Shareholders May Open the Corporate Books
When you own stock in a corporation, you’re doing much more than investing your time or money in that business. While investment purposes such as financial security or the generation of passive income may be the predominate reasons you choose to own stock, a corporate shareholder actually receives much more in return. In particular, the State of Florida has decided that in consideration for their investment into a corporation, a stockholder should be entitled to inspect and copy certain business records of the corporation.
The records available for inspection can reveal important information about a corporation, including its structure and governance, what decisions were made on behalf of the corporation and who approved or opposed those decisions, and even its financial condition. By making the records generally available to shareholders, the State of Florida is making an effort to promote the distribution of important managerial or financial information and prevent fraud or mismanagement by those in control.
Many shareholders are unaware of this vital tool, and miss out on the opportunity to protect their interests in the corporation. Without such protection from the law in the State of Florida, a corporation could routinely engage in improper business or interested transactions with complete disregard for the well-being of the corporation and the corporation’s shareholders. In doing so, the conduct and activity of the business could be to the sole benefit of individual directors or officers of the corporation, and to the detriment of its shareholders and the shareholders’ investment in the corporation. For those reasons, shareholders should be aware of the basic rights established by the laws of the State of Florida that they are entitled to enforce to their benefit.
The Shareholder’s Absolute Right
Florida law provides shareholders the absolute rightto inspect and copy the following corporate records:
governing documents of the corporation, including the Articles of Incorporation1, the Bylaws2, and resolutions that create one or more classes/series of shares and fix their relative rights, preferences, and limitations3;
minutes of all shareholders’ meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years4;
written communications to all shareholders generally, or all shareholders of a selected class/series of stock, for the past three (3) years5;
financial statements of the corporation for the past three (3) years, which should include the corporation’s balance sheet as of the end of the fiscal year, an income statement for that year, and a statement of cash flows for that year6;
a list of the names and business addresses of the current directors and officers of the corporation7; and
the most recent annual report for the corporation that was delivered to the Department of State, Division of Corporations8.
In order to exercise your absolute right as a shareholder to inspect and copy corporate records, Florida Statute §607.1602 requires that the shareholder provide written notice to the corporation of the shareholder’s demand to inspect and copy certain corporate records. This written notice of demand must be provided to the corporation at least five (5) business days before the date on which the shareholder wishes to inspect and copy the corporate records9.
The Shareholder’s Qualified Right
The right of shareholders to inspect corporate records does not end with the absolute right. However, to be entitled to inspect and copy items beyond the list of records above, the shareholder must possess aqualified rightto make a more extensive demand.
Specifically, the State of Florida requires that (i) the shareholder’s written notice of demand is made in good faith and for a proper purpose; (ii) the shareholder describes with reasonable particularity the purpose for the written notice of demand, and the records the shareholder wishes to inspect; and (iii) the records requested are directly connected with the shareholder’s stated purpose10.
For purposes of determining what a ‘proper purpose’ is under Florida Statute §607.1602, the purpose must be “reasonably related” to the individual’s interest as a shareholder of the corporation11. As the Supreme Court of Florida has stated, this right to inspect and copy corporate records will not be extended to allow a “fishing expedition” or to simply “satisfy idle curiosity” of a shareholder. News-Journal Corp. v. State ex rel. Gore, 187 So. 271, 272 (Fla. 1939).
If a shareholder satisfies the qualified conditions, then in addition to the records identified above, the shareholder is entitled to inspect and copy the following:
excerpts from minutes of any meeting of the board of directors12;
record of any action taken on behalf of the corporation by a committee of the board of directors13;
record of any action taken by the shareholders or board of directors without a meeting15;
Recourse for Improper Denial of Qualified Demand
A corporation may deny a shareholder’s qualified demand if the demand is made for an improper purpose. Further, a corporation may deny a shareholder’s qualified demand if the demanding shareholder (i) sold (or offered for sale) any list of shareholders of the corporation or any other corporation; (ii) has assisted any person in procuring such a list; (iii) or has improperly used any information inspected or copied pursuant to the rights granted under Florida Statute 607.1602, at any time within two (2) years prior to the written notice of demand. In fact, a shareholder who for an improper purpose sells or otherwise distributes any record inspected or copied under the rights established by Florida Statute 607.1602 is subject to a civil penalty of up to $5,000.00. These penalties are incorporated into the law to prevent shareholders from abusing their inspection privileges or using those privileges for improper purposes.
In the event a corporation fails to respond, or wrongfully denies any such request, the requesting shareholder may enforce his rights via judicial intervention and is entitled to recover any costs, including attorney fees, in doing so19.
If you are a shareholder and wish to make written notice of demand to inspect and copy records of a corporation in the State of Florida, you should seek the advice of competent and qualified legal counsel.
The hiring of an attorney is an important decision that should not be based solely on advertisements. All information on this website is provided for informational and educational purposes only, and should not be interpreted as legal advice.
9It is important to note that Florida Statute 607.1602(4) requires that a shareholder give at least fifteen (15) days written notice if the shareholder is requesting to inspect and copy (i) the corporation’s Bylaws; or (ii) the list of the names and business street addresses of the corporation’s current directors and officers.