The right to corporation information and inspection to corporate books and records: an efficient protection mechanism for minority shareholders with certain limitations.

The access to corporation information constitutes a right of utmost importance within the corporate life, because it allows minority shareholders to control the acts of management and curtail the power of the controlling shareholders.

Most of the corporations incorporated in Argentina are created by a small number of shareholders that concentrate the majority of the voting power, and are who appoint the board members responsible for the company ́s management. It is very common for the controlling group to take decisions without consulting the minority shareholders.

To deal with this situation, the right of the minority shareholders to corporation information and inspection to corporate books and records acquires a very important relevance as a tool to avoid the subjugation of their rights.

Article 55 of the Ley General de Sociedades (“LGS”) authorizes shareholders to examine the corporate books and inspection to corporate books and records to also obtain from the management the records that they consider necessary. An automatic obligation to be complied by the board members, are the cases provided for in articles 67 and 83 paragraph 2, of the LGS, by virtue of which, the board of directors must make available to shareholders, fifteen (15) days in advance, the yearly financial statements, and the merger financial statements, in order to be discussed by the shareholders ́ meetings.

If the board refuses to provide the corporation documentation, shareholders are entitled to file a court claim, thus the court decision shall determine how this right must be exercised.

It must be said that this exercise must be carried out, taking into account some considerations:

– Shareholders must be the holder of, at least 2% of the company ́s stock;

– The right to corporation information and inspection to corporate books and records should not be considered as a duty of accountability by the company;

– Shareholders cannot request corporation information (industrial secrets, future strategies, technological innovations, etc.), which may generate damages, affect the corporate ́s image or allow third parties to obtaining advantages.

Although, the entitlement to corporation documentation exercise right is broad, it must beard in mind that must be carried out under the principle of good faith.

Likewise, the shareholder must exercise his right without disturbing the management of the company, paralyze or hinder its day-to-day operations.

It is of such importance this right by shareholders to know effectively and accurately the situation of the company, that courts have stressed the need for immediate response to the shareholder of the requested information. Thus, it is considered as an irrevocable right.

Therefore, to conclude, we can highlight the importance of the right to corporation information and inspection of corporate books and records by shareholders, and mainly of minority ones, since as we have said in this brief article, it serves to control the decisions made by the controlling majority.

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This article has been drafted by Yanira S. Isuani and Facundo Correa Cremaschi. For more information, contact the above telephone numbers or by e-mail to fcc@correacremaschi.com

This is a courtesy of CORREA CREMASCHI ABOGADOS for its clients and friends. It is not intended to provide legal advice on any topic.

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