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DeGennaro v. Drapkin

A-6209-99T2 (N.J. Super. App. Div. 2001) (Unpublished)

LIMITED LIABILITY COMPANIES—A member of a limited liability company does not have a general right to inspect the company’s financial records; such a right must be set forth in the operating agreement.

A member of a limited liability company made a written demand to the company to be provided with “certain documents and other information relating to its financial operations and condition.” He then brought an action seeking production for inspection of documents and information described in the written demand. He also sought an order directing the limited liability company’s manager to appear for a deposition and answer questions concerning its financial operations and conditions. The Court, on appeal, sought to determine whether the member was entitled “under the statutory provisions governing limited liability corporations [sic] and the amended operating agreement to inspect [the company’s] financial records.” N.J.S. 42:2B-25(a)(1) provides: “Each member of a limited liability company has the right, subject to such reasonable standards (including standards governing what information and documents are to be furnished at what time and location and at whose expense) as may be set forth in an operating agreement ... to obtain from the limited liability company from time to time upon reasonable demand for any purpose reasonably related to the member’s interest as a member of the limited liability company: (1) True and full information regarding the status of the business and financial condition of the limited liability company.” [Emphasis added.] According to the Court, this provision “does not confer any right on a member of a limited liability corporation [sic] to inspect its financial records. Although [the statute] confers the right ‘to obtain ... [t]rue and full information regarding the status of the business and financial condition of the [limited liability company],’ it does not specify the form in which that information is to be provided; that is left to the operating agreement.” Here, the operating agreement provided that the company was to maintain books and records that would permit the preparation of financial statements and, upon a member’s reasonable request, the company’s manager, a member was entitled to visit and inspect the properties and “discuss the business, condition (financial or otherwise), performance[,] properties and prospects of the LLC with the Manager(s).” Further, the manager was required to furnish a balance sheet and related statements of operations and certain other financial reports, including an annual business plan and a five-year model to members. According to the Court, it was “clear from a review of [the operating agreement’s] provisions that the operating agreement [did] not give the members themselves any right to inspect the financial records of the corporation [sic].” The only obligation on the part of the company was to furnish certain financial statements and, according to the Court, the company complied with that request. According to the Court, “[t]his is all the operating agreement requires. Moreover, [the member] has failed to present any evidence from which a trier of fact could find that those financial statements failed to provide a member with ‘[t]rue and full information regarding the status of the business and financial condition of the limited liability company.”

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