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In November of 2022, Pennsylvania made another major update to the Business Corporation Law (“BCL”). We have previously discussed the effect and impact the change in the BCL has on annual report filings for a Pennsylvania entity. The most recent revision makes it much easier for an owner of a company (partner, shareholder, or member) to obtain corporate records for the business and to perform their own accounting of the company’s dealings. It also makes it much harder for the company (or its controlling shareholder / member / partner) to obstruct or refuse to provide the records upon a proper demand. This blog post discusses the new rules requiring a company to make corporate records available to all owners of the company, the process one should follow to get the records, and what to do if the person in control of the company’s records refuses to cooperate.
The new change applies to corporations which have shareholders, partnerships that have both general and limited partners, and to limited liability companies. To make it easier, we saved the applicable Pennsylvania rules and made them available on our website:
Generally speaking, a company has many different types of corporate records. There are business and financial records and an owner of a company typically has the right to review most–if not all–of them. Some of these names may differ for different types of entities. For more, review our post about the different types of business entities in Pennsylvania and differences between a Corporation, a Limited Liability Company, and a Partnership.
The types of corporate records that exist for a company are:
Put simply, every owner of a company should be able to see how their company is operating and Pennsylvania’s BCL allows for a business owner to make a demand to see those records. This includes the company’s formation documents, meeting minutes and business decisions made by corporate resolution, and financial records. In fact, the BCL makes it clear that business owners are entitled to “any record” relating to the company’s activities, affairs, business affairs and/or financial condition. This is stated differently for different types of corporate entities, but overall the intent and effect and intent is the same.
In Pennsylvania, a shareholder of a business:
has the right to examine, in person or by agent or attorney, during the usual hours for business for any proper purpose, the share register, books and records of account, and minutes of, and consents in lieu of meetings … and to make copies or extracts therefrom.
15 Pa. C.S. § 1508
In a partnership, irrespective of whether a person is a general partner (one with the right to control the partnership’s operations) or a limited partner (an investor with little control over the partnership’s dealings), on reasonable notice:
a partner may inspect and copy during regular business hours, at a reasonable location specified by the partnership, any record maintained by the partnership regarding the partnership’s business, financial condition and other circumstances.
15 Pa. C.S. § 8446
Additionally, so long as a limited partner has a proper purpose, the a limited partner can review information:
regarding the activities, affairs, financial condition and other circumstances of the partnership
15 Pa. C.S. § 8634
Similarly, in a limited liability company (also known as an LLC), regardless if it is member managed (by the members of the company) or manager managed (by managers), a member is entitled to:
inspect and copy during regular business hours, at a reasonable location specified by the company, any record maintained by the company regarding the company’s activities, affairs, financial condition and other circumstances.
15 Pa. C.S. § 8850
This is where the updated BCL really favors the little guy (or gal). Previously, you had to make a demand and hope that the company complied. Now, there is a clear statutory ten (10) day requirement to comply. Let me say that again, each of the laws detailed above requires the company or its manager to provide the records or have a good reason for refusing. Ok, so what is the process?
First, the request has to be for a “proper purpose” or a good reason. It needs to be “reasonably related to the interest of the person as a shareholder.” Although you can’t demand corporate records for no reason, the definition is fairly broad and there is a plethora of reasons that are arguably “reasonably related” to the business owners interests.
Next, the request has to be made in writing and should describe “with reasonable particularity” the following:
Finally, the request should be provided to the company’s usual place of business, and if it doesn’t have one, at its registered office. To be safe, copy the other owners, shareholders, or members by email. However, even in the days of email, its best to send these requests certified mail with read / return receipt so that you can show when you mailed the request.
After a company receives a request to inspect its corporate records, it must analyze that request carefully and respond quickly. As stated above, the company has ten (10) days after receipt of a request for information to respond. In the response, the company must inform the person who made the demand which records it will provide, when, and where. If the company declines to produce any records, it must detail the reasons for declining any demanded information.
Importantly, the company doesn’t have to shoulder the time and expense of providing the records. Instead, it can make those records available for copying at its place of business (or some other mutually agreeable location) or it can impose the costs of copying the records on the person making the request.
However, in today’s digital age, the reality is that most records either already have been scanned or can be easily scanned and emailed. Similarly, QuickBooks and bank statements can be downloaded and emailed.
The company can also impose reasonable limitations or conditions on access. For instance, it can designate certain records confidential and make the person asking for the records agree not to disclose them to third parties. The company can also place restrictions on the use of its records.
If a company refuses the demand for information, doesn’t respond within ten (10) days, or agrees to produce records but then doesn’t, you can go to the court and get a court order. The 2022 update to the BCL makes it expressly clear that companies “shall” reply and comply with record demands, and if they don’t, the court may “summarily” order them to comply. Summarily is important because it implies that the court won’t get into a prolonged dispute about the record request and formalities. The update to the BCL is intended to expedite the process and make it easier.
Hopefully the detailed description above gives you the tools you need to get the records you need. However, if you need help, we are here. Whether you are an investor trying to obtain business records, or a business owner that just received a record request from one of your partners, we can help. We have represented parties in shareholder litigation, helped review business records, and advised our clients on the right way to proceed in all types of business disputes.
Our consultations are always FREE. Please don’t hesitate to Contact us for a free consultation! You can either fill out our website form or dial (215) 876-0800.
Kaminsky Law is a small business-oriented litigation Law firm licensed in Pennsylvania and New Jersey with cost-effective approach to lawsuits, settlements, and dispute resolution.