By James Forrest

From time to time, our clients inquire regarding their rights, as shareholders of a corporation or members of a limited liability company (LLC), to access and inspect the company’s books and records.  The answer to this question requires analysis of many factors, including the nature of the shareholder’s interest, the character of the books and records sought, and the reason for the inspection.

Statutory and Common Law Applications

Shareholders in North Carolina have long enjoyed the right to inspect the books and records of the companies in which they invest.  Under the common law, shareholders of both public and private corporations had the right to make reasonable inspection of the corporation’s books and records, including financial and accounting records, if the request was made in good faith and for a proper purpose and numerous cases have construed both the propriety and reasonableness of such requests.  Under current statutes, shareholder inspection rights vary, depending on the type of company, the nature of the shareholder’s interest and the records being sought.  For example, NCGS § 55-16-02 specifies the records that may be inspected by a “qualified” shareholder, which is further defined as a person who has held at least 5% of the corporation’s stock for at least six months. Despite the apparent restriction imposed by this language, our Supreme Court has concluded it does not alter a shareholder’s common law inspection rights.  Therefore, both the statutes and common law are relevant when analyzing questions regarding shareholder inspection rights.

Restriction of Inspection Rights

Another question that frequently arises is whether the company may legally restrict a shareholder’s inspection rights or refuse an inspection request once made.  Assuming the company was organized in North Carolina, the answer to this question often turns on the type of entity chosen by the company’s organizers.

Business corporations organized in North Carolina are expressly prohibited from abolishing or limiting shareholder inspection rights through the corporation’s articles of incorporation or bylaws. NCGS § 55-16-02(d).  Furthermore, North Carolina follows the majority rule that once a corporation receives a facially valid (i.e., reasonably related to a proper purpose) shareholder request, it may only be denied if the corporation can show that the inspection is intended to harass or annoy, or advance some improper purpose.

The same cannot be said for limited liability companies.  LLC’s are primarily creatures of statute and contract.  Although each member of an LLC has a statutory right to inspect certain records and information regarding the affairs of the company, see NCGS 57C-3-04, this right may be restricted in either the articles of organization or operating agreement, and may include standards governing the information to be furnished and the time, place and manner of production. Even in the absence of such a restriction, the Act allows managers to keep certain information from non-managing members, if they believe in good faith that the disclosure of the information would not be in the best interest of the company.


For these and other reasons, any determination regarding the scope of shareholder (or member) inspection rights is often a fact-intensive inquiry.  However, because of the profound effect such rights (or the absence thereof) can have on the management and operation of an organization, investors and organizations alike are often well-served by such an analysis.