Delaware Limits Stockholder Access to Corporate Records

Delaware Governor Matt Meyer recently signed substantial modifications to Section 220 of the Delaware General Corporation Law (Section 220), a significant statute granting stockholders of corporations organized under Delaware law the right to inspect the company’s books and records. These inspection rights are commonly utilized by a sophisticated plaintiffs’ bar of stockholders seeking evidence to support lawsuits against a corporation’s directors and officers for alleged breaches of fiduciary duty regarding corporate decision-making. The amendments, effective upon the governor’s signature, narrowed the scope of permissible inspection under Section 220, potentially complicating stockholder plaintiffs’ ability to bring forth claims against Delaware corporations’ directors and officers. The changes were part of Delaware Senate Bill 21, a response to the trend of Delaware corporations reincorporating in other states offering what they view as more accommodating laws. The goal was to reinforce Delaware as the primary location for U.S. and global businesses by clarifying governance structures to uphold the state’s reputation for fair, predictable, and efficient corporate oversight.

Section 220 enables stockholders of Delaware corporations with a “proper purpose” to access and copy relevant corporate books and records. Delaware courts have highlighted that a “proper purpose” includes investigating potential corporate mismanagement. Stockholders are encouraged to use Section 220 to gather essential evidence before initiating substantial lawsuits against the corporation and its directors and officers. Prior to the recent amendments, the third catch-all category “other books and records” was relied upon by stockholders when submitting pre-litigation inspection requests. While the original expectation was to restrict inspection requests to critical board-level documents, such as board minutes and resolutions, Delaware courts have consistently interpreted Section 220 more broadly. They recognized stockholders’ right to access additional corporate documents like letters and memoranda among officers and directors. Courts granted stockholders access to emails and electronic communications among relevant personnel if regular corporate documents were insufficient to fulfill the stockholder’s proper purpose.

This year’s changes to Section 220 have narrowed the scope of permissible inspection. Notably, the term “books and records” is now explicitly defined, restricting it compared to the previous version of the statute. The specified “books and records” subject to inspection under the amended Section 220 now include the corporation’s certificate of incorporation, minutes of stockholder meetings, communications to stockholders, board minutes, annual financial statements, agreements with stockholders, director and officer questionnaires, and more. If a stockholder seeks to enforce inspection under Section 220, the Delaware Court of Chancery may only order the inspection of the specified categories of documents, unless certain procedural requirements are met. The recent amendments aim to balance stockholders’ inspection rights with the need to protect corporations from excessive or unnecessary requests for information.