Chicago Business Litigation Lawyer Blog
You asked a simple question. Where did the money go? You own a piece of the company, the profits that used to reach you have thinned, and you want to see the financials that would explain why. The controlling owner’s answer is a wall. He tells you the records are confidential, or none of your concern, or available only if you drop your objections first. He is betting that you do not know the law gives you a key to that door.
It does. Illinois grants shareholders and LLC members an enforceable right to inspect the books and records of the company they own, and it backs that right with penalties and fee awards when a company refuses without cause. An inspection demand is often the single most useful first move in a partnership or shareholder dispute, because everything else you might claim depends on the facts those records contain.
What records can an Illinois shareholder demand?
Under section 7.75 of the Business Corporation Act, 805 ILCS 5/7.75, a shareholder may inspect and copy the company’s books and records after making a written demand that states with particularity the records sought and the purpose of the request. The demand is the document that matters. A vague request invites a refusal, while a specific demand tied to a legitimate purpose is hard to resist. For LLC members, 805 ILCS 180/10-15 provides a parallel right to the company’s records and to information material to the member’s interest, and it requires the company to respond within ten days.
What is a “proper purpose”?
The right is not unlimited. A shareholder must have a proper purpose, which the Illinois Supreme Court in Doggett v. North American Life Insurance Co. described as a good-faith purpose to protect the interests of the shareholder and the company, not one meant merely to gratify curiosity or to harass. Protecting the value of your investment, investigating suspected mismanagement, and valuing your shares are all proper purposes. The burden is generally on the shareholder to show a proper purpose, but the statute shifts that burden to the corporation when the request is limited to the minutes, the shareholder list, or voting trust agreements. Naming the right purpose, and asking for the right documents, decides how the fight begins.
What happens when the company refuses?
This is where the statute shows its teeth. A corporation that wrongfully refuses a proper inspection demand is liable for a penalty of up to ten percent of the value of the shares the demanding shareholder owns, on top of any other remedy, and the shareholder may go to court to compel the inspection. The appellate court in Sunlitz Holding Co. v. Trading Block Holdings allowed a well-pleaded inspection claim to proceed past dismissal, a reminder that these claims can be enforced rather than merely asserted. For LLC members, a company that fails to comply may owe the costs and attorney’s fees of forcing the issue. Refusal is not a free option for the people in control.
An inspection demand is rarely the end of the story. It is the foundation. The records reveal whether distributions were withheld, whether compensation was inflated, whether money or opportunities were diverted, and those facts are what support the larger claims for oppression, freeze-out, or breach of fiduciary duty that often follow. Our overview of shareholder inspection rights explains how this tool fits into a broader dispute.
Three steps make the demand work. First, put it in writing and state the purpose and the records with particularity, because a sloppy demand hands the company its defense. Second, keep the purpose legitimate and provable, since the fight usually turns on whether your purpose was proper rather than on whether you have the right. Third, treat what you receive as evidence, organized and preserved, because the inspection is the first step toward proving the claim that prompted it.
A company that hides its books from an owner is rarely hiding good news. Illinois gives that owner a fast, enforceable way through the wall, and the records on the other side often decide everything that comes next.
What should my written demand actually say?
A good demand is specific and disciplined. It identifies you as a shareholder or member, lists the categories of records you want with enough particularity that the company cannot claim confusion, and states a proper purpose in plain terms, such as valuing your interest or investigating suspected mismanagement. It sets a reasonable deadline and asks for the records in a usable form. The more precise the demand, the harder it is to refuse, and the better it reads if a judge later has to decide whether the company’s refusal was justified.
Can the company refuse if it thinks my purpose is improper?
It can try, but it carries a burden when it does. A company may resist a demand it can show was made to harass, to gather trade secrets for a competing business, or to serve an interest unrelated to ownership. What it cannot do is refuse simply because the inspection might surface uncomfortable facts. Where the request is limited to the minutes, the shareholder list, or voting trust agreements, the statute flips the burden onto the corporation to prove the absence of a proper purpose, which makes those records the easiest to obtain.
Do directors and managers have broader rights than shareholders?
They do. A director’s right to inspect corporate records is broader and closer to absolute than a shareholder’s, because a director cannot discharge the duties of the office without access to the company’s information. If you sit on the board as well as hold shares, you may have a stronger and more direct route to the records than the shareholder demand alone provides.
How large can the penalty be?
Large enough to take seriously. A corporation that wrongfully refuses a proper demand can be liable for up to ten percent of the value of the shares the demanding shareholder owns, separate from any other damages. On a stake worth a million dollars, that is a six-figure exposure for stonewalling, which is precisely why a clean, specific demand backed by a proper purpose so often produces the records without a fight.
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If the company you own is refusing to show you its books, Illinois law gives you an enforceable demand and real penalties for a wrongful refusal. Call DiTommaso Lubin, P.C. at 630-333-0333 for a free consultation, or contact us online. This post is for general information and is not legal advice.
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Peter S. Lubin and James V. DiTommaso are Chicago business litigation lawyers who try cases throughout Illinois. Peter is a graduate of the University of Chicago Law School, where he has taught trial practice for decades, and he has been recognized as an Illinois Super Lawyer. He has served as lead counsel in more than one hundred class actions and has handled more than one hundred shareholder, LLC, derivative, breach of fiduciary duty, and fraud matters, on both the plaintiff and the defense side. Crain’s Chicago Business credited him with the largest class action settlement of the year for a $40 million recovery in Erikson v. Ameritech, and the firm has been named DuPage County Law Firm of the Year. The firm and its lawyers have represented clients such as McDonald’s, Motorola, and Experian, and have litigated against companies including AT&T and General Motors. James DiTommaso, a graduate of Chicago-Kent College of Law with a certificate in business law, has served with the Illinois Appellate Court and has argued a case before the Illinois Supreme Court. He litigates these disputes in the Illinois trial and appellate courts and in the federal courts. When you hire this firm, the lawyers whose names are on the door are the ones who handle your case.