November 29, 2017
Books & Records: “Present” Need to Value Shares Required
Shareholders frequently assert their need to obtain information necessary to value their shares as a “proper purpose” for a books & records demand. This Pepper Hamilton memo says that a recent Chancery Court decision limits a shareholder’s ability to establish a proper purpose for inspection on this basis. Here’s an excerpt:
A recent decision by the Delaware Court of Chancery, Mehta v. Kaazing, (Del. Ch.; 9/17), confirms that stockholder demands to inspect corporate books and records based on the need to value a stockholder’s shares may be validly denied if the stockholder is unable to demonstrate that it has a “present” need to value its shares.
Indeed, as the court makes clear, simply reciting a proper purpose, such as valuing one’s shares or investigating mismanagement, is not enough. To justify inspection, the stockholder must set forth the circumstances underlying its need for inspection and demonstrate that the stockholder has a need to inspect corporate books and records at the present time.
While Section 220 has been construed liberally, the memo says that the Court’s decision provides an arrow in the quiver of a Board to resist a demand based on valuation when a shareholder does not provide specifics on why it has a need to value its shares at the time.
– John Jenkins