Stockholder Rights to Information

Stockholder Rights to Information: Gaining Access

Under the inspection statute, a stockholder's rights to information will only be enforced if the stockholder follows certain procedures carefully.

Written Demand

The shareholder must make demand for inspection in writing.  There is no requirement that the demand be sworn or notarized. Typically, a certified letter delivers written demand to an officer of the corporation or to its registered agent; however, neither the statute nor the common law prescribes any particular format or method of delivery. Presumably, an email to an officer or director would be just as effective.

Statement of Purpose

The Texas statute provides that the demand must state the purpose of the inspection, and the purpose must be a proper purpose.  In order to exercise his statutory rights, the shareholder need not demonstrate, show proof, or otherwise convince the corporation of a proper purpose. He is required merely to “state” the purpose.  The statement of purpose is important because the corporation’s duty to permit inspection is limited to records reasonably related to the stated purpose.  However, the shareholder does not forfeit the right of inspection by failure to state a proper purpose. If the corporation refuses to allow inspection, then the shareholder is still entitled to enforce his common law inspection rights in court, but will be required to introduce proof of a proper purpose.

Description of Documents Requested

The statute does not require the shareholder to describe the documents sought; rather the shareholder is entitled to review all its books and records of account, minutes, and share transfer records that are relevant to the purpose stated in the demand.  Typically, demands for inspection do give a list of documents requested. This practice probably stems from the fact that attorneys preparing these demands are familiar and comfortable with the requests for production of documents in civil litigation. Also the description of documents demanded assists in demonstrating the relationship between the purpose and the documents if there is a question. Description of documents also assists the corporation in gathering the documents and placing them in a specific place for inspection, for the convenience of corporation and to prevent disrupting business operations. However, exercising the right of inspection is very different from serving a discovery request. Describing categories of documents puts the burden on the shareholder of guessing what kinds of documents the corporation keeps and tends to allow the corporation to take a rather restrictive view of what documents it will make available for inspection. A shareholder would be completely justified stating only that he intended to inspect all books and records relevant to the purpose described and attempting to inspect those records as they are kept in the files. The best practice is to state the purpose, demand inspection of all relevant books and records, and provide a nonexclusive list as a starting point.

Timing of the Inspection

A shareholder is entitled to conduct the inspection at any reasonable time or times.  There is no requirement of any period of prior notice to the corporation. Conceivably, a shareholder could show up at the corporation’s place of business, hand over the written demand, and begin the inspection immediately. However, the corporation might justifiably claim that immediate inspection was not “reasonable.” There is no requirement that the shareholder state in the demand when the inspection is to occur, but doing so increases the odds that the corporation will voluntarily comply.

Place of Inspection

The statute does not specify where the inspection must take place. Texas Business Organizations Code requires the corporation to keep certain records and to make them available for inspection.  Therefore, the logical conclusion is that the inspection is to be made where the records are kept. Typically, the demand will state that the shareholder intends to be at a certain location, e.g. the corporate headquarters, during normal business hours on a certain day to begin the inspection.

A question arises as to corporations with records in many different places or out of state. Nothing in the Texas case law or statute suggests that there is any duty on a Texas corporation to do anything other than to make the records available to the shareholder—in other words, the shareholder must go to the records, not the other way around. One commentator has suggested that a Texas corporation may have an obligation to bring out of-state records back into Texas to accommodate an inspection demand by a Texas shareholder.  However, nothing in the statute suggests any requirement to keep or produce records within the state. Texas corporations are not required to maintain their headquarters in the state. Therefore, it is difficult to conceive of any legal requirement for Texas corporations to maintain or produce their business records for inspection within the state.

Who Participates in the Inspection?

Shareholders are permitted to conduct the inspection in person or by agent, accountant, or attorney.  There is no requirement to disclose who will do the inspection in the written demand; nor is there any requirement to execute or provide the corporation with a written appointment or power of attorney. However, if the shareholder does not intend to be present, the best practice would be at least to identify the agent who will conduct the inspection in the written demand or prior to the commencement of inspection.

