Disputes among company owners can arise where minority owners feel excluded or suspect mismanagement. Under the North Carolina Limited Liability Company Act and the North Carolina Business Corporation Act (the “Acts”), owners’ rights include the ability to request or inspect corporate records.[1] If your company receives a request from an owner to inspect records, it’s important to understand your obligations and how to respond appropriately.
Information Rights: What Owners Can Request
The Acts permit each owner of a company to inspect and copy, or otherwise obtain, specific categories of information from the company, including articles of incorporation or organization; governing documents (such as bylaws and operating agreements); tax returns; financial statements; lists of current interest owners, their addresses, ownership status, and relevant dates of ownership changes; information related to each owner’s capital contributions and interests; and information that reflects the company’s current financial health and operational status.
The company may not be required to disclose company official trade secrets or other confidential information that could adversely affect the company, and the company may also impose certain conditions or restrictions on the exercise of the member’s information rights.
Procedural Requirements for Inspection Requests
To exercise these rights, the member must sign and deliver written notice to the company. The written notice must be delivered in advance of the inspection, with differing time limits for corporations and LLCs. The request must specify the records sought and state the purpose for the inspection and the intended use for the information. Unless otherwise agreed upon by the company, the inspection must take place at the company’s principal office during regular hours. Failure to meet these procedural requirements may render the request invalid.
What Should Companies Do When They Receive a Request?
- Verify the Request’s Validity. Ensure the request is signed by an owner (or their authorized representative, such as a lawyer) and complies with the statutory requirements.
- Consult Legal Counsel. A business attorney can help interpret the request and advise on your obligations under the company’s governing documents and state law.
- Review the Governing Documents. The company’s governing documents may expand, limit, or clarify the scope of information rights. Ideally, an owner would review those documents with counsel, but regardless, it’s essential to understand how those documents interact with statutory provisions and the request at issue.
- Respond Promptly and Transparently. Timely and complete responses help avoid disputes and demonstrate good faith.
- Maintain Accurate Records. Keeping organized and accessible records ensures compliance and simplifies the response process.
What an owner should not do is ignore the request. Owners can enforce information requests in litigation and may be able to recover attorneys’ fees and costs after doing so.
By understanding your obligations under North Carolina law and responding thoughtfully, your business can protect itself while maintaining trust with its owners.
[1] N.C.G.S. §§ 55‑16‑02, 57D‑3‑04. All owners have these inspection rights, but they are rarely exercised by majority or controlling owners because those owners typically have the authority to inspect corporate records without first making a statutory demand.
