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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