Company Records – An Unsexy Tool for Disputes Within Closely-Held Entities

by Hannah Kaufman Joseph & B.J. Brinkerhoff
Katz Korin P.C.
334 N. Senate Avenue
Indianapolis, Indiana 46204
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Everyone knows that corporations and limited liability companies (“LLCs”) are governed by statutory requirements that outline how such entities must organize and govern themselves, and subsequently record those activities. [1] Oftentimes, the focus on these statutory requirements centers on whether a company has properly maintained itself as an independent organization entitled to limited liability protection from creditors, thereby insulating the owners, members, and/or shareholders from claims. [2] Thus, the applicable statutes serve as an important benchmark to determine whether a corporation or LLC has properly observed “corporate formalities.” If the organization generally complies with the statute’s specifications for the filing and upkeep of corporate records (and does not engage in behavior that would allow creditors to pierce the corporate veil), the protection afforded a company by its jurisdiction of domicile will hold tight against third parties. [3] But statutes that apply to formal business entities serve an often-disregarded, yet critical second purpose: to set forth the rights and duties the owners owe one another and the company. [4]

In Indiana, corporations are governed by the Indiana Business Corporations Law (“IBCL”) [5], while LLCs are governed by the Indiana Business Flexibility Act (“IBFA”). [6] LLCs are a relatively new type of formal business entity designed to combine the benefits of corporations with the flexibility many modern businesses desire. [7] Although the statutory framework for the IBCL and IBFA are similar, there are some key differences, which often are not and will not be readily apparent until tested and developed by the courts.

The common law in Indiana tends to be a riskier proposition for businesses than states like New York, California, Illinois, or Delaware, where the body of precedent is far more developed and sophisticated due in part to the number of companies formed in those states and the long-standing history of judicial interpretation and application of common law to business entities. [8] By comparison, Indiana simply has not dealt with many issues that can arise relating to the interpretation of the statutes applicable to formal business entities. This problem is further compounded for newer enterprises like LLCs, which have not existed long enough to create the predictability in Indiana law necessary to clearly define the standards for properly executing corporate obligations. [9]

This challenge is best demonstrated by the gaps that have sprung up between the express requirements dictated by the IBCL as opposed to the IBFA. One demonstrative example is the inconsistent requirements imposed for records kept by corporations versus LLCs. [10] The IBCL is very specific with respect to the type of records required to be kept by corporations in Indiana as well as the remedies in the event that such records are not properly kept or provided to shareholders. [11]

A corporation must keep at its principal office a copy of records as follows:

(a) A corporation shall keep as permanent records minutes of all meetings of its shareholders and board of directors, a record of all actions taken by the shareholders or board of directors without a meeting, and a record of all actions taken by a committee of the board of directors in place of the board of directors on behalf of the corporation.

(b) A corporation shall maintain appropriate accounting records.

(c) A corporation or its agent shall maintain a record of its shareholders, in a form that permits preparation of a list of the names and addresses of all shareholders, in alphabetical order by class of shares showing the number and class of shares held by each.

(d) A corporation shall maintain its records in written form or in another form capable of conversion into written form within a reasonable time.

(e) A corporation shall keep a copy of the following records at its principal office:

(1) Its articles or restated articles of incorporation and all amendments to them currently in effect.

(2) Its bylaws or restated bylaws and all amendments to them currently in effect.

(3) Resolutions adopted by its board of directors with respect to one (1) or more classes or series of shares and fixing their relative rights, preferences, and limitations, if shares issued pursuant to those resolutions are outstanding.

(4) The minutes of all shareholders’ meetings, and records of all action taken by shareholders without a meeting, for the past three (3) years.

(5) All written communications to shareholders generally within the past three (3) years, including the financial statements furnished for the past three (3) years under IC 23-1-53-1.

(6) A list of the names and business addresses of its current directors and officers.

(7) Its most recent biennial report delivered to the secretary of state under IC 23-1-53-3. [12]

By contrast, the IBFA states that an LLC must keep at its principal office a copy of the following records:

(1) A list with the full name and last known mailing address of each member and manager, if any, of the limited liability company from the date of organization.

(2) A copy of the articles of organization and all amendments.

(3) Copies of the limited liability company’s federal, state, and local income tax returns and financial statements, if any, for the three (3) most recent years, or if the returns and statements were not prepared, copies of the information and statements provided to or that should have been provided to the members to enable them to prepare their federal, state, and local tax returns for the same period.

