by Dan Conlisk
Although they may arise in corporations of any size, disputes between or among corporate officers, directors and shareholders of closely-held businesses are all too common. Such disputes result from, for example, differences regarding how the company is or should be operated; whether assets are being misused; the compensation of, and/or distributions to, various officers, directors and shareholders; and even long-endured family dynamics playing out in the context of the control and conduct of the business. While disclosure may be the universal antidote in commercial disagreements of all types, those in control of corporate books and records tend to lock-down access to them and the information they contain. Missouri law is clear that corporate directors and shareholders – regardless of their posture in intra-company disputes – are entitled to inspect the corporation’s books and records. Their right to do so comes from three sources and is readily enforced.
First, a director is a fiduciary to the corporation and its shareholders. State ex rel. Moore v. State Bank of Hallsville, 561 S.W.2d 722, 724-25 (Mo. Ct. App. 1978). As is true of all fiduciaries, the core of a director’s obligation is to exercise informed judgment in corporate affairs. It is “axiomatic that a director have access to information contained in the corporate books and records” to do so. Id. at 725. Accordingly, a director has an “absolute and unqualified right to examine such records.” Id.; see also State ex rel. Gundaker v. Davis, 932 S.W.2d 885, (Mo. Ct. App. 1996); State ex rel. Kennedy v. Continental Boiler Works, Inc., 807 S.W.2d 164, 166 (Mo. Ct. App. 1991).
Second, Missouri statutes provide that “[e]ach shareholder may at all proper times have access to the books of the company, to examine the same, and under such regulations as may be prescribed by the bylaws.” Mo. Rev. Stat. §351.215.1. A corporate officer who refuses a shareholder’s demand to submit records for inspection is subject to a $250 fine for each such refusal. Mo. Rev. Stat. §351.215.2.
Under the statute, once the shareholder establishes his/her status as such, the company can resist his/her request to examine records only by proving an “evil, improper, or illegal reason for seeking to examine the documents.” State ex rel. Kennedy v. Continental Boiler Works, Inc., 807 S.W.2d 164, 166 (Mo. Ct. App. 1991). Otherwise, a shareholder “clearly has the right to inspect so as to protect his own investment in the corporation.” Id. Courts will order corporate officers to provide such information “even though [the shareholder’s] only object is to ascertain whether the affairs of the company have been properly conducted by the directors and managers.” State ex rel. Watkins v. Cassell, 294 S.W.2d 647, 652 (Mo. Ct. App. 1956) limited on other grounds, State ex rel. Jones v. Ralston Purina Co., 358 S.W.2d 772, 776 (Mo. 1962) (en banc).
Third, Missouri common law requires that a corporation allow a shareholder to inspect its records upon a showing a satisfactory reason and proper purpose for seeking the documents. State ex rel. Brown v. III Investments, Inc., 80 S.W.3d at 860; see also State ex rel. Jones v. Ralston Purina Co., 358 S.W.2d at 776. Upon such a showing, the “shareholder is entitled to inspect those documents and records held by the corporation that would aid the shareholder in his or her purpose.” State ex rel. Brown v. III Investments, Inc., 80 S.W.3d at 860; see State ex rel. Jones v. Ralston Purina Co., 343 S.W.2d 631, 639–40 (Mo. Ct. App. 1961), reversed on other grounds, State ex rel. Jones v. Ralston Purina Co., 358 S.W.2d at 772.
Finally, directors’ and shareholders’ rights to inspect corporate books and records is so firmly established that courts routinely will enforce it through writs of mandamus – proceedings in which courts order corporate officers to provide books and records for inspection on an expedited basis. State ex rel. Kennedy v. Continental Boiler Works, Inc., 807 S.W.2d 164, 167 (Mo. Ct. App. 1991). This is true even where those resisting disclosure contend that the right to the information may be misused or abused: “[t]he mere possibility of abuse or misuse of the right does not afford any ground for its denial or restriction [of a writ of mandamus], and the factors which motivate a director in the exercise of this right are not the proper subjects of judicial inquiry.” State ex rel. Moore v. State Bank of Hallsville, 561 S.W.2d at 724-25. To the contrary, “[a] presumption exists that inspection of books and records by a director is made in good faith and with honesty of purpose. Where enforcement of inspection rights is sought through mandamus, those objecting to such inspection bear the burden of overcoming such presumption.” Id.
Simply stated, against the background of intra-company disputes and otherwise, directors and shareholders have clear rights to a broad range of corporate information. Courts readily enforce those rights in expedited proceeding so that directors and shareholders may avoid protracted litigation to secure the information that they need. As in many commercial contexts, access to such information may, and often does, resolve disagreements or narrow their focus. Accordingly – even in the face of stubborn refusal on the part of corporate officers – directors and shareholders need not, and should not, surrender their rights to the information they seek.