A common dispute among business owners begins when one person asks to see the company’s financial records and another refuses access.
California law provides inspection rights in a number of circumstances, but the scope of those rights depends on the type of company and the person’s legal status.
Corporate Shareholders
California Corporations Code section 1601 generally permits a shareholder to inspect specified corporate accounting books, records, and shareholder and board minutes upon written demand at a reasonable time and for a purpose reasonably related to the person’s interests as a shareholder.
The statute also permits the shareholder to request production by mail or electronically, subject to reasonable copying or conversion costs.
Certain shareholders have additional rights concerning shareholder lists under Corporations Code section 1600.
Corporate Directors
A director’s rights are broader.
Corporations Code section 1602 gives a director an absolute right, at a reasonable time, to inspect and copy the corporation’s books, records and documents and to inspect its physical properties, subject to the statute’s terms.
LLC Members and Managers
California LLCs are governed by different provisions.
Corporations Code section 17704.10 gives members, managers and certain transferees specified rights to company information. Among other things, the statute permits inspection and copying of records required to be maintained by the LLC when the statutory requirements are satisfied.
What Happens if the Company Refuses?
For corporations, Corporations Code section 1603 permits a superior court to enforce a lawful inspection demand. Section 1604 also permits an award of reasonable expenses, including attorney’s fees, when a court finds that a corporation’s failure to comply with a proper demand under sections 1600 or 1601 was without justification.
Inspection disputes can turn on details such as the requester’s status, the records requested, the stated purpose for the inspection, and the type of business entity involved.
A written demand should therefore identify the statutory basis for the request and the records sought rather than simply demanding access to “everything.”
Authorities: Cal. Corp. Code §§ 1600–1604, 17704.10.
Related practice areas: Corporate Governance & Shareholder Disputes