Books and Records
Facilitation and Defense of Demanding Records and Books
As a stockholder in a Delaware Corporation or a member in a Delaware LLC, you have statutory rights to know what is going on financially with respect to the company in which you own an interest.
For corporations, this right is contained in Section 220 of the Delaware General Corporation Law. For LLCs, this right is contained in Section 18-305 of the Delaware LLC Act, which can be expanded or reduced by agreement. For both sections, the usual right is for basic accounting records, such as tax returns, balance sheets, and income statements. The right to access is subject to a proper statutory demand being made. One of the requirements is for the owner to state a proper purpose, such as valuing his or her ownership interest or to investigate misconduct of management for which there is reasonable suspicion grounded in facts and not just naked allegations.
We can assist a corporate stockholder or LLC member in drafting a proper demand or responding to a demand for any business incorporated or formed in Delaware. In most instances, the Court of Chancery usually requires or strongly prefers these demands be made prior to bringing a case for breach of fiduciary duty directly. If the corporation or LLC fails to answer the properly worded, executed, and delivered demand in a timely manner (usually 5 days), then a case can be filed in the Court of Chancery to have the court order the production requested in the demand. Each party usually has to pay its own attorneys’ fees for this, except in cases of bad faith and certain other limited situations.
Having access to books and records for your business is an important protection, both legally and financially. Without this sunshine to access the underlying financials of business you own, it would make it more difficult to determine whether the business is being fair to its shareholders or members.
Books and records demands are just one of the many business services offered by The Williams Law Firm. Let our skilled team assist you in getting access to wanted books and records.
Companies can defend against demands for books and records for a Delaware Corporation or LLC.
Depending on the facts, a books and records demand may not give you full access to the ledger and copies of invoices, but even without a forensic accounting, it usually provides some evidence of mischief or errors, which can be a basis for a lawsuit that can give you full access to all books and records of a company, including electronic records, through the legal process called discovery. It is important to understand that this preliminary books and records inspection is not full-blown discovery. It is a more limited inquiry to form the basis of a subsequent lawsuit.
We can also help businesses defend against these demands to the extent the notice from an owner was improper, without a proper purpose, or was over-reaching by requesting information beyond the scope of information that is subject to this type of demand.
We look forward to the opportunity to help you with a books and records action whether you are a minority owner or the management.
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“Injustice anywhere is a threat to justice everywhere.”
– Martin Luther King, Jr.
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1201 N. Orange Street
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Wilmington, Delaware 19801
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Phone: 302-575-0873
Fax: 302-575-1642
