits that were excessive. After confronting Bianco, and not receiving a sufficient explanation, they made a written demand to inspect AmBase’s books, which AmBase refused.
The court held that plaintiffs demonstrated a proper purpose, which was to investigate possible mismanagement, breaches of fiduciary duty, waste of corporate assets, and fraud. The court found that plaintiffs demonstrated a credible basis to find wrongdoing because, among other reasons: (1) Bianco’s annual compensation amounted to approximately 10% of the market capitalization of AmBase; (2) an independent consultant reported specific facts and statistical analyses supporting plaintiffs’ belief that Bianco was overcompensated (by receiving total compensation in the 100th percentile of comparable companies); and (3) that the personnel committee awarded Bianco significant discretionary bonuses despite the fact that the plan’s criteria for awarding bonuses were not met. The court, however, did not find AmBase liable for Haywood and Cronin’s attorneys’ fees because, among other reasons, there was no evidence of intentional misconduct by AmBase, and there was a colorable argument that Bianco’s compensation was a business decision.
Haywood v. AmBase Corp. (2005) rule
Must state a proper purpose for a request of inspection of books and records.
• 1602 – says (1) must be in good faith and for a proper purpose, (2) describes with reasonable particularity his purpose and the records, (3) the records are directly connected with his purpose.
Delaware §220(c) places the burden on the corporation to show an improper purpose for a shareholder seeking a list of shareholders
- The burden is on the shareholder, however, to show a proper purpose when seeking other records
- In FL, 1602(9) says “proper purpose” means a purpose reasonably related to such person’s interest as a shareholder
