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Amended Corporations Code Section 1601: Right to Inspect Corporate Records
Under the California Corporations Code, San Diego corporations are required to allow inspection of “accounting books, records and minutes” by shareholders of the corporation. See Cal. Corp. Code, § 1601(a). This right to inspect is one of several rights that flow from being a shareholder. Another example is the right to a proportional share of dividends and other profit distributions. As we discussed here, earlier in 2018, California General Assembly Member Brian Maienschein — representing the 77th District here in San Diego County — introduced legislation to change Section 1601. That bill eventually was designated Assembly Bill 2237. Maienschein’s efforts were successful and on July 9, 2018, Governor Brown signed AB 2237. As originally intended, AB 2237 amends section 1601(a) in several important respects and, most importantly, overrules the California Court of Appeals case of Innes v. Diablo Controls, Inc., 248 Cal. App. 4th 139 Cal. App. 1st Dist. 2016). See final version of AB 2237 here. Here is a quick rundown on the amendment to Section 1601. A good corporate attorney can help if you have questions about shareholder rights and procedures.
San Diego Corporate Law: Innes and the Revised Corporations Code Section 1601
The 2018 version of section 1601(a) has three sub-parts (the old version had no sup-parts). Sub-parts 1 and 2 make important modifications and sub-part 3 retains the exact language from the previous version not discussed herein.
The first notable change in the 2018 version is the requirement that, if corporate records are not maintained in the State of California, then a corporation is required to make the records available in-state. In pertinent part, the new statute reads:
“(a) (1) The accounting books, records, and minutes of proceedings … of any domestic corporation, and of any foreign corporation … shall be open to inspection at the corporation’s principal office in this state, or if none, at the physical location for the corporation’s registered agent for service of process in this state …”
As noted above, this new language overrules the Innes case. In Innes, the California Court of Appeals held that the old version of Section 1601(a) did not require that a corporation provide inspection of corporate records if such records were normally located out of state. In Innes, the target of the lawsuit — Diablo Controls, Inc. — was a California corporation, but it maintained some of its corporate records at an Illinois corporate office. The Court of Appeals upheld the trial court’s refusal to order Diablo Controls to make the records available in California. Under the new version of Section 1601, if demanded by the shareholder, corporations will have to provide the records for inspection here in California.
In addition to requiring in-state inspections, the new version of Section 1601 gives shareholders the option of electing inspection electronically or via mail delivery. New subsection (a)(2) reads in pertinent part:
“As an alternative to the procedure in subdivision (a), the shareholder or holder of a voting trust certificate may elect to request that the corporation produce the books, records, and minutes by mail or electronically, if the shareholder or holder of a voting trust certificate pays for the reasonable costs for copying or converting the requested documents to electronic format.”
Note that the corporation does not have this option; only the shareholder can make the election. The new version of Section 1601 also makes allowance for a corporation to provide inspection of “true and accurate copies” of corporate records “… if the original has been lost, destroyed, or is not normally physically located within this state…”
Finally, the new version of the statute adds commas between the words books, records and minutes. The old version started in this manner:
“(a) The accounting books and records and minutes of proceedings of the shareholders and the board and committees of the board … shall be open to inspection …”
The 2018 version is this:
“(a) (1) The accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board … shall be open to inspection …”
It is unclear whether any substantive change was intended by the insertion of the commas.
Contact San Diego Corporate Law
For more information, please contact Michael Leonard, Esq. of San Diego Corporate Law. Mr. Leonard’s law practice is focused on business, transactional, and corporate matters, and proudly serves business owners in San Diego and the surrounding communities. Contact Mr. Leonard by email or by calling (858) 483-9200.
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