The founder of a closely-held corporate client, knowing that some employees soon would be shareholders, recently asked whether those employee-shareholders would have the right to find out how many shares he owns. Here is the information I provided concerning who gets to see the shareholder list.
Because the client is a California corporation, Corporations Code Section 1600(a) governs who gets to see the shareholder list. That Section states, in relevant part (emphasis added):
A shareholder or shareholders holding at least 5 percent in the aggregate of the outstanding voting shares of a corporation…shall have an absolute right to…inspect and copy the record of shareholders’ names and addresses and shareholdings during usual business hours upon five business days’ prior written demand upon the corporation….
For Delaware corporations, the applicable provision is in Delaware General Corporation Law Section 220(b), which states, in relevant part (emphasis added):
Any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from [t]he corporation’s stock ledger [and] a list of its stockholders….
The most notable differences between the two states are that:
- Delaware provides the inspection right to all stockholders, whereas California provides it to owners of , in the aggregate, at least five percent of the shares; and
- Delaware requires that the inspection be for a “proper purpose,” though that term is not defined, leaving it for courts to determine its meaning on a case-by-case basis.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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