Delaware Supreme Court Interprets Books and Records Provision of Limited Partnership Agreement

Stinson - Corporate & Securities Law Blog

Stinson - Corporate & Securities Law Blog

In Murfey v WHC Ventures, LLC the Delaware Supreme Court interpreted the books and records provisions of three limited partnership agreements.  The plaintiff wanted Schedule K-1s attached to the partnerships’ tax returns.  The partnerships countered that the K-1s were not “necessary and essential” to plaintiffs’ valuation purpose. The Court of Chancery, based upon its history of interpreting the books and records provision of Delaware’s limited partnership statute in the same manner as the Delaware corporate statute, held that the K-1s were subject to the requirement that documents sought be “necessary and essential” to the stated purpose, and it found that the K-1s failed that “necessary and essential” test. The Delaware Supreme Court reversed.

The limited partnership agreements provided that limited partners could request:

  • the partnership tax returns, and
  • information related to the name, address, capital contributions, and partnership percentage of each limited partner.

The Delaware Supreme Court easily found the requested K-1s were within the scope of the limited partnership agreement. The Court also rejected defendants’ assertion that the requested documents needed to be “necessary and essential,” akin to requirements imposed to inspect corporate books and records. The limited partnership agreements did not expressly condition the limited partner’s inspection rights on satisfying a “necessary and essential” condition.  Given the obvious importance of tax return and partnership capital contribution information to the limited partnerships’ investors, as evidenced by the agreements, the Delaware Supreme Court was not persuaded that such a condition should be implied.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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