On October 31, 2024, the Delaware Court of Chancery issued a letter opinion in Martin Floreani v. FloSports, Inc. that underscores Delaware’s exacting standards for stockholder inspection rights under 8 Del. C. § 220 (“Section 220”). The decision highlights the “strictly enforced” statutory requirements that Delaware courts apply to Section 220 demands and provides a reminder that compliance is critical to a stockholder’s right to secure access to corporate records.
Section 220 is a popular tool for stockholders who seek information to investigate potential corporate mismanagement or to evaluate the value of their investment. This provision gives stockholders the right to inspect corporate books and records. To succeed, a stockholder must demonstrate a proper purpose, a credible basis for their investigation, and an appropriate scope for their request.
In Floreani, Chancellor McCormick summarized “the form-and-manner requirements of Section 220(b)” as follows:
Breaking it down, Section 220(b) requires that a demand: (1) be in writing, (2) be under oath, (3) state the stockholder’s purpose, and (4) be directed to the corporation at its registered agent or principal place of business. (5) If the stockholder is not a record holder, then the demand must be accompanied by documentary evidence of beneficial ownership of the stock. (6) If the demand is sent by an attorney, then it must be accompanied by a power of attorney. That’s four form-and-manner requirements that apply in all circumstances and two that apply in certain circumstances.
The Chancery Court declined to grant Floreani’s broad inspection request, pointing out that he had failed to meet certain procedural prerequisites for a valid demand.
The Floreani opinion reinforces that Delaware courts take a stringent approach to Section 220 demands. By ensuring compliance with the technical and substantive requirements, stockholders can maximize their chances of success in accessing the information they seek.