Co-authored by Jason Jowers
This article examines the Delaware Court of Chancery’s application of the right of inspection of an LLC’s books and records in a recent case. The court has found that the right of inspection may be broader or narrower than that provided by the LLC Act. As discussed more fully in the article, the court’s ruling teaches three key lessons for practitioners. First, although the court found that 6 Del. Code § 18-305, the LLC Act’s right of inspection, might be useful in interpreting an ambiguous inspection provision in an LLC agreement, absent an ambiguity, the plain language of the contract should govern and the court will enforce the parties’ bargain. Second, because the court will enforce the benefit of the bargain, drafters must be precise in drafting language to govern both the right to and procedures for inspection. Third, if the terms governing inspection, such as “reasonable access,” are not defined, the court may rely not only on books and records cases involving the LLC Act but also upon analogous cases applying 8 Del. Code § 220, the Delaware General Corporation Law’s statute permitting shareholders to inspect corporate books and records.
First published in Business Law Today, May/June 2008. Link to article.
Reprinted with permission.