MIAMI BUSINESS LITIGATION: THE SHAREHOLDER’S RIGHT TO INSPECT COMPANY RECORDS AND PROPER PURPOSE

A corporate shareholder has special rights that non-shareholders do not have. Shareholders can vote at annual meetings and may be eligible for dividends. Shareholders can also demand to inspect the company’s book and records under certain conditions. Florida, like most states, enacted a statue expressly authorizing the inspection and copying. Fla. Stat. § 607.1602.  However, the statute has limitations. A shareholder can only inspect and copy certain documents including a company’s:

• articles of incorporation;
• shareholder notices specifying facts on which a filed document is dependent;
• bylaws;
• written communications within the past 3 years to shareholders;
• list of the names and business street addresses of its current directors and officers; and
• most recent annual report.

Fla. Stat.  § 607.1601. The Miami business litigation attorneys of the Mavrick Law Firm represent businesses and their owners in breach of contract litigation and related claims of fraud, non-compete agreement litigation, trade secret litigation, trademark infringement litigation, employment litigation, and other legal disputes in federal and state courts and in arbitration.

A shareholder can inspect and copy additional records if the shareholder’s demand is made in good faith, the shareholder’s demand is made for a proper purpose, the shareholder’s demand reasonably describes his or her proper purpose and the records to be described, and the requested records are directly connected with the shareholder’s proper purpose. Fla. Stat.  § 607.1602. The additional records that can be inspected with a proper purpose are:

• meeting minute excerpts and records for any actions taken by the corporation’s board of directors and committees;
• financial statements of the corporation;
• accounting records of the corporation;
• the record of shareholders; and
• any other books and records.

Fla. Stat. § 607.1602.

Disputes over shareholder requests for inspection and copying of corporate documents typically arise when the corporation rejects the shareholder’s request contending the shareholder does not have a proper purpose. “Proper purpose” is statutorily defined to mean “a purpose reasonably related to such person’s interest as a shareholder.” When evaluating whether a shareholder satisfied its burden or establishing a proper purpose, courts often try to balance the shareholder’s rights with the rights of corporate directors to manage the corporate affairs without undue interference from stockholders. Seinfeld v. Verizon Communications, Inc., 909 A. 2d 117 (Del. 2006). Shareholder will often have to demonstrate a credible basis that allows the court to infer the existence of a proper purpose by presenting evidence on the matter. Thomas & Betts Corp. v. Leviton Mfg. Co., Inc., 681 A. 2d 1026 (Del. 1996); Sec. First Corp. v. U.S. Die Casting & Dev. Co., 687 A. 2d 563 (Del. 1997).

A corporate shareholder cannot inspect or copy every corporate record merely because it facially demonstrates a proper purpose because shareholders can only inspect and copy records they are lawfully entitled to. In Collier Anesthesia, P.A. v. Worden, 726 So. 2d 342 (Fla. 2d DCA 1999) the shareholder demanded accounts receivable records and accounts payable journal records to determine the value of his stock. Although the valuation of stock is a facially proper purpose, the court determined the shareholder did not have proper purpose. The court reasoned that the records sought by the shareholder pre-suit amounted to an equitable accounting of the company’s affairs. Since the shareholder’s lawsuit against the company for equitable accounting was still ongoing, the shareholder could not have a proper purpose because it was not yet determined whether the shareholder was entitled to an equitable accounting.  

The Miami business litigation lawyers of the Mavrick Law Firm also represent clients in Fort Lauderdale, Boca Raton, and Palm Beach. This article does not serve as a substitute for legal advice tailored to a particular situation.