Information Rights in LLCs

Compared to corporation shareholders, members (i.e., “owners”) of limited liability companies (“LLCs”) are entitled to extensive information about their company. Consider the following…

By comparison…

In a prior e-newsletter, I discussed shareholder rights to information about their company. In short, New Jersey’s Business Corporation Act grants shareholders access to minutes of shareholder, board and executive committee meetings, as well as certain accounting and financial documents. Shareholders also have common law rights to access and inspect corporate records. By contrast, New Jersey’s Revised Uniform Limited Liability Company Act (“NJRULLCA”) grants members fairly broad access to LLC information.

Specifically, by default, an LLC member may inspect and copy any record maintained by the company regarding the company’s activities, financial condition, and other circumstances, to the extent the information is material to the member’s rights and duties. In addition, the company must (without demand) furnish to each member any information concerning the company’s activities, financial condition, and other circumstances material to the proper exercise of the member’s rights and duties, and (on a reasonable and proper demand) any other information concerning the company’s activities, financial condition, and other circumstances. NJRULLCA allows members to agree to “reasonable” restrictions on information rights, but does not precisely define what types of restrictions would be “unreasonable.”

Importance…

The question of information rights will most likely be a greater concern where one or more of the members of the LLC have a relatively small “ownership” interest in the company or have limited involvement in the company’s management. In that case, the controlling members may be somewhat uncomfortable knowing the minority members have sweeping access to confidential or sensitive information.

Conclusion…

LLC members generally have much greater information rights than corporation shareholders. Since information rights in LLCs may be reasonably restricted by agreement, LLC members should consider crafting rules that minimize the risk and burden to the company, but adequately address its members’ proper and reasonable need for information.

 

PLEASE NOTE: This blog is merely for the general interest of the reader. It is not legal advice or opinion and it does not create an attorney-client relationship. Please call me at 973-921-0600 if you’d like to have a free initial telephone consultation or learn more about me or my practice. Thank you.