Many times a majority shareholder seeking to squeeze-out a minority shareholder will deliberately withhold information relating to the closely held corporation. Withholding information is usually coupled with another form of oppression. The reason for the same is by leaving the minority shareholder in the dark about the status of the corporations and the actions of its officers and directors the minority shareholder will be unaware of the other forms of oppression. For example, a majority shareholder may award herself an excessive salary without disclosing that it or the underlying financial data which would reveal the excessive nature of the salary. By keeping the minority shareholder in the dark she will more often than not be in a position to complaint about it.
Unfortunately, unlike publicly traded companies which have disclosure and reporting requirements pursuant to federal securities laws, shareholders in a closely held corporation do not have such broad disclosure requirements. Nevertheless, state courts have recognized that a person who owns shares in a closely held company is a part owner of that company who is entitled for participation of their interest, to information about the company. The problem is Courts differ on what shareholders are entitled to receive under their state’s laws and what obligations corporate managers have affirmatively to supply information.
Fortunately, the right of a shareholder to inspect corporate records has long been established in Pennsylvania common law. Simms v. Exter Architectural Products, Inc., 868 F. Supp. 668, 674 (M.D. Pa. 1994). That right was codified by the Pennsylvania legislature. 15 Pa. C.S. § 1508(B). That statute requires the requesting shareholder to send a written request stating the purpose for the inspection of the company’s books and records. The request must request that the inspection occur during the usual hours of the business and provide the name of the person, agent or attorney who is going to conduct the inspection. A proper purpose is anything reasonably related to the interest of the shareholder. 15 Pa. C.S. §1508(B). If the majority shareholder or company refuses to make the documents available for inspection, the requesting party has the right to file an action seeking the same.