Delaware Chancery Court Section 220 Inspection Demand Mechanics and Enforcement
Delaware Section 220 demands require strict execution formalities, verified proof of ownership, and a credible basis to inspect targeted board records.
Inspection Demand
Meaning
A formal written request by a shareholder to examine a corporation’s books and records acts as a primary tool for gathering information before filing a lawsuit. An inspection demand must specify the documents sought and state a proper purpose that is reasonably related to the petitioner’s interest as a stockholder. This mechanism allows investors to investigate suspected corporate mismanagement or to evaluate the value of their shares.
Statutory Right
Stockholders in Delaware and other jurisdictions are granted the right to inspect corporate records under specific statutory provisions. To enforce this right through an inspection demand, the shareholder must comply with strict procedural requirements, including the submission of the demand under oath. This formal process ensures that the corporation has a clear opportunity to evaluate the request and respond appropriately.
Proper Purpose
The legal standard requires the shareholder to demonstrate a credible basis from which the court can infer that mismanagement has occurred. An inspection demand cannot be used for general curiosity or to conduct a fishing expedition into corporate records. This proper purpose requirement balances the shareholder’s need for information against the corporation’s interest in protecting confidential business documents from unnecessary disclosure.
If the shareholder’s purpose is found to be improper, the corporation is justified in refusing to produce the requested files.
Corporate Response
Corporate officers receiving the request have a limited time to respond and must either agree to the production or state their objections. If the corporation rejects the inspection demand, the shareholder can file a summary action in a court of equity to compel the production of the requested records. This litigation is expedited to ensure that the shareholder’s rights are not compromised by administrative delays.