Delaware Law Alert: Books and Records Inspection Under the Amended §220

Delaware has overhauled its framework for stockholder books and records inspection rights. Amendments to Delaware General Corporation Law (DGCL) §220, enacted on March 25, 2025,¹ seek to address the concern that inspection rights had become overly burdensome for corporations. Amended §220 generally narrows the scope of records available for inspection to a limited set of materials, while leaving open a path for stockholders to obtain additional records under certain circumstances. Amended §220 also offers some litigation advantages to corporations in defending against suits to compel inspection.

Background

Delaware courts have acknowledged that §220 inspection rights serve many purposes, including allowing stockholders to monitor board deliberations, investigate misconduct, and advocate for policy changes. Perhaps the most common use of inspection rights is to request records in preparation for stockholder litigation—in this way, records inspection serves as a form of limited discovery, laying the groundwork for a stockholder suit. Believing that access to corporate records in advance of filing a claim would discourage frivolous lawsuits, Delaware courts have encouraged stockholders to make use of inspection rights.

As a result, inspection demands and the resulting litigation have increased significantly, raising a number of concerns for corporations. As discussed below, one major concern is the growing tendency for stockholders to request (and receive) categories of records that extend beyond formal board materials—a tendency that has created uncertainty about the boundaries of those categories, leaving corporations in doubt as to precisely what kinds of records are subject to inspection. Other common concerns include whether irrelevant but potentially sensitive information contained in books and records otherwise responsive to stockholder demands may be redacted, and the risk that stockholders may cherry-pick information from the records produced for inclusion in a complaint, while leaving out information from those same records that runs counter to the narrative in the complaint.

• Scope of Books and Records: Over time, Delaware courts have expanded the scope of books and records subject to stockholder inspection. For board materials, the Chancery Court has developed a taxonomy under which books and records are categorized as (1) formal board materials (including evidence of deliberations and materials formally received by directors), (2) informal board materials (including director emails and other communications outside of formal channels), and (3) officer-level materials (communications only among officers and employees). While courts have long held that the first category was readily accessible to stockholders through an inspection demand, the latter two categories increasingly have been ordered to be made available, depending on the circumstances, based on a demonstrated need. For example, such circumstances could include a failure by the corporation to maintain formal records or comply with corporate formalities. In other circumstances, a stockholder seeking out wrongdoing might demonstrate that the wrongdoing occurred predominantly at the officer level or that the formal board materials lacked sufficient detail or were inconsistent.
  
  With the expanded reach of inspection rights, the process has taken on many characteristics of discovery. In fact, at least one court has ordered that depositions be taken to determine what corporate records might be available.

• Redactions: Corporations are naturally sensitive to producing documents that may be made public by inclusion in court filings, particularly if the documents include information unrelated to the stockholder’s proper purpose.
  
  One solution is to redact the unrelated material. While Delaware courts acknowledge that a company may redact material unrelated to the subject matter of the demand, some opinions warn of “questionable” and “excessive” redaction. The result is uncertainty about the amount and nature of the “relevance” redactions permitted, and the applicability of potential penalties for “excessive” redaction, such as expanded discovery.
  
  Another solution is to condition books and records inspection on the stockholder entering into a confidentiality agreement. Although courts have upheld the use of reasonable confidentiality agreements, as a practical matter, a confidentiality agreement alone will not prevent unrelated information from becoming public if the materials are included in court filings. Therefore, to protect unrelated information, it may be necessary to redact documents even if they are covered by a confidentiality agreement.

• Incorporation by Reference: A stockholder may eventually commence an action against the corporation based on records obtained through an inspection demand. In such circumstances, even if the corporation has produced records that directly contradict the stockholder’s pleadings, the corporation may be at a procedural disadvantage at the pleading stage. Typically, in its motion to dismiss, the corporation may only refer to and include as exhibits documents that are referenced in the stockholder’s complaint or otherwise subject to judicial notice. If the stockholder’s complaint does not refer to the corporate records that contradict its pleadings, then the corporation may be limited in its ability to refer to such records, potentially resulting in a denial of the motion to dismiss.
  
  To mitigate this risk, when producing records in response to a §220 demand, the corporation will include a provision in the confidentiality agreement with the stockholder to the effect that the set of records produced will be deemed to be incorporated by reference into the stockholder’s complaint and, therefore, could be used by the corporation as needed to rebut the stockholder’s claims. Although not a guarantee of dismissal, incorporating records by reference increases the likelihood that frivolous claims will be avoided or dispatched quickly.

