In this article, we explain shareholders’ rights to inspect company records for Illinois LLCs and Closely-Held Corporations. We answer the questions: what types of records are Illinois corporate shareholders entitled to review?, what constitutes a proper purpose for the inspection of corporate records in Illinois?, how to demand corporate records, what if a corporation refuses to allow a shareholder to inspect corporate records?, what records are LLCs required to keep in Illinois? We also explain the damages for a failure to allow a shareholder to review corporate records in Illinois, LLC members’ rights to review company records in Illinois, and how to request a review of LLC records in Illinois.
For more on shareholder rights, check out our article: Minority Shareholders’ Rights in Illinois Closely-Held Corporations and LLCs.
What Types of Records are Illinois Corporate Shareholders Entitled to Review?
The Illinois Business Corporation Act provides that shareholders of a corporation are entitled to access to the following documents “for a proper purpose”:
- Complete books and accounting records;
- Minutes of meetings of shareholders and directors; and
- Records of the identity of the corporation’s shareholders.
This is a non-exclusive list. Illinois case law has established that if a proper purpose exists, a shareholder has the right to inspect all books and records necessary to make an “intelligent and searching investigation” and that will enable the shareholder ot better protect his or her interests.
What Constitutes a Proper Purpose for the Inspection of Corporate Records in Illinois?
Illinois courts have interpreted the term “proper purpose” broadly. It includes any honest and good faith purpose that seeks to protect the interests of the shareholder or of the corporation. Courts have distinguished this from a “fishing expedition” motivated by nothing more than curiosity.
How to Demand an Inspection of Corporate Records in Illinois
If a shareholder of an Illinois corporation wishes to review corporate records he or she must make a demand upon the corporation in writing. The demand must state which specific records the shareholder wishes to review as well as the shareholder’s purpose for reviewing the records.
What if a Corporation Refuses to Allow a Shareholder to Inspect Corporate Records?
If a corporation refuses to allow a shareholder to inspect corporate records after the shareholder has made a written demand, the shareholder has the right to file a petition to compel the corporation to produce the requested records with the appropriate court. After the petition is filed and properly served upon the corporation, a hearing will be held. The burden is on the shareholder to demonstrate that he or she has a proper purpose for inspecting books and accounting records. The burden is on the corporation to demonstrate the lack of proper purpose with respect to meeting minutes or the record of the identity of shareholders.
Damages for Failure to Allow a Shareholder to Review Corporate Records in Illinois
A corporation or any officer or agent of a corporation that wrongfully refuses to allow a shareholder to examine corporate records will be liable for a penalty of up to 10% of the value of the shareholder’s shares in addition to any other compensatory damages for the corporation’s wrongdoing.
What Records are LLCs Required to Keep in Illinois?
Illinois LLCs are required to keep the following records at the LLC’s principal place of business or some other reasonable location that is specified in the LLC’s operating agreement:
- List of Members: This must include each member’s full name, last known address, capital contributions, and the date that he or she became a member;
- A copy of the Articles of Organization;
- Copies of LLC’s tax returns for the past 3 years; and
- A copy of any active operating agreement.
LLC Members’ Rights to Review Company Records in Illinois
LLC members have the right to review any of the above-listed records that the LLC is required to maintain.
How to Request a Review of LLC Records in Illinois
In order to request a review of LLC records, an LLC member or his or her attorney should send a written demand to the LLC stating with specificity the records he or she wishes to review. The LLC will have 10 days after receiving the demand to:
- Provide the information requested;
- State a reasonable time and place where the information requested will be provided; or
- State the LLC’s reasons for failing to provide the requested information.
If the LLC fails to properly comply with the written demand, the LLC member has the right to file a petition to compel production of the requested records in the same manner as a corporate shareholder.
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