Compliance With Stockholder Rights to Information

Generally speaking, the role of the corporation is essentially passive when a shareholder exercises his rights to information under the Texas inspection statute. The statute does not require the corporation to make a specific response and does not set any deadlines. In fact, the corporation is not required to gather information or set up a document room. Many attorneys approach the inspection as though it were a document production in civil litigation, but it is not and the rules of civil procedure do not apply. All the corporation is required to do is to allow the shareholder access to the corporate records to inspect them where they are kept. The shareholder is not required to tell the corporation when he will make the inspection, but it is a better practice to do so.

Practice Pointer

Generally, when we send an inspection demand, in addition to the statement of purpose, we give a descriptive list of the types of documents we wish to inspect. We indicate that we are willing to agree to any reasonable conditions that will minimize the inconvenience of the inspection and any concerns the corporation might have regarding confidentiality. We request a written response by a date certain, typically five business days, and state that, if we do not receive a response, we will appear at the corporate headquarters at a specific date and time to commence the inspection.


Although the corporation is permitted to take a passive role in response to a demand for inspection, it would be ill-advised to do so. The corporation would be much wiser to take a hands-on, proactive response to the inspection demand so that it may control the process of identifying and gathering documents, reach an agreement on the expenses of the effort, obtain protections for confidential or proprietary information, negotiate limitations on the scope of the inspection so as to minimize the burden on the corporation, and make logistical arrangements that will minimize any disruption from having a potentially angry shareholder on premises.

Reasonable Conditions

A corporation may require some reasonable conditions on the inspection so as to protect the rights of other stockholders and avoid harm to the corporation, and courts frequently impose some reasonable limitations or conditions that result in the shareholder receiving something less than “unfettered access” to the books and records.  For instance, in Ritchie v. Rupe, the corporation would only permit the original corporate stock and minute books to be inspected and copied on the corporate premises.  The minority-shareholder plaintiff argued that this was an unreasonable restriction on her statutory right to inspect the books and records of the corporation.  The appellate court rejected this argument, holding that a corporation is “entitled to impose reasonable restrictions for the protection and integrity of its books and records. [Plaintiff] has not shown that requiring some of [corporation’s] original books remain on its premises to be copied was an unreasonable restriction . . . .” 

However, the courts tend to be skeptical about such conditions and will not permit the corporation to substantially abridge the shareholder’s rights. In Johnson Ranch Royalty Co. v. Hickey,  the corporation agreed to allow an inspection and audit of the books and records but imposed a number of onerous conditions. The shareholders agreed to some but not all of the conditions, and the corporation refused to allow the inspection. The trial court ordered the corporation to permit the inspection and audit and imposed following conditions on the shareholders in the order: That the shareholders bear all expenses and not unnecessarily interfere with the conduct of the business; that no valuable deeds or other instruments, contracts, or any of the books or papers be removed from the defendants’ office; that the plaintiffs post a $10,000 bond for the safe redelivery to the corporation of all documents; that plaintiffs use a Texas CPA; and that the examination and audit be conducted continuously and diligently. The plaintiffs did not challenge the conditions imposed by the district court, and the court of appeals affirmed the judgment. The court of appeals seemed to accept the notion that some reasonable conditions might be imposed by the corporation or ordered by the court; however, the court of appeals stated in dicta: “We think the court’s judgment and the conditions imposed upon plaintiffs are even more liberal than defendants could insist upon under the law.”  The key is the “reasonableness” of the conditions or limitations. Any unreasonable restrictions imposed by the corporation constitute a “constructive” refusal to permit inspection.

Confidentiality Agreement

A common condition, generally approved by the courts, is a reasonable confidentiality agreement preventing the shareholder from using the information obtained to compete against the corporation or otherwise to injure the corporation, particularly if the shareholder works for a competitor or there is some other reasonable basis for concern.  A Delaware court has held that a shareholder, otherwise entitled to inspection, “may be limited in its use of any information where the information is confidential and release would harm the company.”  “[I]t is customary for any final order [in a § 220 action] to be conditioned upon a [reasonable] confidentiality [agreement].”  In Ihrig v. Frontier Equity Exchange Association,  the court held that the corporation may limit disclosure to those records reasonably related to the proper purpose, and may prescribe limitations or conditions on disclosure as deemed just and proper, including prohibiting on any publication of information contained in records.


The corporation may not require shareholders to post a bond to guaranty the safety or redelivery of documents, “unless it had been shown that the plaintiffs had threatened or would likely take possession of valuable records, deeds, etc.”

