One issue that often frustrates minority shareholders or members is the information imbalance in their relationship with the majority. When things are going well with the company, information will usually flow freely, with all members and shareholders receiving similar access. However, when disputes and tensions rise, one freeze-out tactic the majority will often employ is to deny the minority member or members access to information about the business. This can be done for legitimate purposes, such as a well-founded fear that the minority is planning to leave for a competitor, or illegitimate reasons, such as personal disagreements.
One of the most powerful tools a minority member has in its arsenal to determine what is happening with the company is a books and records request. Many states have statutory grounds for such a request, but there is another avenue that often can and should be employed when drafting a books and records request. The operating agreement or other foundational documents likely include a provision detailing to what books, records, and other information all members, managers, or shareholders are entitled, and this could be even broader than that required under a statute. Moreover, this gives an individual with a minority interest another potential claim—a breach of contract action.