Massachusetts Corporate Law -
Right of Stockholders to Inspect Corporate Books and Records

By Attorney Barry S. Scheer

The new Massachusetts corporation law, which went into effect on July 1, 2004, deals broadly with record keeping requirements for non-publicly traded corporations and also recognizes the rights of minority stockholders to access both corporate records and financial records and reports. As any Massachusetts business litigation attorney will recognize, the law, while helpful, will not solve all disclosure issues between corporation and their stockholders.

Corporations must keep copies of Articles of Organization, by-laws, minutes, votes, lists of shareholders and other official corporate records. Also, a corporation must keep “appropriate” accounting records.

Under Massachusetts General Laws, Chapter 156D Section 16.02, a stockholder may, upon 5 days written notice to the corporation, inspect the official corporate records, being Articles of Organization, by-laws, actions of directors and stockholders with or without meetings, meeting minutes, notices to stockholders and the most recent annual report.

Accounting records of the corporation may only be inspected if the stockholder requesting same meets the following requirements:

(1) his demand is made in good faith and for a proper purpose;

(2) he describes with reasonable particularity his purpose and the records he desires to inspect;

(3) the records are directly connected with his purpose; and

(4) the corporation shall not have determined in good faith that disclosure of the records sought would adversely affect the corporation in the conduct of its business or, in the case of a public corporation, constitute material non-public information at the time when the shareholder’s notice of demand to inspect and copy is received by the corporation.

Nothing, of course, diminishes the power of a judge to order release of records or any kind or, for that matter, the rights of a party to litigation under relevant discovery rules.

It is the four part test for disclosure of financial records (as well as certain other documents such as executive committee minutes) which still cause parties to seek intervention by the courts. The issue, in a nutshell, is that the legislature, in drafting the new disclosure provisions, did not wish to grant stockholders unlimited, unfettered and possibly disruptive access to financial records, especially where stockholders are acting in bad faith. Thus, the restriction. The limitation however, can be used by the corporation to deny a stockholder, even acting in good faith, access to records, especially if there is a dispute between the parties.

In the event of a dispute, both stockholders and corporations need good, qualified business lawyers (or business litigation lawyers depending on the stage of the dispute) to help them understand their respective rights and liabilities, to attempt to come to a negotiated understanding with the other party and, possibly to seek an appropriate order from a court to deal with the records issue.

This article is intended as a broad and general overview of the records disclosure obligations of Massachusetts business corporations under the law, and is not intended to either be exhaustive or to be “legal advice”. Should you wish to obtain more information about this or any other Massachusetts corporation law topic, call Barry S. Scheer, business law/litigation practice group director at (617) 886-0500 or contact him via the website.

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For more information on corporate law in Massachusetts or if you are seeking a business lawyer for any other needs, please contact Barry Scheer. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.

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