(4) Copies of any written operating agreements and all amendments and copies of any written operating agreements no longer in effect.

(5) Unless otherwise set forth in a written operating agreement, a writing setting out the following:

(A) The amount of cash, if any, and a statement of the agreed value of other property or services contributed by each member and the times at which or events upon the happening of which any additional contributions agreed to be made by each member are to be made.

(B) The events, if any, upon the happening of which the limited liability company is to be dissolved and its affairs wound up.

(C) Other writings, if any, required by the operating agreement. [13]

Generally, corporations and LLCs are treated very similarly under Indiana law. [14] This principle is most clearly demonstrated when evaluating the duties of LLC members to one another as compared to shareholders of corporations. [15]

The Indiana Business Flexibility Act includes several requirements of a limited liability company and its members to provide information about the company to other members consistent with Indiana common law. Members of a limited liability company owe fiduciary duties to one another similar to those of shareholders in a closely-held corporation . . . Specifically, members of a limited liability company “shall give to the extent the circumstances allow just, reasonable, true, and full information of all things affecting the members to any member . . . upon reasonable demand for any purpose reasonably related to a member’s interest as a member of the limited liability company.” [16]

However, it is evident that the two entities have several key differences between which records are required to be kept for inspection by the owners. [17] For example, corporations are required to keep records of all formal and informal decisions made by shareholders, while LLCs are not. [18] LLCs are not required to keep records of communications to members, unlike corporations. [19] LLCs are required to track the value of consideration or services contributed by members and the circumstances upon which a capital call could occur, while the IBCL contains no such provision. [20]

It is likely that these differences stem from the more flexible nature and often limited resources inherent in LLCs in contrast to the more formal and traditional character of corporations. However, these differences also have potential legal ramifications that may be underutilized by LLC members who encounter various difficulties with their colleagues or who are being frozen out from the information commonly available to owners of closely-held companies.

Often, when a minority shareholder fears that it is being excluded from the profits and/or management of a company, the first step is to evaluate what the records say. [21] Sometimes, there are simply no records, as small businesses are frequently too busy working on their businesses to concern themselves with the formalities of documenting the decisions they are making on what is frequently an ad hoc basis at best. However, leaving aside the formal records of an entity, such as annual meeting minutes, there are usually many records that should be available to owners, but are not. [22]

Although the IBCL and IBFA both specify the minimum requirements of business records necessary, both statutes recognize that entities are free to specify other documents that should be available to shareholders. [23] And while bylaws, shareholder agreements and operating agreements can be hotly negotiated when it comes to buy/sell provisions, capital calls, etc., it is rare that any attention is paid to the list of records a company shall keep and make available to the owners which exceed the statutory minimums.

In the IBCL, a shareholder seeking access to records must articulate the purpose for such request, and although the IBCL requires shareholders to express good cause for review of corporate records, the IBFA has no such requirement. [24] Instead, the IBFA acknowledges that the members of an LLC can bypass the requirement of stating good cause by drafting an operating agreement that states which records are required to be kept and that members are entitled to review the records unconditionally. [25]

It may seem boilerplate to specify in shareholders’ or operating agreements that entities are required to maintain corporate contracts, banking records, employment information and the like, and to do so in accordance with applicable Indiana law. However, when a dispute arises between owners and such records are not readily available, the fastest route to the courthouse may be based, at least in part, on the requirements that companies keep or maintain certain records — both the IBCL and IBFA provide equitable remedies that can result in significant pain and costs for a company and its majority owners. [26]

In corporations, the IBCL even provides for the recovery of attorney’s fees in the event that a shareholder must use legal means to obtain access to corporate records. [27]  Although the IBFA does not provide a corresponding express right to recover attorney’s fees with respect to obtaining company records, it is well established that LLCs are to be treated similarly to corporations under Indiana law, and thus, one can easily imagine that courts will award fees as damages to an LLC member forced into litigation to obtain access to the company records. [28]

Perhaps most importantly, once a member or shareholder obtains copies of the appropriate corporate documents, he or she opens a window into the inner workings of the company and the decision-makers in charge of day-to-day operations. [29] Frequently, document requests to companies are made well after concerns over improper management—breaches of fiduciary duties, self-dealing, fraud, embezzlement, etc.—bubble to the surface. However, a demand and subsequent review of documents allows an individual to take stock of the company’s health and viability, and effectively peek behind the curtain to make sure those in charge are operating in compliance with Indiana law and in accordance with the agreement amongst owners. [30] At that point, one can decide whether further legal action is warranted to protect the rights of the members or shareholders impacted by the decisions and actions taken by those in charge.

