Section 18-305 inspection rights, proper purpose requirements, Court of Chancery enforcement procedures, and demand letter templates for Delaware LLC members seeking access to financial records, tax returns, and business information.
Delaware Limited Liability Company Act Section 18-305 provides LLC members with statutory inspection rights to obtain "true and full information" about the LLC's business and financial condition. These rights cannot be eliminated by the operating agreement.
Section 18-305(a) gives members the right to obtain:
Delaware inspection rights are among the strongest in the nation:
Common scenarios where Delaware LLC members exercise Section 18-305 rights:
I draft Delaware LLC books and records demands that comply with Section 18-305 requirements and maximize Chancery Court enforcement leverage. $450 flat fee.
Contact: owner@terms.law"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 a limited liability company agreement or otherwise established by the manager or, if there is no manager, then by the members, 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; (2) Promptly after becoming available, a copy of the limited liability company's federal, state and local income tax returns for each year; (3) A current list of the name and last known business, residence or mailing address of each member and manager; (4) A copy of any written limited liability company agreement and certificate of formation and all amendments thereto..."
The demand must be reasonable in form and timing:
The purpose must relate to your rights and interests as an LLC member:
Delaware courts interpret this phrase expansively:
The statute allows some reasonable restrictions:
Delaware courts have held that operating agreements cannot:
"If a manager or member of a limited liability company refuses to permit a member to obtain from the limited liability company the information described in subsection (a)(3) of this section, the Court of Chancery may summarily order the manager or member to permit the requesting member to obtain the information."
| Aspect | Delaware (§ 18-305) | California (§ 17704.10) |
|---|---|---|
| Scope | "True and full information" | "Reasonably related to member's interest" |
| Burden of Proof | LLC must prove improper purpose | Similar - LLC has burden |
| Court Venue | Court of Chancery (specialized) | Superior Court (general civil) |
| Timeline | "Reasonable demand" (10-30 days) | "Reasonable time" (similar) |
| Fee-Shifting | Frequently awarded to prevailing members | Less common in practice |
Delaware courts interpret "reasonably related to the member's interest" broadly. The burden is on the LLC to prove your purpose is improper, not on you to prove it's proper.
Example purpose statement: "I seek books and records to investigate whether managers have engaged in self-dealing transactions with related entities, including [specific transactions or red flags]."
Example purpose statement: "I seek financial records to determine the fair market value of my membership interest in connection with [buyout discussions / estate planning / divorce]."
Example purpose statement: "I seek the member list to communicate with other members regarding [governance concerns / proposed actions / upcoming votes]."
Example purpose statement: "I seek records to investigate potential derivative claims against managers for breach of fiduciary duty, including [specific suspected breaches]."
Delaware courts have found these purposes improper:
Best practices for stating your proper purpose:
"I seek the following books and records for multiple proper purposes reasonably related to my member interest: (1) to investigate potential self-dealing by managers, including contracts between the LLC and manager-affiliated entities at above-market prices; (2) to determine the fair market value of my membership interest in connection with potential buyout discussions; (3) to communicate with other LLC members regarding governance matters; and (4) to evaluate the LLC's financial performance and distribution policies."
If the LLC challenges your purpose, it must prove:
This is a high burden - Delaware courts presume member purposes are proper and require clear evidence of impropriety.
A Delaware LLC books and records demand letter must be clear, specific, and legally sufficient to establish your Section 18-305 rights.
The letter should be:
[Your Name]
[Address]
[Email / Phone]
[Date]
[LLC Name]
[Registered Agent]
[Address]
Re: Demand for Books and Records Under 6 Del. C. § 18-305
Dear [Manager/Registered Agent]:
I am a member of [LLC Name] holding a [X]% membership interest since [date]. Pursuant to 6 Del. C. § 18-305(a), I hereby demand access to the following books and records of the LLC.
PROPER PURPOSE: I seek these records for the following purposes, each reasonably related to my interest as a member:
1. To investigate potential self-dealing transactions between the LLC and manager-affiliated entities, including [describe specific concerns based on available information].
2. To determine the fair market value of my membership interest in connection with [buyout discussions / estate planning / other valid purpose].
3. To evaluate the LLC's financial performance and distribution policies to ensure compliance with the operating agreement.
