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Minority Shareholders: Right to Corporate Records

RIGHT TO CORPORATE RECORDS

Throughout this series we will detail some of the common methods that majority shareholders use to destroy a minority shareholder's value in the company and what rights a minority shareholder has when this happens. In this post we address a minority shareholder's right to inspect corporate records.

One method by which a majority shareholder may injure a minority shareholder is to prevent the minority shareholder's access to corporate records. In doing this, a majority shareholder can continue to take a disproportionate share of income and profits from the company while keeping the minority shareholder in the dark.

Fortunately, a minority shareholder has an "unbridled statutory right" to inspect the records of a corporation under Georgia law.[1] In Georgia, "[a] shareholder of a corporation is entitled to inspect and copy, during regular business hours at the corporation's principal office, [certain records][2] if he gives the corporation written notice of his demand at least five business days before the date on which he wishes to inspect and copy."[3] Additionally, a shareholder of a corporation is entitled to inspect and copy accounting records of the corporation as long as:

(1) His demand is made in good faith and for a proper purpose that is reasonably relevant to his legitimate interest as a shareholder;

(2) He describes with reasonable particularity his purpose and the records he desires to inspect;

(3) The records are directly connected with his purpose; and

(4) The records are to be used only for the stated purpose.

Also, under Georgia law, each corporation is required to give to the minority shareholder a balance sheet showing the financial condition of the corporation and a profit and loss statement showing the results of its operation during its fiscal year.[4] These rights to inspect corporate records may not be destroyed by a corporation's articles of incorporation or its bylaws. If the majority shareholder refuses to produce documents that he or she is required to provide, a court may order the documents to be produced.[5]

As a shareholder, make sure you always stay abreast of your company's records, as this can protect you from other shareholders stealing company funds right out from under your nose. One method by which majority shareholders will attempt to steal your money is by diminishing the value of your shares, the topic of the next post.



[1] Shelters, Inc. v. Reeve, 131 Ga. App. 18, 205 S.E.2d 108 (1974).

[2] These corporate records include articles of incorporation, bylaws, resolutions of shareholders or board of directors changing the number of directors, the classification of directors, and number or type of shares, minutes of all shareholders' meetings, communications to shareholders within the past three years, financial statements furnished for the past three years under Code Section 14-2-1620, and the most recent annual registration. O.C.G.A § 14-2-1602(a)

[3] O.C.G.A § 14-2-1602

[4] O.C.G.A § 14-2-1620.

[5] O.C.G.A § 14-2-1604.

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