Under Texas law, a member of a limited liability company (LLC) or a qualifying shareholder of a corporation has the right to examine the company’s books and records, so long as there is a proper purpose. This right is codified in the Texas Business Organizations Code and exists so shareholders and LLC members can assess the financial condition of their company and identify potential misuse of assets or self-dealing by those in control.
If you are a shareholder or LLC member whose request for corporate records has been ignored or denied, or if you need help drafting a books and records demand letter in Texas, the attorneys at Hendershot Cowart P.C. can help.
Which Shareholders Are Eligible to Request Financial Records?
To be eligible to request the books and records of an entity, you must meet one of the statutory qualifications:
- For a corporation, the requestor must have held their shares for at least six months or own at least 5% of the corporation’s outstanding shares.
- For an LLC, the requestor need only be a member to request an examination of the books and records.
What Are "Books and Records" Under Texas Law?
Under the Texas Business Organizations Code, "books and records" generally refers to the records, accounts, meeting minutes, contracts, and other documents that reflect the governance and financial condition of the business.
- For a corporation, this includes books, records of account, meeting minutes, and share transfer records.
- For an LLC, it includes “information regarding the business, affairs, and financial condition” of the company. Generally, this includes books and accounting records, meeting minutes, and membership records.
E-mails, text messages, or information from social media accounts are excluded from these demands, unless the information effectuates an action by the corporation.
How to Get Financial Records as a Shareholder in Texas
To gain access to financial records as a shareholder or LLC member, you must write a letter to the corporate secretary or managing member, and you must cite a proper purpose.
What constitutes a “proper purpose”? Texas courts have held that any request for information about the financial position of the company is proper so long as the information requested is relevant to the protection of the shareholder’s interest in the business. Please note that the entity may have legal grounds to deny your request if you used information from a prior examination improperly or are not acting in good faith. Seeking records in connection with pending litigation is not a proper purpose.
The examination of these records can be conducted in person or through an agent, accountant, or attorney.
Drafting a Books and Records Demand Letter in Texas
A demand letter that fails to clearly articulate a proper purpose – or that requests records beyond your statutory entitlement – gives the company legal grounds to deny the request.
To be effective under Texas law, your written request must:
- Identify the records you are requesting;
- State a proper purpose for the inspection; and
- Be directed to the appropriate person at the company (the corporate secretary or managing member, depending on the entity type).
An attorney experienced in Texas shareholder rights can help you draft a demand that is properly tailored and legally sufficient.
Can a Shareholder Bring an Attorney to a Corporate Records Inspection in Texas?
Yes. Under Texas law, a shareholder or LLC member may conduct their inspection of books and records in person or through an authorized agent – including an attorney or accountant. In practice, having legal counsel present during an inspection can be valuable, particularly in contentious disputes where the scope of production, the authenticity of records, or potential misconduct is at issue.
If you are concerned that the company may attempt to limit the scope of your inspection or produce incomplete records, working with a Texas business attorney before and during the examination process can protect your rights.
Can a Shareholder Request an Audit in Texas?
While the right to inspect books and records is distinct from the right to demand an independent audit, shareholders who uncover irregularities during a records inspection may have grounds to pursue further action – including litigation for breach of fiduciary duty or shareholder oppression.
If you suspect misuse of company assets or self-dealing, a Texas shareholder dispute attorney can help you evaluate your options beyond an initial records request.
What Happens If a Company Refuses to Produce Records in Texas?
If you make a proper demand and the company refuses, you have the right to file a lawsuit to compel production of the records. This is sometimes referred to as a "books and records action" under the Texas Business Organizations Code.
Importantly, if a court orders the company to produce the requested records, Texas law requires the company to pay your attorney's fees and costs. This fee-shifting provision is a meaningful deterrent against improper denials – and it means that pursuing your inspection rights through litigation may cost you less than you expect.
A Texas shareholder rights attorney can advise you on whether your demand was properly made and whether filing suit is warranted.
What Are My Duties as an Officer or Managing Member to My Shareholders?
As the officer of a corporation or managing member of an LLC, do not dismiss or deny shareholder requests to examine books and records lightly. Given the possibility of litigation, as well as the looming threat of having to pay attorney’s fees and costs, it is important to fully comply with your obligations under Texas state law.
Refer to Texas Business Organizations Code Section 21.218 (corporations) and Section 101.502 (LLCs) to review your members’ or shareholders’ rights and understand how to respond.
Talk to a Texas Shareholder Rights Attorney
Whether you are a shareholder or LLC member whose request for books and records has been denied, or an officer or managing member trying to understand your obligations, the attorneys at Hendershot Cowart P.C. can help. We work with Texas business owners and shareholders to protect their rights and resolve disputes efficiently. Call (713) 783-3110 or contact us online to schedule your initial consultation.