Shareholders of a Delaware corporation have at their disposal the ability to demand inspection of the books and records of a Delaware corporation pursuant to Section 220 of the Delaware General Corporation Law.  This blog post will briefly discuss the proper scope of a Section 220 action to inspect the books and records of a Delaware corporation.

Once a proper purpose has been established for a books and records action, and assuming that other procedural requirements of the Section 220 demand have been met, the Court will examine whether the scope of the inspection is appropriate.  The general rule is that a Section 220 demand is not a license for wide ranging discovery.  See Saito v. McKesson HBOC, Inc., 806 A.2d 113, 114 (Del. 2002).  Instead, a stockholder seeking inspection of books and records pursuant to this section must “make specific and discrete identification, with rifled precision, of the documents sought,” and those documents must relate to the purpose of the demand.  Brehm v. Eisner, 746 A.2d 244, 266 (Del. 2000).  Generally speaking, a stockholder will be allowed to inspect only those documents that it proves to be “essential and sufficient” to the accomplishment of its stated purpose(s).  Tactron, Inc. v. KDI Corp., 1985 WL 44694, at *1 (Del. Ch. Jan. 10, 1985).

Ultimately, Section 220 provides stockholders of record with the tools to obtain access to a corporation’s books and records, and can serve as an important tool in forming a basis for a derivative action if corporate wrongdoing is found to have existed.

If you would like to speak to a litigator in Fox Rothschild’s Delaware office, please reach out to Sid Liebesman (302) 622-4237 or Seth Niederman (302) 622-4238.