Shareholders’ Right to Business Records

Most business partner disputes begin with the owners with majority control hiding information from those in the minority. Nearly all breaches of fiduciary duty amongst shareholders begin with someone hiding information. Shareholders of small businesses have a statutory right to know what is going on in the business they own part of. Fortunately, in Illinois, even a minority shareholder has a right to the records of a corporation. This right is stated in the Illinois Business Corporation Act which provides in 805 ILCS 5/7.75(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.”

A shareholder has every right to examine corporate books and records to protect his interest so long as he has an honest motive and is not proceeding for vexatious or speculative reasons.^[1] If you are cut out of the operations of a business you own in Illinois you have a right to request full records of the business.^[2] Plus the records that must be shared are not just limited to financial records or meeting minutes as the majority owners may tell you. Instead, once a purpose has been established, the shareholder’s right of inspection extends to all books and records necessary to make an intelligent and searching investigation, including all books, papers, contracts, minutes, or other instruments from which he can derive any information that will enable him to better protect his interests.^[3] . “A proper purpose is one which seeks to protect the interests of the corporation as well as the interest of the shareholder seeking the information.”^[4] A minority shareholder has the right to “internal investigatory reports and any and all documents received by any board member of the corporation relating to the federal investigation of the pharmaceutical company.”^[5]

If the majority controlling partners fail to produce business records they face a stiff penalty. 805 ILCS 5/7.75(d) provides:

“Any officer, or agent, or a corporation which shall refuse to allow any shareholder or his or her agent so to examine and make extracts from its books and records of accounts, minutes and records of shareholders, for any proper purpose, shall be liable to such shareholder, in a penalty of up to ten per cent of the value of the shares owned by such shareholder, in addition to any other damages or remedy afforded him or her by law. …” (emphasis added)

If your partners are trying to cut you out of the business and you suspect they are up to something but have not acted yet you can file suit to obtain information and hopefully prevent the harm before it starts. Your partners will be punished with a penalty of up to ten percent the value of your ownership interest plus attorneys’ fees necessary to get a court order requiring them to provide the records requested.

Frequently our firm is retained in shareholder disputes or partnership disputes after a breach of fiduciary duty has occurred. We include a claim in our lawsuits for oppression or breach of fiduciary duty seeking relief pursuant to 805 ILCS 5/7.75(d) which helps our clients achieve complete relief faster and creates nearly automatic lability for attorney fees for the defendant.

“If you are involved in a business dispute or other litigation, the Chicago lawyers at Stoltmann Law Offices Commercial Litigation Group can provide knowledgeable legal representation on a flat fee or contingent fee basis. We bill for value provided to clients rather than time spent. Our goal is efficiently winning your case rather than running up more billable hours. Call us at 312-332-4200 or contact us via email at alex@stoltlaw.com. We represent clients throughout Cook County, including in Evanston, Oak Lawn, and Oak Park, as well as in DuPage County cities such as Naperville and Lisle and Lake County including Highland Park, Waukegan and Lake Forest and handle select cases nationwide with a network of local counsel.”

[1] Logal v. Inland Steel Industries, Inc., 209 Ill. App. 3d 304, 568 N.E.2d 152 (1st Dist. 1991).

[2] See Hohman v. Illinois-Iowa Power Co., 305 Ill. App. 17, 26 N.E.2d 420 (Ill. App. Ct. 1940).

[3] Weigel v. O’Connor, 57 Ill. App. 3d 1017, 373 N.E.2d 421 (1st Dist. 1978).

[4] Logal v. Inland Steel Industries, Inc., 209 Ill. App. 3d 304, 568 N.E.2d 152 (1st Dist. 1991).

[5] Corwin v. Abbott Labs., 353 Ill. App. 3d 848, 819 N.E.2d 1249 (2d Dist. 2004).