Businesses often grow by bringing in shareholders. Close corporations often bring in family members, close friends, valued employees, and others close to the corporation while larger businesses go through the securities filing process and sell shares in their corporation to the general public. The individuals who buy or earn shares, regardless of how few, become owners of the company and gain certain rights with respect to the company. This includes the right to access certain company information.
Utah close corporations give shareholders the same inspection rights as regular Utah corporations, meaning that, after written demand five days in advance and during the company’s regular business hours, a shareholder has the right to inspect and copy documents relating to the corporation.
Shareholders can inspect and copy a businesses:
- Articles of Incorporation,
- The minutes from shareholder meetings,
- Records pertaining to actions taken without a meeting for the previous three years,
- Written communication to shareholders for the previous three years,
- Limited financial statements,
- The names and addresses of current officers and directors, and
- The most recent annual report.
In addition to these documents, if a shareholder makes a good faith demand to inspect other corporate records, has a proper purpose related to his interest as an owner of the company, and is specific in the records he wants to inspect, he can also view:
- Board meeting minutes,
- Committee meeting minutes,
- Waivers of notice for meetings,
- Business accounting records, and
- The shareholder record.
It’s important to note that this inspection right may be limited, or even abolished, by the corporation’s articles of incorporation or bylaws. Further, the corporation can charge a shareholder for the costs of labor and materials involved in complying with the request.
If necessary, a court can also order the corporation to comply with a shareholder’s inspection demand. The corporation can try to refuse based on a good faith belief that it has reasonable doubt about the shareholder’s right to inspect. Much business litigation concerns actions by the shareholders against a company they believe is not being forthright, not acting in their best interest, or the actions of the board and directors are in conflict.
There are differences in the law regarding the rights owed to minority shareholders of a regular corporation and a close corporation, as well as the rules concerning who can bring an action against the board of the company and how it is handled. For instance, Utah law allows for judicial dissolution of a close corporation by shareholders when the directors are acting in an illegal, oppressive, or fraudulent manner.
Understanding the nuances of a particular situation and the best way to work towards a resolution is what the experienced team of business litigators at the Dunn Law Firm does best. Because their litigation work focuses primarily on business and real estate issues, our lawyers are familiar with the Utah laws and how to resolve different types of conflict. To learn more, reach out to the Dunn Law Firm by calling (435) 628-5405 and set up a free consultation today.