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.
Proper Purpose
Meaning
Valid and legitimate reason for a shareholder to demand an inspection of a corporation books and records. A proper purpose must be reasonably related to the person interest as a stockholder, such as investigating mismanagement or valuing an equity stake. This requirement prevents the use of corporate data for personal gain or to assist a business rival.
Shareholder Interest
Desiring to communicate with other owners about a proxy vote or a tender offer is a recognized reason for access. The law protects the ability of the investor to participate in the governance of the firm by ensuring they have the facts needed to make an informed decision.
Investigative Intent
Accusations of wrongdoing must be backed by a credible basis of evidence before the court will grant a request. A general desire to monitor the board is not enough; there must be a specific concern that warrants the time and expense of an inspection.
Disclosure Justification
Balancing the right to information with the company need for confidentiality is the primary task of the judge in these cases. If the purpose is deemed proper, the court may still impose restrictions on who can see the documents and how the information is used to protect sensitive trade secrets. These protective orders often require the shareholder to sign a non disclosure agreement before the first page of the ledger is turned over for review.