Friday, January 9, 2015

Delaware Chancery Court Holds That Former Member Has No Right To Inspect LLC's Books and Records


Delaware Chancery Court Holds That Former Member Has No Right To
Inspect LLC's Books and Records

 

The Delaware limited liability company act affords a member the right to inspect the LLCs books and records. Del. Code Ann. tit. 6, § 18-305(a). In a recent ruling, the Delaware Chancery Court held that a former member of an LLC did not have the right to inspect books and inside those books and records. Prokupek v. Consumer Capital Partners LLC, C. A. No. 9918-VCN (Del. Ch. December 30, 2014).

 

Prokupek had been the CEO of Smashburger Master LLC. His service as CEO was terminated, and pursuant to various agreements his interess in the LLC were redeemed. He challenged the valuation attributed to his various units in the company. As part and parcel thereof, he sought to inspect certain books and records of the LLC in accordance with section 18-305(a) of the Delaware LLC act, it affording document inspection rights to “each member of a limited liability company.”

 

After parsing the substantive agreements to determine that the units in the LLC had been redeemed notwithstanding the continuing dispute as to their valuation, the Court turned to the language of the Delaware LLC Act (it not having been modified in the operating agreement) with respect to the right to inspect books and records. In this instance, the Court found that as the Act affords “members” the right to inspect books and records, and as Prokupek was a former, and not a current member, it held that he had no right to inspect books and records hence, there was no right he could exercise.

 

The Kentucky LLC act, at  KRS § 275.185, affords the right to inspect LLCs books and records to a “member.” As such, the Kentucky LLC act is similar to that in Delaware, and this holding to the effect that former members do not have the right to inspect booking and records should be equally applicable in Kentucky.

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