I’ve written previously on inspection and information rights in the corporation and LLC context and how a written request to the company’s management is required in order to obtain access to the company’s books and records. However, what if that request is denied?
Court-Ordered Inspection of Books and Records
Both the North Carolina Business Corporation Act (Chapter 55) and the North Carolina Limited Liability Company Act (Chapter 57D) allow corporate shareholders or LLC members to petition the court for an order allowing them to inspect their respective company’s corporate records (N.C.G.S. § 55-16-04 and N.C.G.S. § 57D-3-04 respectively). Chapter 55 calls these rights “inspection rights” while Chapter 57D calls them “information rights.” For the purposes of this article, I will refer to both as “inspection rights.”
While Chapter 55 expressly provides for the right to petition the court, Chapter 57D merely provides the statutory right for LLC members to inspect corporate records, but stops short of enumerating an express right to petition the court. However, courts regularly allow petitions to be made pursuant to 57D-3-04 to enforce member inspection rights even without the express statutory right similar to that in Chapter 55. Chapters 55 and 57D also differ as to the remedies provided to a party seeking court-ordered inspection rights.
Reasonable Expenses – Corporations
A shareholder who complies with N.C.G.S. § 55-16-02(a) (the demand requirements for shareholder inspection rights) and is denied access to the company’s books and records may petition the court to enforce his rights. If the court orders inspection and copying of the records demanded, it shall also order the corporation to pay the shareholder’s costs (including reasonable attorneys’ fees) incurred to obtain the order unless the corporation proves that it refused the inspection in good faith because it had a reasonable basis for doubt about the right of the shareholder to inspect the records demanded. N.C.G.S. § 55-16-04(c).
Reasonable Expenses – LLCs
An LLC member is not provided the same remedies, or at least not in the same manner. Chapter 57D does not directly provide for the payment of reasonable expenses to a member seeking court-ordered enforcement of his inspection rights. However, Chapter 57D allows for the same result, but by different means.
Generally speaking, LLC’s are governed by their respective operating agreements. Typically, operating agreements will set out the same inspection rights that are already provided by statute (N.C.G.S. § 57D-3-04). LLC operating agreements are contracts among the members and managers of the LLC, as well as with the LLC itself (the LLC is a party to its own operating agreement). If member inspection rights are included in the LLC operating agreement, it creates a contractual duty on the part of the LLC (and likely its manager(s)) to allow for the inspection and copying of LLC books and records by its members upon adequate written demand for the same. Chapter 57D also provides for the recovery of reasonable expenses (including attorneys’ fees) for beach of operating agreement claims, if the operating agreement itself allows for such remedies. So, while Chapter 57D does not directly provide for the recovery of reasonable expenses in seeking a court-ordered inspection of books and records, it provides for the same or similar remedy through a breach of operating agreement action seeking the same rights. Same ends – different means.
Keep in mind that this scenario will not apply to all LLCs because it relies on these provisions being included in your LLC’s operating agreement.
If you need assistance in requesting and obtaining an inspection or copy of your company’s books and records, whether it’s a corporation or an LLC, be sure to contact a competent business litigation attorney as soon as possible.