Certainly in disputes among owners of closely-held companies, the most common claims tend to arise from allegations of breach of fiduciary duty, self-dealing, fraud, etc. However, while it is not glamorous, the failure to properly maintain corporate records can be easy to identify, prove, and remedy. Courts may be reluctant to second-guess corporate management decisions, but whether the records exist or have been provided to all owners is a binary determination. Resolution of that issue can be handled quickly, efficiently, and with the potential for the recovery of attorney’s fees. Equitable claims that originate out of a breach of record keeping requirements may not be where a dispute between owners of closely held companies end, but it may be a great place for one start.


[1] See generally Ind. Code §§ 23-1-17 to -55 (2015); Ind. Code §§ 23-18-1 to -13 (2015).

[2] See, e.g., Ind. Code § 23-1-26-3 (2015) (stating individual shareholders are generally not liable to a corporation or its creditors).

[3] See Ind. Code §§ 23-18-12-1 to -11 (filing requirements for LLCs); Ind. Code §§ 23-1-18-1 to -10 (2015) (filing requirements for corporations).

[4] See generally Ind. Code §§ 23-1-17 to -55 (2015); Ind. Code §§ 23-18-1 to -13 (2015).

[5] See Ind. Code §§ 23-1-17 to -55 (2015).

[6] See Ind. Code §§ 23-18-1 to -13 (2015).

[7] Justin D. Petzold, Firm Offers: Are Publicly Traded Law Firms Abroad Indicative of the Future of the United States Legal Sector?, 2009 Wis. L. Rev. 67, 97 n.233 (2009) (“Limited-liability-corporation statutes . . . allow for more flexibility with regard to internal governance of the entity.”).

[8] See, e.g., John Armour, Bernard Black & Brian Cheffins, Delaware’s Balancing Act, 87 Ind. L. J. 1345, 1347 (2012) (“An extensive body of precedent, developed by expert judges, has been a key part of Delaware’s “value-added” for firms, which has helped to sustain its high share in the market for corporate law . . . .”).

[9] For example, the Indiana General Assembly enacted the IBFA in 1993. 1993 Ind. Legis. Serv. P.L. 8-1993 (West).

[10] See Ind. Code § 23-1-52-1 (2015); Ind. Code § 23-18-4-8(a) (2015).

[11] Ind. Code § 23-1-52-1 (2015).

[12] Id.

[13] Ind. Code § 23-18-4-8(a) (2015).

[14] See e.g., Grant v. Van Natta, No. 1:10–cv–01220–MJD–LJM, 2013 WL 466212, at *9 (S.D. Ind. Feb. 7, 2013) (quoting Ind. Code § 23-18-4-8(c) (2015)) (discussing similar fiduciary duties between corporations and LLCs).

[15] Id.

[16] Id.; see also Abdalla v. Qadorh-Zidan, 913 N.E.2d 280, 287 (Ind. Ct. App. 2009).

[17] Ind. Code § 23-1-52-1 (2015); Ind. Code § 23-18-4-8 (2015).

[18] Id.

[19] Id.

[20] Id.

[21] See Ind. Code § 23-1-52-2 (2015) (stating the requirements for accessing records under the IBCL); Ind. Code § 23-18-4-8 (2015) (stating the requirements for accessing records under the IBFA).

[22] See Ind. Code § 23-1-52-1 (2015) (requiring corporations to keep and maintain certain records including minutes of all shareholders’ meetings held during the previous three years).

[23] See generally Ind. Code § 23-1-52-1 (2015); Ind. Code § 23-18-4-8 (2015).

[24] Ind. Code § 23-1-52-2 (2015); Ind. Code § 23-18-4-8 (2015).

[25] Ind. Code § 23-18-4-8 (2015).

[26] See, e.g., Ind. Code § 23-18-4-7 (2015) (allowing a court to enforce an operating agreement by injunction).

[27] Ind. Code § 23-1-52-4 (2015).

[28] See Abdalla v. Qadorh-Zidan, 913 N.E.2d 280, 285 (Ind. Ct. App. 2009).

[29] See generally Ind. Code § 23-1-52-1 (2015).

[30] Id.

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