Can a Shareholder Review the Records of a Chicago, or Any Illinois Company They Invested in?
Many investors and small businesses are given a great deal of information at the outset of the business venture. Over time, the officers and directors of the company sometimes begin to provide less and less information to the investors as time goes on. This situation can be especially troubling if the investor believes that the company is being mismanaged in any way. This leaves the investor in small, privately held business with very little, if any, information regarding the operation and performance of the company that they invested in. This is very different from the situation with a large publicly held company, where many laws and regulations require those public companies to disclose volumes of information regarding the operation and financial well-being of the company. The contrast is stark between these two types of companies, and often investors in small companies are left in the dark.
The Illinois Business Corporation Act
The Illinois Business Corporation Act contains a section specifically designed to ensure that shareholders in small private companies may gain access to the books and records of a company in which they have invested as long as they have a legitimate purpose in requesting the documents. Specifically, Section 7.75 of the Illinois Business Corporation Act states in relevant part:
(b) Any person who is a shareholder of record shall have the right to examine, in person or by agent, at any reasonable time or times, the corporation’s books and records of account, minutes, voting trust agreements filed with the corporation and record of shareholders, and to make extracts therefrom, but only for a proper purpose. In order to exercise this right, a shareholder must make written demand upon the corporation, stating with particularity the records sought to be examined and the purpose therefor.
(c) If the corporation refuses examination, the shareholder may file suit in the circuit court of the county in which either the registered agent or principal office of the corporation is located to compel by mandamus or otherwise such examination as may be proper. If a shareholder seeks to examine books or records of account the burden of proof is upon the shareholder to establish a proper purpose. If the purpose is to examine minutes or the record of shareholders or a voting trust agreement, the burden of proof is upon the corporation to establish that the shareholder does not have a proper purpose.
805 Ill. Comp. Stat. Ann. 5/7.75.
How Illinois Business Corporation Act Is Interpreted
Illinois law requires that shareholders requesting documents pursuant to Section 7.75 show that they have a “proper purpose” in making the request to review records. A shareholder has a proper purpose in requesting records where the request is made in good faith for a specific and honest purpose, not to gratify curiosity or for speculative or vexatious purposes. Once a shareholder establishes a proper purpose they are legitimately entitled to know anything and everything which the books and papers of the company would show so as to protect their financial investment in the company.
Illinois law does not require a shareholder to prove actual mismanagement or wrongdoing on the part of the directors and officers of the company in order to demonstrate a proper purpose. Good faith fears of mismanagement are sufficient to support a shareholder’s request for records.
A shareholder making a records request under Section 7.75 must state “with particularity” the purpose for which they are requesting to review the documents and the scope of the documents they would like to review.
Once the shareholder establishes that they have a proper purpose in making the request, the shareholder’s right to inspect documents extends to all books and records necessary to make an intelligent and searching investigation and from which the shareholder can derive any information that will enable them to protect their financial interests in the company.
Enlist the Help of Chicago’s Top Small Business Attorneys
In short, if you are a shareholder in a privately-held Illinois corporation and you have a legitimate concern that the company is not being managed in your best interest, you have a remedy. The Illinois Business Corporation Act allows you to demand to inspect certain records, and if the company denies your request you are may to file a lawsuit to obtain an order from the court directing the company to produce the requested records. If you would like to discuss the specifics of your situation and your options, please do not hesitate to contact the experienced small business litigation attorneys at Hays Firm LLC.