HABITAT

RIGHT TO INSPECT BOOKS AND RECORDS

Right to Inspect Books and Records

Oct 01, 2018

Andrew D. Stern, Partner, Tane Waterman & Wurtzel

Most co-ops are governed by the New York Business Corporation Law, which governs most corporations in the state of New York. Section 624 of the Business Corporation Law sets out certain statutory obligations of corporations to keep records. It also sets forth the rights of shareholders in those corporations to access certain corporate books and records.

 

The statute requires corporations to keep books and records of account. This essentially means a general ledger or documents as well as minutes of shareholder meetings, board meetings, and executive committee meetings. Finally, the statute requires that the corporation maintain a share register saying who owns how many shares and how long they've owned them or when they took ownership of those shares. There's also a requirement that these records be capable of being reduced to writing. That has to be doable within a reasonable period of time.  

 

Right to Inspect Books and Records 

Pursuant to statute corporations, including co-ops, must keep correct and complete books and records, including minutes of shareholder, board and executive committee meetings and a record of who owns shares and when they bought them. These records are deemed prima facie evidence of the facts stated therein in any case against the co-op. Shareholders have a right to access some, but not all, of these records in person or by an agent. A co-op can condition access on certain sworn statements from the requesting shareholder. Shareholders can challenge a co-op’s refusal to grant access in Court in a statutory proceeding. Shareholders can also demand certain financial statements be sent to them by mail. (Business Corporation Law, Sec. 624)

 

The statute also requires the corporation to provide access to certain records to shareholders or their properly authorized agents, such as their attorneys. The corporation shall be required to share the information in writing or whatever form it keeps it in, such as digital Excel spreadsheets or a QuickBooks file, for example. The records a shareholder has a right to access include minutes of shareholder meetings and the share register. Those records should be accessible to any shareholder for inspection upon written request.

 

The corporation must also be able to mail the shareholder, upon request, a balance sheet and profit-and-loss statement, and any interim profit-and-loss statement or balance sheet that they have in their records for the prior year. It's important to note that the right to access under the statute covers only a small portion of the total records that the corporation is required to maintain.

 

This is where the tension comes into play. Section 624 allows corporations to condition access on a sworn statement attesting that the shareholder's reasons for wanting access to those records have to do with the co-op itself and not for, example, with selling a list of shareholders to some other business, such as a direct-mail firm.

 

It also allows shareholders to file a special proceeding if there's any controversy about which books and records the shareholder is entitled to, and what the corporation should or should not grant access to.

 

The statutory rights of shareholders to access records of their corporation are part of a larger universe of rights of shareholders to access records. There are rights found in their proprietary leases, and there are common-law rights. However, because the records that a shareholder has statutory rights to access are considered prima facie evidence in any claim a shareholder might bring against the corporation, boards, or directors of the corporation, these records are critical. The rights are laid out in black and white under the law.

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