Shareholders, like any investor, have an interest in staying informed as to the status of their investment. This interest may be difficult to exercise in the case of a shareholder in a close corporation, which is not required to make public disclosures. As an owner of the business, and as a fellow shareholder who is owed a range of fiduciary duties, a shareholder in a close corporation has a right to information regarding the status of the business, as well as assets, investments and the operation and management of the company. This right to information is closely protected under Ohio law, so long as the shareholder requests information in good faith and for a proper purpose.
The shareholder’s right to information is explicitly protected by the Ohio corporate code. Ohio law provides that “Any shareholder of the corporation, upon written demand . . . , shall have the right to examine in person or by agent or attorney at any reasonable time and for any reasonable and proper purpose, the articles of the corporation, its regulations, its books and records of account, minutes, and records of shareholders aforesaid, and voting trust agreements, if any, on file with the corporation, and to make copies or extracts thereof.” O.R.C. § 1701.37(C). A shareholder is entitled to a wide range of information regarding the condition and state of affairs of the business in order to ascertain the status of his investment.
This fundamental right to information enshrined in the statutes has been applied by the courts to require a corporation to provide its shareholder with broad access to information. See No-Burn, Inc. v. Murati, 2011-Ohio-5635 (Ohio Ct. App. 9th Dist., 2011). In No-Burn, the 9th District affirmed the shareholder’s right to receive documents responsive to eighteen categories of requests, including general ledgers, bank statements, financial statements and reports (including reports and/or memoranda to management), documents pertaining to expense reports and expense reimbursement, sales commissions, salaries and bonuses, and documents pertaining to inter-company transfers, among many other types of documents. It must be noted that the shareholder in that case made his request as a general inquiry, and not in conjunction with any preexisting litigation. The 9th District affirmed that the categories of requests were within the shareholder’s general right to information provided by O.R.C. § 1701.37(C). Further, the 9th District rejected the Defendants’ argument that providing such information was burdensome to the company, affirming the trial court’s finding that “much of the information is stored [on the company’s internal computers] . . . and could be identified easily . . . .” No-Burn at **18.
The Ohio Supreme Court has also confirmed the shareholder’s broad right to information. The Court has stated that in order for a shareholder to exercise his or her right to information, “[n]othing more is required than that, acting in good faith for the protection of the interest of the corporation and his own interest, he desires to ascertain the condition of the corporation’s business.” Lake v. Buckeye Steel Castings Co., 2 Ohio St. 2d 101, 104 (Ohio, 1965). Furthermore, the Court clarified that the burden is on the corporation, and not the requesting shareholder, to rebut the presumption that the shareholder’s request is made in good faith and for a proper purpose.
The courts have also provided guidance on what may be considered a proper purpose for an information request. For example, a shareholder may rely on his statutory right to information to request inspection of the corporation’s records for the purpose of investigating whether there were any improprieties in the management and operation of the company. Grossman v. Cleveland Cartage Co., 8 Ohio Op. 2d 492 (Cuy. Cty. Ct. of Com. Pls., 1959). And the corporation may not be able to object to a shareholder’s right to inspection on the basis that he may compete with the corporation. The fact that the demanding shareholder is also a shareholder and officer in a competing corporation is not sufficient evidence of an unreasonable or improper purpose to deny the shareholder’s right to information. Mayer v. Cincinnati Economy Drug Co., 89 Ohio App. 512 (Ohio Ct. App. 1st Dist., 1951) (decided under former analogous section).
Ohio law provides strong protection for a shareholder seeking to inspect corporate records and other information. So long as the shareholder’s request is made for the purpose of protecting his or her investment, or for any other proper purpose, the corporation can be required to permit inspection of a very broad range of information.
The shareholder’s right to information is explicitly protected by the Ohio corporate code. Ohio law provides that “Any shareholder of the corporation, upon written demand . . . , shall have the right to examine in person or by agent or attorney at any reasonable time and for any reasonable and proper purpose, the articles of the corporation, its regulations, its books and records of account, minutes, and records of shareholders aforesaid, and voting trust agreements, if any, on file with the corporation, and to make copies or extracts thereof.” O.R.C. § 1701.37(C). A shareholder is entitled to a wide range of information regarding the condition and state of affairs of the business in order to ascertain the status of his investment.
This fundamental right to information enshrined in the statutes has been applied by the courts to require a corporation to provide its shareholder with broad access to information. See No-Burn, Inc. v. Murati, 2011-Ohio-5635 (Ohio Ct. App. 9th Dist., 2011). In No-Burn, the 9th District affirmed the shareholder’s right to receive documents responsive to eighteen categories of requests, including general ledgers, bank statements, financial statements and reports (including reports and/or memoranda to management), documents pertaining to expense reports and expense reimbursement, sales commissions, salaries and bonuses, and documents pertaining to inter-company transfers, among many other types of documents. It must be noted that the shareholder in that case made his request as a general inquiry, and not in conjunction with any preexisting litigation. The 9th District affirmed that the categories of requests were within the shareholder’s general right to information provided by O.R.C. § 1701.37(C). Further, the 9th District rejected the Defendants’ argument that providing such information was burdensome to the company, affirming the trial court’s finding that “much of the information is stored [on the company’s internal computers] . . . and could be identified easily . . . .” No-Burn at **18.
The Ohio Supreme Court has also confirmed the shareholder’s broad right to information. The Court has stated that in order for a shareholder to exercise his or her right to information, “[n]othing more is required than that, acting in good faith for the protection of the interest of the corporation and his own interest, he desires to ascertain the condition of the corporation’s business.” Lake v. Buckeye Steel Castings Co., 2 Ohio St. 2d 101, 104 (Ohio, 1965). Furthermore, the Court clarified that the burden is on the corporation, and not the requesting shareholder, to rebut the presumption that the shareholder’s request is made in good faith and for a proper purpose.
The courts have also provided guidance on what may be considered a proper purpose for an information request. For example, a shareholder may rely on his statutory right to information to request inspection of the corporation’s records for the purpose of investigating whether there were any improprieties in the management and operation of the company. Grossman v. Cleveland Cartage Co., 8 Ohio Op. 2d 492 (Cuy. Cty. Ct. of Com. Pls., 1959). And the corporation may not be able to object to a shareholder’s right to inspection on the basis that he may compete with the corporation. The fact that the demanding shareholder is also a shareholder and officer in a competing corporation is not sufficient evidence of an unreasonable or improper purpose to deny the shareholder’s right to information. Mayer v. Cincinnati Economy Drug Co., 89 Ohio App. 512 (Ohio Ct. App. 1st Dist., 1951) (decided under former analogous section).
Ohio law provides strong protection for a shareholder seeking to inspect corporate records and other information. So long as the shareholder’s request is made for the purpose of protecting his or her investment, or for any other proper purpose, the corporation can be required to permit inspection of a very broad range of information.
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