Several years ago, I wrote about stockholder inspection rights. (See Which Financial Information Must a Corporation Provide to its Shareholders? ) This post explains how stockholders of a Delaware corporation can waive inspection rights.
Delaware General Corporation Law Section 220 gives stockholders a right to “inspect for any proper purpose, and to make copies and extracts from…[t]he corporation’s stock ledger, a list of its stockholders, and its other books and records”. Furthermore, “proper purpose” means “a purpose reasonably related to such person’s interest as a stockholder.”
No Waiver in Charter Documents…
In 1929, the Delaware Court of Chancery determined that when a statute sets forth stockholder rights, the corporation’s Certificate of Incorporation or Bylaws cannot vaive those rights. In effect, the statute overrules a conflicting charter provision.
The Court made this point in Gaskill v. Gladys Belle Oil Co.:
The unanimous consent which is said to have authorized the creation of the preferences by by-law action is ineffectual to do so in the face of such statutory provisions as are found in the Delaware act. Such authorization if valid can only be so on the theory that it is competent for the stockholders to waive the statutory requirement that the preferences shall be such as are specified in the certificate of incorporation. That the doctrine of waiver can operate to that extent, I think is clearly contrary to Delaware authority.
…but Stockholders Can Waive Inspection by Contract
However, the Court of Chancery has determined that stockholders can waive inspection rights, and other rights, by contract. For example, in 2000 the Court decided Kortum v. Webasto Sunroofs Inc.
Although the Court found no waiver based on the facts of that case, it did acknowledge that such a waiver is possible if the relevant contract clearly so provides:
But the Shareholders Agreement does not contractually limit the information that must be provided to WSI shareholders, nor does it expressly provide for a waiver of statutory inspection rights under § 220. There can be no waiver of a statutory right unless that waiver is clearly and affirmatively expressed in the relevant document.
Please note that this discussion pertains solely to Delaware corporations. Other states vary as to whether or how they permit such waivers.
Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
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