Designation of Agent or Agent’s Qualifications

A stockholder is entitled to conduct an inspection personally or through an agent, and the corporation has no right to dictate who the agent may be or to limit the plaintiff’s choice of agent by, for example, requiring the agent to have particular qualifications. In Johnson Ranch Royalty Co. v. Hickey,  the court of appeals held that the corporation was not entitled to specify that the shareholders’ agent conducting the inspection be a Texas CPA.

Limitations on Time or Deadlines for Completion

In Johnson Ranch Royalty Co. v. Hickey,  the court of appeals held that the trial court’s requirement that the examination, once commenced by plaintiffs, be conducted continuously and diligently until finished” is “more favorable to them than the law justifies.” The court held that the law requires that a “corporation’s books and records shall at all reasonable times be open to the inspection of the stockholder, and does not limit them to any particular hours or any period or periods of time which may be reasonable.”  Nevertheless, courts are sensitive to the reality that the corporation’s primary business is not the facilitation of shareholder inspection and that inspection can sometimes be disruptive. Corporations will be allowed to take reasonable efforts to schedule the inspection with the shareholder and will not be held to have refused the inspection merely because of scheduling difficulties.

Furnishing a Substitute Is Insufficient

A corporation may not satisfy its obligation to permit shareholder inspection by offering a substitute, such as an annual statement. “The fact that the defendant had its books audited annually and furnished its officers copies thereof is no defense in this proceeding. . . . The right [of shareholder inspection] cannot be defeated by an audit of the company’s business and furnishing the stockholder with the auditor’s report.”


“The law does not sanction an indefinite delay in granting the right to inspect. The right of inspection is a present right when the demand is made at a reasonable time and an indefinite delay in according this right is equivalent to a denial of it.”  Similarly, one Texas court has held that a four-month delay in responding to a request was a refusal.  However, the Dallas court of appeals held in Watson v. Homeowners Association of Heritage Ranch, Inc. that a reasonable delay for the purpose of determining a policy for payment of the costs associated with inspection and copying of records does not constitute a refusal. 

Right to Photocopy

In addition to inspecting the books and records, the shareholder has the right to make photocopies. However, neither the statute nor the cases interpreting it have addressed the details. Usually, when all parties are cognizant of their legal responsibilities and are acting maturely and professionally, the corporation will either gather the documents (most of which will already be in electronic form) and simply provide them, or will agree to have a bonded litigation copy service remove paper documents, copy or scan them, and then return them to the corporation, as is done in document productions under the rules of civil procedure. However, when corporations wish to obstruct the shareholders information rights, they will often refuse to allow corporate records to leave the premises and insist that any copies be made with the company's equipment on site, at an exhorbitant cost per page. Fortunately, technological advances have limited the effectiveness of that tactic, as very satisfactory scans of documents can be made for free using the camera in any smart phone.

Expenses of Inspection

No Texas case has addressed whether a corporation has a right to charge the shareholder for the right to conduct the inspection. The Corpus Christi court of appeals recently decided a case involving inspection rights of a member of a nonprofit corporation and rejected the member’s argument that a nonprofit corporation could not charge an “inspection fee.”  The court held that the nonprofit corporation could charge the member for the reasonable expenses incurred in the inspection, including not only the cost of copies, but the hourly rate for the corporation’s bookkeeper to assemble the records and “oversee” the inspection.  The court’s reasoning, however, was based largely on the language in the Non-Profit Corporation Act that the inspection of books and records be conducted “at the expense of the member”  and on the member’s attorney’s stipulation in the trial court that the member would pay for necessary expenses.

The statutory language governing inspection in for-profit corporations does not include the “at expense of the member” language.  Given that the keeping of the books and records at the corporation’s principal place of business is a statutory obligation of the corporation,as is the making of those documents available for inspection, it would seem odd that a corporation would be permitted to charge a shareholder for the corporation's expense in complying with its own legal obligations. Obviously, if the corporation incurs any expense accommodating the requests of the
shareholder beyond its bare legal obligations, such as making photocopies, then it would only be fair for the shareholder making the request to bear the expense. Most likely courts will examine this issue based on the rule of “reasonableness.”  Corporations must act reasonably under the circumstances and may not use charges to the shareholder of expenses as a method to substantially abridge the shareholder’s rights or to punish the shareholder for the exercise of those rights.