The shareholder must write a letter to the Chief Executive Officer or Corporate Secretary detailing the reasons for inspecting the Company`s accounting records. Such requests are often precursors to shareholder lawsuits, so the matter should be handled by a company lawyer. The shareholder may also have hired a lawyer for this purpose, so if you receive a request, it is best to take it seriously and provide documents related to the shareholder`s stated goals. You are not required to grant full access to all accounting records unless ordered to do so by the court. Refusal to comply with the request may be a serious cause of action, so it is in your best interest to comply with the request if applicable. The impact of the rule can be considerable. Suppose a company hires its lawyers to advise and execute a large transaction. Directors should understand that legal advice may one day be disclosed to a shareholder in subsequent proceedings. And it`s not just advice that can be examined. This also applies to the Company`s instructions to its lawyers and their simultaneous communication, as well as to the Board`s internal discussions on advice. The application of the rule does not alter the fact that, for example, the legal advice was provided jointly to the corporation and, for example, to its majority shareholder.

However, the minority shareholder has the right to disclose advice. The legal requirement that a shareholder specify an appropriate purpose when requesting corporate financial documents: The courts take a broad view. In particular, it is appropriate to investigate potential mismanagement (including deciding whether to prosecute officers and directors). This is the attempt to value one`s own shares in the company or to communicate with other shareholders. What is not appropriate is to request documents from the company to advance a personal complaint that does not arise from the shareholder relationship, such as an employment dispute or breach of contract. Consultation of shareholder lists for the purpose of obtaining the names and addresses of other shareholders in order to inform them of complaints or concerns is in itself an appropriate objective. Since the right to communicate with other shareholders on matters of common interest is at the heart of corporate democracy, the law appears to be more favourable to shareholder applications for the share register than for other company documents. As one Texas court found: Shareholders of large and small companies have the right, under Michigan law, to inspect company documents and records. However, there is one important exception to the obligation to disclose documents in the context of legal proceedings, and that is the doctrine of privilege.

In short, a company involved in a lawsuit may refuse to disclose documents that are subject to privilege. The main types of privileges are the legal advice privilege and the litigation privilege. Minority shareholders of small companies enjoy legal protection against mistreatment by majority shareholders. Although not as broad as directors, shareholders of California companies have significant inspection rights, provided the shareholder owns at least five percent in the aggregate or one percent individually of the company`s outstanding shares. (Companies Code, § 1600, para. (a).) Shareholders who meet these requirements may “view and copy the list of names and addresses of shareholders and interests during normal business hours within five business days of the written request.” (Ibid.) In addition, each shareholder shall have the right to inspect and copy the records of shareholders, books and records, and minutes of the Board of Directors, its committees and meetings of shareholders, after the Company has been requested in writing to indicate a reasonable objective in relation to the interest of the shareholder as a shareholder. (Companies Code, §§ 1600, para. c); 1601.) Article 1501 of the Companies Code, paragraphs (a) and (c), also provides that each shareholder has the right to examine a copy of the Company`s financial statements for the preceding financial year within 30 days of a written request.

(Companies Code, § 1501, para. (a) and (c).) The operation of a shareholder rights plan can be demonstrated using an example: Suppose Cory`s Tequila Company discovers that its competitor, Joe`s Tequila Company, has purchased more than 20% of its common shares.