RECORDS REQUESTED:
1. Financial Statements: Balance sheets, income statements, and cash flow statements for [years].
2. Tax Returns: Federal and state income tax returns for [years].
3. Books and Records of Account: General ledger, journals, accounts payable and receivable ledgers for [period].
4. Contracts: All contracts, leases, and material agreements to which the LLC is a party, including amendments.
5. Related-Party Transactions: All agreements, invoices, and correspondence with [manager-affiliated entities].
6. Distribution Records: Records of all distributions to members, capital contributions, and capital account statements for [period].
7. Member List: Current list of all members with names, addresses, and membership percentages.
8. Operating Agreement: Current operating agreement and all amendments.
9. Meeting Minutes: Minutes of all member and manager meetings for [period].
FORMAT AND TIMING: Please produce these documents in electronic format (PDF) to [your email] within 30 days of this demand. If electronic production is not feasible for certain records, I am available to inspect them at the LLC's principal office upon reasonable notice.
CONFIDENTIALITY: I will maintain the confidentiality of all non-public information and use it solely for the purposes stated above.
LEGAL RIGHTS: Section 18-305 provides members with statutory inspection rights that cannot be eliminated by the operating agreement. If the LLC refuses or unreasonably delays production, I will file a petition in the Delaware Court of Chancery under Section 18-305(f) seeking a court order compelling production. Delaware courts routinely award attorney's fees and costs to prevailing members in inspection litigation.
Please confirm receipt of this demand and your timeline for production.
Sincerely,
[Your Name]
Send your demand via multiple methods to establish proof of delivery:
Keep proof of delivery - you'll need it if you file a Chancery Court petition.
I draft Delaware Section 18-305 demand letters tailored to your specific dispute. $450 flat fee includes demand letter, proper purpose analysis, and strategy consultation.
Contact: owner@terms.lawIf the Delaware LLC refuses or unreasonably delays your Section 18-305 demand, you can file a petition in the Delaware Court of Chancery seeking judicial enforcement.
The Delaware Court of Chancery is different from typical civil courts:
Before filing, you must:
Your Section 18-305(f) petition must include:
The LLC will file an answer asserting defenses, typically:
Section 18-305 cases typically involve limited discovery:
After briefing and (sometimes) a hearing, the Chancellor will:
| Stage | Timeframe |
|---|---|
| File Section 18-305(f) petition | Day 0 |
| LLC files answer | 20-30 days |
| Discovery (if needed) | 30-90 days |
| Briefing on merits | 60-120 days |
| Chancery decision | 3-6 months from filing |
| LLC produces records | 15-30 days after order |
Delaware courts frequently award fees to prevailing members:
Many Section 18-305 cases settle after petition is filed:
Note: I am a California attorney. For Delaware Court of Chancery filings, I prepare the petition and coordinate with Delaware counsel who will file and appear. For demand letters and pre-litigation strategy, no Delaware counsel is needed.
I draft Section 18-305(f) petitions and coordinate with Delaware counsel for filing. Strategy consultation $240/hr, petition drafting starting at $2,500.
Contact: owner@terms.lawUse this checklist to prepare your demand letter and Chancery Court petition (if needed). Check off items as you gather them.
Typical document categories for Section 18-305 demands:
Copy and adapt these paragraphs for your Section 18-305 demand letter. Customize with your specific facts and concerns.
I am a member of [LLC Name], a Delaware limited liability company, holding a [X]% membership interest. I have been a member since [date] and have made capital contributions totaling $[amount]. Pursuant to my statutory rights under 6 Del. C. § 18-305(a), I hereby demand access to the books and records of the LLC as detailed below.
I seek these records to investigate potential mismanagement and self-dealing by the LLC's managers. Specifically, I have reason to believe that: (1) the LLC has entered into contracts with manager-affiliated entities at above-market prices, including [describe transactions if known]; (2) managers have received excessive compensation relative to industry standards and LLC profitability; and (3) LLC assets may have been transferred to related parties without member approval. These concerns are based on [describe red flags: financial statements showing losses, lack of distributions, communications suggesting problems, etc.]. Delaware law entitles members to investigate suspected fiduciary breaches, and my purpose is reasonably related to my member interest.
I seek these records to determine the fair market value of my membership interest in connection with potential buyout discussions with other members. [I have received a buyout offer of $[amount] / I am considering offering to buy out other members / I am preparing for estate planning purposes]. To evaluate whether a buyout is appropriate and at what price, I require complete financial information including historical financial statements, tax returns, contracts, and business records. Valuation is a universally recognized proper purpose under Delaware law.
