DealLawyers.com Blog

Section 220 of the DGCL gives stockholders the right to inspect “the corporations’ stock ledger, a list of its stockholders, and its other books and records” upon showing a proper purpose.  If you’re like me, you may well have used the terms “stockholder list” and “stock ledger” interchangeably – and if you did that, you’d be wrong.  This excerpt from a recent Duane Morris blog explains:

A short, letter decision by Chancellor McCormick ruling on motions for summary judgment in the matter of Mitchell Partners, L.P. v. AMFI Corp., et al., C.A. No. 2020-0985-KSJM (July 3, 2024) provides a crisp  reminder–both to me and to other professionals advising Delaware corporations–that they are not the same thing given the clear language of Section 219(c) of the DGCL.

The letter decision is a quick-read at eight pages, so I commend it to the reader in its entirety.   That said, three lessons emerge from this decision.

First, Section 219(c) is specific in its command that a Delaware corporation keep a stock ledger and enumerates the small list of information required to be including on the ledger. The Chancellor quotes from a 1956 decision of the Delaware Supreme Court noting that a stock ledger is “a continuing record of stockholdings, reflecting entries drawn from the transfer books, and including (in modern times) nonvoting as well as voting stock.”

That leads directly to the second lesson: the Chancellor notes that the stock ledger must record “all issuances and transfers of stock of the corporation” (emphasis in original).  This includes non-voting shares of stock.  The stock ledger in the matter being decided was found deficient because it excluded a class of stock that had been issued but was nonvoting in nature.

The blog says that the third lesson – the information that a company must include in a compliant stock ledger – was addressed in this footnote to the Chancellor’s opinion:

8 Del. C. § 219(c) defines “stock ledger” as “1 or more records administered by or on behalf of the corporation in which the names of all of the corporation’s stockholders of record, the address and number of shares registered in the name of each such stockholder, and all issuances and transfers of stock of the corporation are recorded in accordance with § 224 of this title.” 8 Del. C. § 219(c).

The footnote goes on to point out that Section 224 of the DGCL provides that the stock ledger must be kept so it “(i) can be used to prepare the list of stockholders specified in §§ 219 and 220 of this title, (ii) record the information specified in §§ 156, 159, 217(a) and 218 of this title, and (iii) record transfers of stock as governed by Article 8 of subtitle I of Title 6.”

This may seem like a highly technical issue, and I guess it is – but the directors’ alleged failure to maintain a stock ledger with all the information required by the statute served as a basis for a breach of fiduciary duty claim that Chancellor McCormick refused to dismiss.  So, this is another area of Delaware law where it’s important to keep the “t’s crossed & the i’s dotted”.

– John Jenkins