Uneasy Footing in Corporate Law: The Scope of Shareholder Inspection Demands

Christian Graham, Esq.

Christian Graham has extensive experience in business litigation and transactions, and has successfully represented national companies in connection with many major projects. He is also an author and speaker on business law topics. He may be reached at cgraham@grahamesq. com

Shareholders have both common law and statutory rights to demand inspection of corporate property. Yet the scope of the rights remains surprisingly open to interpretation under existing California law. The California Supreme Court itself has expressly acknowledged the lack of definition of key terms that would otherwise define important boundaries,¹ but thus far has declined to fill in the blanks.

As a result, corporations both foreign and domestic² may harbor legitimate concerns regarding the obligation to respond to shareholder inspection demands, as the demands can and often do seem overbroad. Liability to third parties or even other shareholders for breach of confidentiality obligations may arise if corporations permit an overly broad inspection to go forward. However, liability may also arise if corporations refuse to permit an inspection and the refusal is deemed by a court of law to have been without justification.³