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Professor Bainbridge Asks "Are shareholder inspection rights subject to the internal affairs doctrine?"

In this recent post, UCLA Law School Professor Stephen Bainbridge discusses Vice Chancellor  J. Travis Laster's recent ruling that "[s]tockholder inspection rights are a core matter of internal corporate affairs."  2020 Del. Ch. LEXIS 264.  He notes that he has "long understood (and taught) that shareholder inspection rights are a rare exception to the internal affairs doctrine".  He also quotes the following comment from the Restatement (Second) of Conflict of Laws:

"The right of a shareholder to inspect the books of a corporation poses special problems. This is an issue which can practicably be determined differently in different states. This is also an issue which, if decided differently in different states, will not seriously undermine the policy favoring uniform treatment for all shareholders of a corporation. For these reasons, a court will apply to a foreign corporation doing substantial business in the state a local statute providing for the inspection of books by a shareholder if in the court’s opinion the statute embodies an important policy."

Restatement (Second) of Conflict of Laws § 304, comment d (1971).

I would add that the California Court of Appeal is in agreement with Professor Bainbridge's understanding and teaching.  In Valtz v. Penta Investment Corp., 139 Cal. App. 3d 803, 807 (1983), the Court held that Section 1600 (governing the right to inspect the shareholder records):

"However, even assuming the validity of this internal affairs doctrine, Penta's argument fails because section 1600 does not address an internal affair; the inspection of shareholder lists is a right incidental to the ownership of stock, affects the relationship between corporation and shareholder, and is thus subject to regulation by statute where the corporation does business."

See my article, California Court of Appeal Applies California Inspection Rights to Delaware Corporation, 17 CEB California Business Law Reporter 168 (1996).

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stockholder inspection, Corporate Governance, internal affairs doctrine

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