What Is Your Common Law Right to Access Books and Records of the Company?

Under New York common-law a shareholder’s right to inspect a corporation’s books and records, is broad and can extend to all of the relevant corporate books and records. If the shareholder, in good faith, shows a “proper purpose” for seeking the corporate records, the corporation resisting inspection must show that the demanding shareholder’s purpose is improper or is otherwise proceeding in “bad faith”. This is a tough burden for the corporation to meet. Non-controlling, outside shareholders of closely held New York corporations who bring books and- records proceedings typically rely on one or more of three “proper purposes”: (1) to value their shares; (2) to obtain information bearing on distributions; and (3) to investigate financial and other abuses by the controlling owners-managers. As just noted, one of the recognized, “proper purposes” for a common-law inspection demand is to investigate potential wrongdoing and mismanagement by corporate officers and directors. The right of the shareholder to inspect the books and records outweighs the alleged inconvenience to the corporation. The Court in a very recent decision gave a shareholder who was demanding books and records much broader power than historically granted[1]. The Court held that the “stated purpose”, to investigate the corporation’s management was a “proper purpose”, “even if the inspection ultimately establishes that the board engaged in no wrongdoing.” What does this mean for you? It means that if you don’t have all the information to make an informed decision about possibly suing your business partner, you have certain common law rights that give you broad power to inspect all of the corporate books and records so long as you remotely establish a “proper purpose”. [1] See Retirement Plan for General Employees v. McGraw-Hill Companies, Inc., 2014 NY Slip Op 06154 [1st Dept Sept. 11, 2014]).