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Update on California Shareholder’s Right to Inspect Records
If you own shares of stock in San Diego or anywhere else in California, among your rights as a shareholder is the right to inspect and review the corporate books and records. This right was originally a common law right, but now has been codified. See Cal. Corp. Code § 1601(c). Here is a quick rundown and some news.
San Diego Corporate Law: Shareholders Right to Inspect Records
Under Cal. Corp. Code § 1601(c), any shareholder has a right to inspect the corporate books and records. To trigger the right to inspect, the shareholder must send a letter — sometimes an email will be acceptable — to the appropriate corporate officer. That is usually the Secretary of the corporation, but sometimes another person is designated to handle inspection requests.
The letter must request inspection with a reasonable amount of advance notice (no “emergency” inspections) and must ask for inspection during reasonable hours of operation (no midnight inspections). The statute requires that records “be open to inspection . . . at any reasonable time during usual business hours.” Furthermore, the letter must state a purpose for the inspection. Failure to state a purpose can be grounds for the corporation to deny the request for inspection. Cal. Corp. Code § 1601(c) states that the purpose must be “reasonably related” to the shareholder’s interest as a shareholder. Generally, purposes that are acceptable are something like a concern for “proper management” or “proper accounting methods” or similar.
Cal. Corp. Code § 1601(c) applies to all corporations; that is, the statute does not provide an exception for publicly traded corporations.
San Diego Corporate Law: The Question of Where and of Mailed Copies
If there is a dispute among the shareholders, requests to inspect records can become subject to intense resistance, particularly if there are claims related to mismanagement or to financial irregularities. Those who are in charge of the corporation can vigorously resist allowing an inspection. Thus, we note the caution above about making sure there in a purpose listed in the inspection request.
Another method of resisting inspection requests is to make the inspection costly and/or time-consuming. Cal. Corp. Code § 1601(c) does not specify the location of the inspection and does not provide for copying and/or any sort of electronic delivery. California courts only require that the records be “made available” for inspection wherever the records are kept. Thus, if the records are in San Diego, but you live in Sacramento, you will be making a trip. See Innes v. Diablo Controls, Inc., 248 Cal. App. 4th 139 (Cal. App. 2016). It is possible that, if you can prove the corporation is deliberately keeping the records in some remote location to prevent inspection, you might win a court case. But, in general, you must go where the records are and you have no right to demand copies be mailed to you.
San Diego Corporate Law: Assembly Member Seeks Change
Recently, a member of the California General Assembly, Brian Maienschein, who represents the 77th District here in San Diego County, introduced new legislation on shareholder inspection rights. See AB 2237 here. Among the changes, the bill would require that corporations make copies of corporate records available at the corporation’s principal place of business or at the office of the corporation’s registered agent. Furthermore, records would be required to be made available via mail at a reasonable cost to be borne by the shareholder. The bill has not been enacted yet.
Contact San Diego Corporate Law Today
If you would like more information about shareholder rights, contact attorney Michael Leonard, Esq., of San Diego Corporate Law. Mr. Leonard can be reached at (858) 483-9200 or via email.
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