How to Request—and Not Request—Company Records
Florida law dictates a member or shareholder’s statutory rights to inspect and copy a company’s books and records. They include organizational documents and certain financial information. To initiate such an inspection, a member or shareholder must make a formal written request to the company that complies with the applicable statutory requirements.
Members of limited liability companies and shareholders of corporations in Florida have important rights when it comes to inspecting company records. There are proper and less proper ways to express those rights.
These rights are vital for minority members and shareholders in private entities, which are less regulated and have fewer disclosure requirements than publicly traded corporations.
Corporations whose securities trade on exchanges have regulators such as the Securities & Exchange Commission (SEC). Companies may also have industry regulators with powers to investigate a company’s financial dealings.
Shareholder inspection rights fall into two categories: contract and statute. Contractual rights are spelled out in a limited liability company’s operating agreement or a corporation’s bylaws. A shareholders agreement sometimes has detailed disclosure and inspection rights.
Those obligations are a member’s or shareholder’s best weapon in obtaining corporate books and records. Suppose the contractual provisions are clear and robust enough. In that case, a member or shareholder may receive expedited relief from a judge when the company refuses to turn over copies of its records. However, running to the courthouse every time a company says “no” does not guarantee success.
Florida law dictates a member or shareholder’s statutory rights to inspect and copy a company’s books and records. They include organizational documents and certain financial information. To initiate such an inspection, a member or shareholder must make a formal written request to the company that complies with the applicable statutory requirements.
A 2016 update to state law strengthened the privacy rights of a Florida corporation. The rules are spelled out in the Florida Business Corporation Act and stated in Chapter 607, Article 16, of Florida’s statutes.
To bring Florida law more in line with the Model Business Corporation Act, companies no longer have to provide annual reports in 120 days or fewer after their fiscal year ends. Instead, a member or shareholder must request the report.
More importantly, the corporation can restrict the disclosure of the records and make reasonable demands on the member or shareholder to keep the records confidential. Further, the updated law enables the corporation to decline a request if it determines that it was made in bad faith or for an improper purpose.
Florida law had already stated that a shareholder or member must state a proper purpose for inspecting these documents. The individual or entity does not have carte blanche to look at the company’s books and records. The request must be specific and the reason clear.
State courts have determined that qualifying purposes include valuing ownership interests, assessing governance practices, and investigating potential mismanagement or wrongdoing. Over-broad requests or those made in bad faith may be denied.
A Disney shareholder’s lawsuit, filed in Delaware, not Florida, provides a lesson on how not to proceed. The court denied the request for company records because the defendants learned during discovery that the individual was acting on behalf of a third party funding the litigation. Second, the court determined the plaintiff was critiquing a business decision, not seeking information on a potential wrongdoing.
Documents that should be provided are high-level or “board-level” documents that a board of directors or managers would review to make decisions. Depending on what the company provides, the individual or entity can request more detailed information. Just what qualifies as pertinent is debatable. A company may narrowly interpret the catch-all provisions in the law and the shareholder or member more broadly.
That can lead to litigation. The member or shareholder can seek to enforce their inspection rights in court, arguing that their request was unjustly denied or that the company did not release all the documents. These actions are generally prosecuted expeditiously. If a member or shareholder prevails in this litigation, they may be entitled to recover their attorney’s fees and litigation costs.
Members of LLCs and shareholders in corporations who exercise their rights to inspect company records are often undertaking a noble cause: fostering an environment of transparency and accountability. Exercising those rights empowers owners to participate meaningfully in their businesses and helps ensure that management remains accountable. Done correctly, requests can move forward quickly and completely. Improperly presented, the process can be slow and detrimental to all.
Lawyers should know about this for three reasons. First, a company should know how to appropriately respond to an owner’s request to avoid unnecessary risk. Second, it is a great way for an owner, especially a minority or passive owner, to stay informed about a company’s operations and ensure management is looking after the owner’s interests. Third, if a dispute seems likely, it is a practical way to gather information before filing a lawsuit. This could help an owner determine previously unknown causes of action. Or it could lead to discovery of information that would strengthen the factual allegations in a complaint. Just as important, an owner could realize that the chances of prevailing in a future lawsuit would be low, thus saving the owner’s time and money from a fruitless effort.
Alexander A. Salinas is a partner at TA PLLC, a business law firm. Salinas leads the firm’s litigation practice and may be reached at asalinas@tapllc.com.
Reprinted with permission from the February 14, 2025 edition of the Daily Business Review© 2024 ALM Global Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-256-2472 or asset-and-logo-licensing@alm.com.