A board of directors has the right to inspect the business records of a corporation in Georgia. However, shareholders are typically not afforded the same rights as members of the board. Yet, shareholder rights allow for the inspection of business records as long as they follow the rules for inspecting documents under Georgia law.
What are the rules for inspecting business records upon request?
The board of directors in a corporation usually meets periodically with shareholders to review business records. However, shareholders may want to access business records outside of their scheduled meetings with the board. In Georgia, the statute provides shareholders have the right to copy the following records during normal business hours at the corporation’s principal office upon request:
- articles of incorporation
- resolutions adopted by the shareholders or board of directors
- names and residence addresses of all members of the board
- minutes of all shareholders’ meetings
- executed waivers of notice of meeting
- all communications to shareholders within the past three years including financial statements
- names and business addresses of current directors and officers
- the most recent annual registration delivered to the Secretary of State.
Are there any limitations on shareholders’ right to inspect business records?
Shareholders may inspect and copy any of the previously listed business records provided that written notice is given to the corporation at least five business days before the date they intend to inspect and copy. Corporations are not allowed to use their bylaws or articles of incorporation to limit or abolish shareholders’ right to inspect and copy.
However, shareholders have to meet additional requirements if they want to access information including but not limited to excerpts from board of directors or shareholder meetings, accounting records of the corporation and the record of shareholders. In order to access these particular records, shareholders have to make a good faith demand to inspect and the purpose for inspecting must be proper and reasonably relevant to the legitimate interest of the shareholder.
Shareholders also have to provide a description that reasonably indicates the purpose of the inspection and the requested records have to be directly connected to the shareholder’s purpose. Additionally, the records may only be used for the stated purpose. However, for these particular documents, a corporation’s articles of incorporation of bylaws may limit the right to inspection for shareholders owning 2 percent or less of the shares outstanding.
What is the shareholder’s remedy at law if the corporation refuses to comply?
Corporations are not always eager to comply with a shareholder’s request to inspect and copy business records. Therefore, Georgia courts may get involved and order the corporation to permit inspection and copying of the demanded records. Before obtaining a court order, the shareholder must send written notice of his or her demand to inspect the records at least five business days before the date of inspection.
If the corporation does not respond or refuses to allow the shareholder to inspect the records, then the shareholder may obtain an order from the court requiring the corporation to allow for the inspection and copying of the records. If the corporation further refuses to comply with the court order or tries to circumvent the court order, the corporation may be held in civil contempt. In G.I.R. Systems, Inc. v. Lance, Georgia courts found that the corporation was in civil contempt for responding to a court order requiring records to be made available to the minority shareholder by producing redacted records that were essentially deemed useless in their redacted form.
Although shareholders may not have all of the same rights and responsibilities as the board of directors, members do have certain rights including the right to inspect and copy corporate records. Shareholders’ rights are statutorily protected and shareholders have the option of getting a court order requiring the corporation to comply with the shareholders’ right to inspect and copy if their right is improperly denied. Once the courts get involved, the corporation must either comply or face adverse consequences imposed by the courts including civil contempt of the corporation. Contact KPPB LAW for more information.