A member of a Delaware limited liability company (“LLC”) may find it desirable to make a demand to inspect the books and records of the company. For example, a member may wish to inspect the books and records in order to determine the financial wherewithal of the company, or simply to keep an eye on corporate management.
LLCs and other Delaware alternative entities are creatures of contract, meaning that they are not subject to the more rigid statutory framework of the Delaware General Corporation Law (“DGCL”). By contrast, under the DGCL, 8 Del. C. § 220 provides a right to shareholders, directors and officers of a Delaware corporation to inspect the company’s books and records, provided that the requirements of the statute are met, including a “proper purpose” being alleged.
In the LLC context, in the absence of a books and records inspection clause in an LLC operating agreement, the “default” provision under the LLC act, 6 Del. C. § 18-305, will apply.
However, members can negotiate clauses in an LLC’s operating agreement that expand or limit members’ rights to inspection of company books and records. This is significant because if the operating agreement strictly prohibits inspection, then such a clause will generally be upheld by the Court. On the other hand, the agreement may provide for more expansive rights. See Mickman v. American International Processing, LLC, C.A. No. 3869-VCP (July 28, 2009) (Court upheld clause in LLC agreement allowing members access to all company books and records and only requiring one day advance notice).
Therefore, it is important for any member of a Delaware LLC to consult their operating agreement to determine the allowable scope of inspection rights, or to ensure that such language is taken into account when negotiating the terms of an LLC agreement.