Under the Illinois Business Corporations Act (“Act”), a shareholder has the right to examine corporate “books and records of account, minutes, voting trust agreements filed with the corporation and record of shareholders, and to make extracts therefrom, but only for a proper purpose.” 805 ILCS 5/7.75(b) (emphasis added). In order to exercise this right, a shareholder must make written demand upon the corporation, stating with particularity the records sought to be examined and the purpose therefore.
What is a “proper purpose?”
In Corwin v. Abbott Laboratories, the trial court ordered Abbott Laboratories, an Illinois corporation, to produce documents requested by one of its shareholders. Abbott argued on appeal that the trial court erred by finding that the shareholder had a “proper purpose” in requesting the documents at issue. The Act provides that a shareholder may inspect corporate books and records “for a proper purpose.” However, the Act does not define that term. The court held that a proper purpose is shown when a shareholder has an honest motive, is acting in good faith, and seeks to protect the interests of the corporation. The Appellate Court found that the shareholder had a proper purpose because he sought documents related to Abbott’s knowledge and possible involvement in illegal activities.
What are “books and records of account?”
On appeal, Abbott also argued that the trial court misconstrued the scope of the term “books and records of account” as that term is used in the Act. The shareholder had requested internal investigatory reports and any and all documents received by any board member relating to a federal investigation of alleged fraud. Abbott asserted that these documents were not “books and records of account” because they are not financial records. The Act does not define “books and records of account.” However, the court held that once a proper purpose has been established, a shareholder’s right to inspect extends to all books and records necessary to make an intelligent and searching investigation and from which he can derive any information that will enable him to better protect his interests, including non-financial records.
If you are a shareholder of an Illinois corporation that has failed or refused to allow you to examine corporate records, you should seek legal counsel immediately. Our corporate business attorneys can be reached at (630) 560-1123 or via our website at https://dgllc.net
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