Shareholders of large and small companies have a right under Michigan law to inspect company documents. Shareholders are entitled to inspect the company’s financial books and records, including, but not limited to, financial statements, shareholder lists, corporate stock ledgers, and meeting minutes. To exercise inspection rights, a shareholder must submit a written demand to the company and assert a “proper purpose” for seeking inspection. Michigan law defines proper purpose as “a person reasonably related to such person’s interest as a shareholder.” For instance, a proper purpose might exist where a shareholder has doubts that corporate affairs are being properly conducted by directors or management. Conversely, a shareholder’s “idle curiosity” may not constitute a proper purpose for an inspection request.
A company has 5 days after receiving a proper demand to allow an inspection. If the company does not permit inspect as described, or puts unreasonable conditions on the inspection, the shareholder may seek court intervention. Often, the center of a dispute based on a shareholder’s inspection request is whether the shareholder has established a proper purpose for the inspection, and whether the documents sought are connected to the purpose. But a company may have several valid challenges (e.g. shareholder failed to make a proper demand or shareholder seeks privileged information).
Shareholders should consult with an experienced business attorney when seeking inspection of corporate documents, and companies should do the same when receiving an inspection demand.
Minority shareholders in smaller companies have legal protection against mistreatment from majority shareholders. Minority shareholders who are subject to willfully unfair and oppressive acts by directors, officers or others in control of the company are entitled to relief. Michigan law defines “willfully unfair and oppressive conduct” as “a continuing course of conduct or a significant action or series of actions that substantially interferes with the interest of the shareholder as a shareholder.” Some examples of willfully oppressive conduct include:
- Majority shareholder’s termination of employment that interfere with minority shareholder’s distributions
- Majority shareholder’s limitation on employment benefits that interfere with minority shareholder’s distributions
- Majority shareholders paying themselves exorbitant salaries to the detriment of minority shareholders
- Majority shareholders denying minority shareholders positions as officers
- Selling corporate assets to majority shareholders at inadequate prices
Oppressed minority shareholders may seek various forms of relief including, but not limited to, money damages, purchase of shares at fair market value, dissolution and liquidation of business assets.