Rights of an Owner to Inspect Company Records
In many disputes among owners of a company, the majority owners deprive the minority access to business records. What rights does an owner have to these records? The answer is not so simple and may vary by the type of entity.
For corporations, the governing statute is G.L. c, 156D, §§ 16.01, 16.02 and 16.20. A helpful explanation of the rules, in the context of a closely held company, can be found in Bernstein v. Pritsker, 2013 Mass. Super. LEXIS 18. A shareholder is entitled to certain records simply upon request, and regardless of the purpose of the request. These records include basic corporate governance documents like bylaws and board minutes, and annual financial statements if they are prepared (tax returns if not). These documents do not usually paint a full financial picture. To get more information, a shareholder must make a specific demand “in good faith and for a proper purpose.” The shareholder also must specify the purpose and the documents the shareholder desires to inspect and why the documents will support the stated purpose. Curiosity or a desire to monitor the investment is not enough, nor will mere suspicion about mismanagement. If the corporation has audited financial statements, it can satisfy its obligation by supplying those financial statements and any schedules needed to verify a line item.
For limited liability companies (LLCs), the governing statute is G.L. c. 156C, §10. An LLC member is entitled to “true and full information regarding the state of the business and financial condition” of the company, tax returns and “other information regarding the affairs of the [LLC] as is just and reasonable.” The member’s demand must likewise must state the purpose, and the purpose must relate to the member’s interest as a member of the LLC.
For partnerships, the governing statute is G.L. c. 108A, §22. A partner may obtain a “formal account” if the partner is “wrongfully excluded” from the business or denied possession of partnership property, the partnership agreement gives the partner that right, if another partner profits without the consent of the other partners, or for other undefined “reasonable” or “just” circumstances.
To date, there is no guiding case law for the LLC or partnership statutes, so it is difficult to say how broadly or narrowly the courts will construe the inspection rights.