SHAREHOLDERS SHOULD READ THE FINE PRINT BEFORE INSPECTING BOOKS & RECORDS

 

Lawyers

Several recent lawsuits have revealed that companies incorporated in Delaware are placing novel conditions on books and records requests that go well beyond the typical confidentiality agreement.

Delaware laws permits shareholder access to books and records for a legitimate reason.  As a condition to access, companies often require the shareholder to sign nondisclosure agreements to prevent the information from becoming public.

However, over the last couple of years, several shareholder lawsuits have revealed that companies are going beyond confidentiality agreements to place additional conditions on books and records access.

For example, earlier this year, the Delaware Chancery Court permitted Yahoo to condition inspection of a shareholder’s agreement on the shareholder incorporating by reference all of the documents in any subsequent derivative action filed by the shareholder.

More recently, technology startup Domo Inc. was challenged in chancery court over a requirement that any documents the shareholder obtained would not be used in a subsequent lawsuit against the company.

In addition, in a recent complaint filed by a Hay Island Holding Corp. shareholder alleged that the closely held firm would only allow inspection if it could restrict her right to share the information, including with her attorney.

Stay tuned to see how these conditions hold up under the scrutiny of the Delaware courts.

You can read more about this developing trend here.