Business divorce litigation often stems from a lack of communication. Often, majority shareholders want to control all of the financial information and are reluctant to open up the books. This lack of transparency can leave a minority shareholder feeling pushed out. It also tends to cause distrust and suspicion. Both sides need to communicate in order to avoid litigation over access to company information. As long as the demand for inspection is reasonable, the majority should comply with the request. In fact, Pennsylvania law requires every corporation to provide its shareholders with financial statements at least annually. 15 Pa. C.S.A. § 1554. By law, the statements must contain a balance sheet and a statement of income and expenses.
In addition, 15 Pa.C.S.A. 1508 states the following:
Every shareholder shall, upon written verified demand stating the purpose thereof, have a right to examine, in person or by agent or attorney, during the usual hours for business for any proper purpose, the share register, books and records of account, and records of the proceedings of the incorporators, shareholders and directors and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to the interest of the person as a shareholder. In every instance where an attorney or other agent is the person who seeks the right of inspection, the demand shall be accompanied by a verified power of attorney or other writing that authorizes the attorney or other agent to so act on behalf of the shareholder. The demand shall be directed to the corporation:
(1) at its registered office in this Commonwealth;
(2) at its principal place of business wherever situated; or
(3) in care of the person in charge of an actual business office of the corporation.
If a demand for an inspection in accordance with the statute is not met, the minority shareholder can seek to compel an inspection through litigation. To avoid litigation over access to information, I suggest that the parties try to negotiate access. If they can do it, they have one less thing to argue over.
If you have questions about business divorce, preventing litigation, or other shareholder issue, contact me at email@example.com.