Shareholders’ Rights to inspect the books and records of Corporation

I wrote before about getting access to the books and records of an LLC.  The same scenario can happen if you are a shareholder in a corporation.  The corporation cannot deny you access to its books and records.

Access to Corporation’s Books and Records

You ask the Corporation for financial information and other documents and get no response, or they tell you that you have no right to anything.  What do you do?

You have a right under Section 624 (b) of the New York Business Corporation Law to demand access to the shareholder minutes of the corporation and the name and other information about the other shareholders.

You further have a right under New York common law to ask for any other records of the corporation.

Imke Ratschko Small Business Lawyer

For legal advice, call 212 2531027 or contact me here.

Exercising your Rights to Access to Books and Records

To exercise these rights, you have to have a valid purpose for such a request and make a written demand upon the corporation giving 5 days’ notice.

A valid purpose can be that you suspect that directors or officers are mismanaging the corporation’s affairs or any other good-faith need for you to see this information.

Written Demand

A written demand could be along the following lines:

“ Dear CEO/President/Director:

I am a 20% shareholder of Company, Inc.

I hereby demand that you give me access to the following information and documents:

[____fill in what you want to see______]

I demand this inspection pursuant to my rights under applicable common law and New York business corporation law § 624.  The purpose of the inspection is to review the above information to determine whether there has been wrongdoing by the management of Company Inc.

Unless I am granted meaningful access to the above-listed information and documents within ___ days after the date of this letter, I will pursue all legal remedies available to me.”

In response to such demand, corporations may ask you to visit their offices and inspect and copy any such books and records.  There is one exception, though.  If you are demanding annual balance sheets and profit and loss statements, the corporation has to give or mail them to you. Section 624(e).

Corporations may also ask you to sign a sworn statement that your inspection “is not desired for a purpose which is in the interest of a business or object other than the business of the corporation and that he has not within five years sold or offered for sale any list of shareholders of any corporation of any type or kind, whether or not formed under the laws of this state, or aided or abetted any person in procuring any such record of shareholders for any such purpose” (Section 624(c))

Going to Court to get Access to Books and Records

If you get no response to your demand, you can bring an action in court enforcing these rights.

Section 624 (d) states:

“Upon refusal by the corporation or by an officer or agent of the corporation to permit an inspection of the minutes of the proceedings of its shareholders or of the record of shareholders as herein provided, the person making the demand for inspection may apply to the supreme court in the judicial district where the office of the corporation is located, upon such notice as the court may direct, for an order directing the corporation, its officer or agent to show cause why an order should not be granted permitting such inspection by the applicant. Upon the return day of the order to show cause, the court shall hear the parties summarily, by affidavit or otherwise. If it appears that the applicant is qualified and entitled to such inspection, the court shall grant an order compelling such inspection and awarding such further relief as to the court may seem just and proper.”

This is a long way of saying that the law provides for an expedited proceeding to get you access to the books and records.  It could be a matter of weeks rather than many months or years for a court to act on your request.

Action for an Accounting

Similar to the action for accounting in an LLC, there is also a possible action for accounting against a corporation.  An action for accounting goes further than just the demand for access.  You claim that there was wrongdoing by the corporation or its directors and are thus entitled to get detailed explanations for all financial transactions.  This demand is usually combined with actual claims for wrongdoing against the wrongdoers in the corporation.

See also Access to LLC Books and Records