I seek the member list to communicate with other members regarding governance concerns and proposed actions. Specifically, I wish to discuss [describe issues: manager elections, proposed amendments to operating agreement, collective response to management actions, etc.]. Delaware law recognizes member communication as a proper purpose, and I require the member list with names, addresses, and membership percentages to exercise this right.
I seek these records to investigate potential derivative claims on behalf of the LLC against managers for breach of fiduciary duty. Based on [describe available information], I have reason to believe managers have: (1) usurped corporate opportunities belonging to the LLC; (2) engaged in self-dealing transactions without disclosure or member approval; and (3) grossly mismanaged LLC assets resulting in losses. Before determining whether to file a derivative action under 6 Del. C. § 18-1101, I am entitled to investigate these potential claims by reviewing LLC books and records.
Financial Statements: Complete balance sheets, income statements, statements of cash flows, and statements of members' equity for the years [YYYY] through [YYYY], including all supporting schedules and footnotes.
Tax Returns: Complete copies of the LLC's federal income tax returns (Form 1065) and all state income tax returns for the years [YYYY] through [YYYY], including all schedules, attachments, and K-1s issued to members.
Books and Records of Account: General ledger, cash receipts and disbursements journals, accounts payable and accounts receivable sub-ledgers, and all other books of account for the period [date] through [date].
Contracts and Agreements: All contracts, leases, promissory notes, guarantees, and other material agreements to which the LLC is a party, including all amendments, side letters, and related correspondence.
Related-Party Transactions: All agreements, purchase orders, invoices, payments, and correspondence between the LLC and any entity owned or controlled by managers or their affiliates, including [name specific entities if known].
Management Compensation: All agreements, resolutions, or other documents establishing manager compensation, including salaries, bonuses, distributions, expense reimbursements, and benefits.
Member List: A current list of all members showing names, last known mailing addresses, email addresses, and percentage membership interests.
Operating Agreement: The current LLC operating agreement and all amendments, exhibits, and schedules.
Meeting Minutes: Minutes of all member meetings and manager meetings (if applicable) from [date] through present, including any actions taken by written consent in lieu of meetings.
Certificate of Formation: The LLC's Delaware certificate of formation and all amendments filed with the Delaware Secretary of State.
Please produce these documents in electronic format (searchable PDF) to [your email address]. If electronic production is not feasible for certain documents, I am available to inspect them at the LLC's principal office during regular business hours upon reasonable advance notice. I request production within 30 days of this demand, which I believe is reasonable given the scope of this request and the LLC's record-keeping systems. If you require additional time for certain categories of documents, please advise me promptly and we can discuss a reasonable timeline.
I acknowledge that the records I am requesting contain confidential and proprietary information about the LLC's business. I agree to maintain the confidentiality of all non-public information produced in response to this demand and to use it solely for the purposes stated above. I will not disclose this information to third parties except: (1) to my attorneys, accountants, and other professional advisors who agree to maintain confidentiality; (2) as required by law or court order; or (3) to the extent the information is publicly available or becomes publicly available through no fault of mine.
Section 18-305 provides members with statutory inspection rights that cannot be eliminated by the operating agreement. These rights are fundamental to LLC membership and are liberally construed by Delaware courts. If the LLC refuses this reasonable demand or unreasonably delays production, I will have no choice but to file a petition in the Delaware Court of Chancery under Section 18-305(f) seeking a court order compelling production. Delaware courts routinely grant such petitions and award attorney's fees and costs to prevailing members. I hope we can avoid that expense and delay by the LLC cooperating with this lawful demand.
Please confirm receipt of this demand by [date]. If you intend to object to any portion of this request, please provide a written response explaining the basis for any objection within [10] days so that we can attempt to resolve any disputes before I consider court action. If you have any questions or wish to discuss the scope or timing of production, please contact me at [email/phone].
I look forward to your cooperation with this lawful demand. Prompt production of these records will allow me to exercise my member rights and address my concerns about the LLC's management and financial condition.
I draft Section 18-305 demand letters tailored to your specific dispute with proper purpose analysis and strategic records requests. $450 flat fee.
Contact: owner@terms.law