4 August 2025 • 8 minute read
Document Inspection Rights for Shareholders of Private Companies
The rights of shareholders of privately held corporations or members of limited liability companies, or LLCs, to inspect and copy the corporate documents is a hot topic in the venture capital sphere. This article answers some fundamental questions about the topic so as to identify the most important legal points under Delaware law.
Do shareholders have inspection rights? If so, why?
Yes, shareholders may have inspection rights. Shareholders of a Delaware corporation have statutorily granted inspection rights pursuant to Section 220 of the Delaware General Corporation Law (the “DGCL”) if such shareholder has a “proper purpose” for seeking inspection of the books and records of a corporation. Shareholders may also have contractual inspection rights if granted pursuant to the bylaws, shareholders agreement or operating agreement. Shareholders may demand to inspect documents on both grounds if a contractual source of rights exists.
How do statutory and contractual inspection rights differ?
Generally, Delaware statutes set explicit rules governing a shareholder inspection demand, while an operating agreement or similar contract may set forth similar or different rights. A general summary of the basic similarities and differences is set forth below:
| Statutory right | Contractual right | |
| Basic source of right to inspect | What the statute says | What the contract says |
| How shareholders make inspection demands | Follow the formal steps listed in the statutes | What the contract says; tends to be less formal |
| Process to respond to demand or potentially object to inspection | After shareholder makes a demand, a corporation must respond within five business days, after which shareholders may file an inspection demand claim in the Delaware Court of Chancery | Contractually prescribed process with breach of contract or injunctive relief as a shareholder’s recourse |
| Whose documents may the shareholder inspect? | The books and records of the entity of which the shareholder holds equity; possibly affiliates or subsidiaries depending on context and scope | Usually only the entity of which the shareholder holds equity, unless otherwise provided in the contract |
| Does the shareholder have to state a proper purpose for inspection? | Yes. Proper purpose means a purpose “reasonably related to a stockholder’s interest.” If challenged, shareholder must provide at least some supporting evidence of proper purpose before inspecting documents | No, but corporation may defeat right to inspect if it proves that allowing inspection would be detrimental to the corporation |
| General documents that may be inspected | Stock ledger, shareholder list, tax returns, and "books and records" | All documents listed in the contract (although "books and records" is often used) |
| How does the court decide what documents the shareholder gets to inspect? | Judge asks whether shareholder has demonstrated a need for each particular type of document it demands. Shareholders must provide evidence of corporate wrongdoing beyond just a suspicion | Judge conducts detailed analysis of the contract |
| Confidentiality | Statutory confidentiality obligations | Contractual confidentiality obligations |
| Does loser pay winner's attorney fees? | Court may award fees to prevailing party | Only if such a provision is in the contract |
Can an LLC operating agreement or other agreement provide greater or lesser inspection rights than allowed under the statute?
Yes. The agreement may specify that all or some of the shareholders have the right to inspect types of documents that may not be covered by the statute. It's an open question whether a contract can eliminate statutory rights.
What does it mean when a proper purpose is required for inspection?
Courts take a broad view. Examples of proper purposes include investigating potential mismanagement (so long as a shareholder can demonstrate evidence beyond just a suspicion of wrongdoing), trying to value the equity interests of the corporation or communicating with other shareholders. Examples of a non-proper purpose include seeking corporate documents in order to advance a personal grievance that does not arise out of the shareholder relationship, such as an employment or breach of contract dispute.
What are "books and records"?
“Books and Records” are defined in DGCL § 220(a)(1) as the certificate of incorporation, bylaws currently in effect, minutes of all meetings of stockholders for the prior 3 years, all communications to stockholders (in writing and electronically) in the prior 3 years, minutes of board meetings, materials provided to the board of directors and records of any action of the board, annual financial statements of the corporation for the prior 3 years, and director and officer independence questionnaires.
Can the shareholder inspect attorney-client privileged documents?
No, unless the shareholder can show that good cause exists because the documents are necessary and essential for the claim.
If the corporation rejects an inspection demand and goes to court, how do Delaware judges view inspection rights?
Delaware courts strongly support inspection rights. Indeed, courts chastised plaintiffs' lawyers for years for not making statutory inspection demands before bringing shareholder derivative lawsuits, and courts favor enforcement of contracts. Where a dispute goes to court, in general, judges completely reject a demand only where it is based solely on the statute and the demanding shareholder either doesn't provide enough evidence that its purpose for inspection (such as investigating mismanagement) is real or didn't follow the statutory formalities. Judges also cut back demands that are too broad and look like fishing expeditions.
If completely rejecting a demand is unlikely, what should the corporation do?
Many inspection demands never reach the court because the parties settle. The corporation should consult with counsel, assess how a court would regard the demand, and try to identify and produce a set of documents that is not too burdensome to produce and reflects the courts' basic support for inspection rights, unless there is a reason to think that producing documents to the particular shareholder would hurt the corporation.