Corporate shareholders possess important inspection, or information rights, in most jurisdictions. In Delaware, inspection rights are codified under Section 220 of the DGCL. Inspection rights provides shareholders with a “proper purpose” the ability to review certain “books and records” of the company. Both the proper purpose criterion and the breadth of the books and records available for shareholder inspection have been recurring areas of litigation and Court decision. In recent years, 220 demands have become more common, and thus litigation involving this shareholder right more common and decisions more varied.
According to at least one post on the Harvard Forum on Corporate Governance, the reason for that is at least partially because Delaware courts have invited it and the resulting decisions have continued to evolve the law.
Per this post, reviewing developments in DGCL 220 law, the headlines for those interested in this critical shareholder right are:
- Only in limited circumstances will emails and text messages be available for inspection – but they may be available sometimes!
- The proper purpose must align with the purpose of counsel bringing the action. Differences in purpose between the shareholder and their counsel may be fatal to the 220 demand.
- The proper purpose requirement is not just a “speed bump” and requires at least some evidence.
We will continue to cover DGCL 220 issues as this important shareholder right intersects with many others, including appraisal rights.