Chapter 2-12 Suit to Compel Inspection

• Jurisdiction: United States

2-12 Suit to Compel Inspection

2-12:1 Overview

Suits to compel inspection are the means shareholders, partners, or members have to obtain information from their entity. There have not been many cases on the topic because, in most cases, the entity is required by law to make all information available and does not refuse an initial request.

2-12:1.1 Related Causes of Action

Officer and Director Liability, Class Action Suits, Derivative Shareholder Suits, Dissolution of Partnership, Breach of Fiduciary Duty

2-12:2 Elements

2-12:2.1 Corporation

(1) A shareholder

• Must be a shareholder:

• For at least six months prior to demand;
• Of at least 5% of the total outstanding shares; or
• Who obtains court permission.³³⁹

• A shareholder includes the holder of a beneficial interest in a trust who meets one of the requirements.³⁴⁰

(2) Makes a written demand on the corporation

• The demand must be written.³⁴¹

• The demand must specify a reasonable time to inspect the records.³⁴²

(2)(a) For covered records

• Covered records include:

• Books and records of accounts;
• Minutes of the proceedings of the owners or members or governing authority of the filing entity and committees of the owners or members or governing authority of the filing entity;
• A current record of the name and mailing address of each owner or member of the filing entity; and
• Other books and records as required by the title of the Business Organizations Code governing the entity.³⁴³
• In addition to the books and records required to be kept as listed above, a corporation shall keep at its registered office, principal place of business, or at the office of its transfer agent or registrar, a record of:

• The original issuance of shares issued by the corporation;
• Each transfer of those shares that have been presented to the corporation for registration of transfer;
• The names and addresses of all past shareholders of the corporation; and
• The number and class or series of shares issued by the corporation held by each current and past shareholder.³⁴⁴

• A shareholder, or the shareholder's agent, accountant, or attorney, is entitled to:

• Examine the records; or
• Copy the records.³⁴⁵

(2)(b) For a proper purpose

• A proper purpose is one that is:

• Directed toward obtaining information bearing upon the protection of the shareholder's interest and that of other shareholders in the corporation.³⁴⁶

• An improper purpose includes one that is:

• Designed to obtain a competitive advantage over the company; or
• Intended to harass.³⁴⁷

• Whether the shareholder's purpose is a "proper purpose" is a jury question.³⁴⁸

(3) Which the corporation refuses

• The corporation must first refuse the demand.³⁴⁹

2-12:2.2 Limited Liability Company

(1) A member

• Requesting party must be:

• A member; or
• An assignee of a member.³⁵⁰

(2) Makes a written request

• The request must be written.³⁵¹

• The request must specify a reasonable time to inspect the records.³⁵²

(2)(a) For covered records

• Covered records include:

• Books and records of accounts;
• Minutes of the proceedings of the owners or members or governing authority of the filing entity and committees of the owners or members or governing authority of the filing entity;
• A current record of the name and mailing address of each owner or member of the filing entity; and
• Other books and records as required by the title of the Business Organizations Code governing the entity.³⁵³
• An LLC shall keep at its principal office, or make available to a person at its principal office not later than the fifth day after the date the person submits a written request to examine the books and records of the company the following additional records:
• A current list that states:

• The percentage or other interest in the limited liability company owned by each member; and
• If one or more classes or groups of membership interests are established in or under the certificate of formation or company agreement, the names of the members of each specified class or group;

• A copy of the company's federal, state, and local tax information or income tax returns for each of the six preceding tax years;
• A copy of the company's certificate of formation, including any amendments to or restatements of the certificate of formation;
• If the company agreement is in writing, a copy of the company agreement, including any amendments to or restatements of the company agreement;
• An executed copy of any powers of attorney;
• A copy of any document that establishes a class or group of members of the company as provided by the company agreement; and, unless stated in a written company agreement, a written statement of:

• The amount of a cash contribution and a description and statement of the agreed value of any other contribution made or agreed to be made by each member;
• The dates any additional contributions are to be made by a member;
• Any event the occurrence of which requires a member to make additional contributions;
• Any event the occurrence of which requires the winding up of the company; and
• The date each member became a member of the company.³⁵⁴

• Additionally, on written request and proper purpose a member, assignee of a member, or a member or assignee representative may examine and copy other information regarding the business, affairs, and financial condition of the company that is reasonable for the person to examine and copy.³⁵⁵

(2) (b) Stating a proper purpose

• A proper purpose is one that is:

• Directed toward obtaining information bearing upon the protection of the member's interest and that of other members in the LLC.³⁵⁶

• An improper purpose includes a purpose that is:

• Designed to obtain a competitive advantage over the company; or
• Intended to harass.³⁵⁷

• Whether the member's purpose is a "proper purpose" is a jury question.³⁵⁸

(3) Which is refused by the company

• The company must first refuse the demand.³⁵⁹

2-12:2.3 General Partnership

(1) Denial of access

• A partnership shall provide a partner access to its books and records.³⁶⁰

(2) To partnership books and records

• A partnership shall provide a partner access to its books and records.³⁶¹

• A current partner is entitled to the books and records for all periods.³⁶²
• A former partner is entitled to the books and records pertaining to when the former partner was a partner.³⁶³
• A former partner must have a proper purpose for the books and records from any other time period.³⁶⁴

• A partnership may limit, but not unreasonably restrict, a partner's access to books and records.³⁶⁵

OR

(1) A partner

• Requesting party must be:

• A partner;
• A representative of a deceased partner;
• A representative of a legally disabled partner; or
• An assignee.³⁶⁶

(2) Makes a request

• The request must be just and reasonable.³⁶⁷

• The request does not need to be written.³⁶⁸

(2) (a) For complete and accurate information concerning the partnership

• The request may be for "complete and accurate information concerning the partnership."³⁶⁹
• The information requested must be just and reasonable.³⁷⁰

(3) Which the partnership refuses

• The company must first refuse the demand.³⁷¹

2-12:2.4 Limited Partnership

(1) A partner

• Requesting party must be:

• A partner; or
• An assignee of a partner.³⁷²

(2) Makes a written request

• The request must be written.³⁷³

• The request must specify a reasonable time to inspect the records.³⁷⁴

(2)(a) For covered records

• Covered records includes:

• A current list that states:

• The name and mailing address of each partner, separately identifying in alphabetical order the general partners and the limited partners;
• The last known street address of the

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