Inspection Rights of Directors and Shareholders

Contrary to popular belief, directors and shareholders do not have the same rights to inspect corporate books, records and physical assets. A director has an absolute right to inspect. However, a shareholder has the burden of showing that the inspection is for "a purpose reasonably related to such shareholder's interest as a shareholder." An inspection to obtain information to help the shareholder compete with the company is unreasonable. An inspection to determine share value is more reasonable. This burden of proof may affect which documents can be inspected by the shareholder. Although the following table references California corporations codes, laws controlling inspection rights exist in all states.

* A shareholder who owns at least 5% of the corporation's stock may request the company to deliver or mail within 30 days the following: (a) an income statement for the one to three quarters ending at least 30 days prior to the request; (b) a balance sheet as of the end of that period; and (c) an annual report for the prior fiscal year (you may not request it until at least 120 days after the fiscal year closed.). If there is no annual report, the 5% shareholder may request the company to deliver or mail within 30 days the following in lieu of an annual report: (1) balance sheet of the corporation's prior fiscal year; (2) an income statement for that same fiscal year; (3) a statement of changes in financial position for the fiscal year; and (4) copies of all quarterly balance sheets, income statements and statements of changes in financial position. (Cal. Corp. Code §1501(c))