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Delaware Chancery Law Blog Corporate and Commercial Practice in the Delaware Court of Chancery

Delaware LLC “Books and Records” Demand

Posted in Books and Records Demand, Summary Proceedings

A member or manager of a Delaware limited liability company may wish to obtain access to the company’s books and records.  Such information can be useful in determining, for example, the company’s financial wherewithal, or to investigate actions taken by management to ensure that the company is being run properly.

Section 18-305 of the Delaware Limited Liability Company Act (the “LLC Act”), allows any member of a Delaware limited liability company (“LLC”) to petition the Court to obtain books and records of the LLC upon “reasonable demand for any purpose reasonably related to the member’s interest as a member of the [LLC].” 6 Del. C. § 18-305(a). In addition, managers of a Delaware LLC may petition the Court to obtain LLC books and records for a “purpose reasonably related to the position as manager.”  Id. at § 18-305(b).

The statute authorizes the following categories to be inspected by a member or manager who sets forth a proper purpose:

(1) True and full information regarding the status of the business and financial condition of the limited liability company;

(2) Promptly after becoming available, a copy of the limited liability company’s federal, state and local income tax returns for each year;

(3) A current list of the name and last known business, residence or mailing address of each member and manager;

(4) A copy of any written limited liability company agreement and certificate of formation and all amendments thereto, together with executed copies of any written powers of attorney pursuant to which the limited liability company agreement and any certificate and all amendments thereto have been executed;

(5) True and full information regarding the amount of cash and a description and statement of the agreed value of any other property or services contributed by each member and which each member has agreed to contribute in the future, and the date on which each became a member; and

(6) Other information regarding the affairs of the limited liability company as is just and reasonable.

6 Del. C. § 18-305(a).

The process for making such a demand is discussed in Section 18-305(e).  Specifically, the demand “shall be in writing and shall state the purpose of such demand.”  6 Del. C. § 18-305(e).  The demand must be sent to the LLC, and if no response is received within 5 business days, the member or manager may petition the Court of Chancery for an order to compel such disclosure.  See 6 Del. C. § 18-305(f).

Notably, the rights of a member or manager to review the LLC’s books and records may be limited by the operating agreement of the LLC.  6 Del. C. § 18-305(g).  Therefore, when making a demand to inspect an LLC’s books and records in Delaware, a party should first review the operating agreement to determine whether any such restrictions exist.

Subsequent posts will set forth additional requirements for asserting a books and records action against a Delaware LLC, including the requirement that the demand state a “proper purpose”, and that the categories of documents requested be “narrowly tailored” to such purpose.

Carl D. Neff is an attorney with the law firm of Fox Rothschild LLP.  Carl is admitted in the State of Delaware and regularly practices before the Delaware Court of Chancery, with an emphasis on shareholder disputes.  You can reach Carl at (302) 622-4272 or at cneff@foxrothschild.com.