Key Takeaways from the Amendments to DGCL §220

Amended §220 addresses each of the foregoing concerns and provides greater clarity on the scope of records available for inspection, on redaction practice, and on incorporation by reference, among other topics. It restricts the types of records available under normal circumstances, while specifying the limited conditions under which those restrictions may be overcome, and imposes new obligations on stockholders’ requests even as it permits corporations to restrict certain stockholder uses of their records. The amendments also raise new questions, including over the meaning of certain statutory language and potential implications for discovery outside the §220 context.

• Amended §220 took effect as of March 25, 2025, and applies retroactively. However, amended §220 does not apply to or affect any action or proceeding that is completed or pending, or any demand to inspect books and records made, on or before February 17, 2025, the date the amendments were first introduced in the Delaware General Assembly.²

• Amended §220 significantly narrows the range of corporate documents that a stockholder may inspect under normal circumstances. Under the pre-amendment statute, a stockholder could inspect and copy the stock ledger, a list of stockholders, and other “books and records.” Under new §220(a)(1), the term “books and records” receives a statutory definition, limiting it to a list of formal corporate documents:

• Certificate of incorporation and bylaws, along with any agreement or other instrument they incorporate by reference;
• For the preceding three years, (1) all stockholder meeting minutes and signed consents evidencing stockholder action taken without a meeting and (2) all written or electronic communications to stockholders generally;
• Board and committee meeting minutes and records of any board or committee actions, along with materials provided to the board or committee in connection with such actions;
• Annual financial statements of the corporation for the past three years;
• Agreements with current and prospective stockholders; and
• Director and officer independence questionnaires.

Notably absent from the list are informal communications among directors, as well as officer- and employee-level materials and communications. A stockholder must satisfy the requirements of §220(b) to inspect books and records, including the requirements of new §220(b)(2) discussed below.

Actions to Compel: Under the amendments, stockholders retain the ability to apply to the Delaware Chancery Court to compel inspection. However, new §220(e) provides that, except in the extraordinary situations discussed below, the Chancery Court may not order the production of any records other than those listed under §220(a)(1). New §220(b)(4) clarifies that §220 limitations do not affect the right of a stockholder to seek discovery in litigation or the power of a court, based on authority outside of the DGCL, to compel production of records and to impose reasonable restrictions under new §220(b)(3) discussed below.

• In certain extraordinary circumstances, amended §220 permits the Court of Chancery to compel production of documents not listed under new §220(a)(1). Pre-amendment caselaw had permitted stockholders to inspect informal board materials and officer-level materials based on demonstrated need. Under new §§220(f) and (g), the Chancery Court may compel the corporation to produce records beyond those listed on §220(a)(1) only in the following two circumstances. In addition, new §220(h) authorizes the Chancery Court to impose reasonable restrictions on the production of records in these circumstances (discussed below under Restrictions on Production).

• Missing §220(a)(1) Documents: Under new §220(f), the Chancery Court may order a corporation to produce records constituting the functional equivalent of any of the following §220(a)(1) records if the corporation does not have them and the stockholder otherwise meets the other §220(b) demand requirements:
  • Stockholder meeting minutes and signed consents evidencing stockholder action taken without a meeting in the last three years;
  • Board and committee meeting minutes and records of any board or committee actions;
  • Annual financial statements of the corporation for the past three years; and
  • If the corporation has a class of stock listed on a national securities exchange, director and officer independence questionnaires.

The Chancery Court may compel the corporation to produce the functionally equivalent records only to the extent necessary and essential to fulfill the stockholder’s proper purpose:

Prior to the amendments, Delaware courts generally limited inspection rights to records that were “essential and sufficient” to the stockholder’s purpose. This term was defined to encompass records that, at a minimum, address the crux of the shareholder’s purpose and contain information unavailable from another source.³ The inquiry was fact-specific and context-driven, with the court giving the stockholder what was “essential” but stopping at what was “sufficient.” The term “necessary and essential” in amended §220 is new, and it is yet to be seen whether courts will draw a parallel with the “essential and sufficient” standard developed under existing caselaw or interpret this term in a new manner.

The parameters of the “functional equivalent” criteria will likely be developed by courts over time. While that process plays out, the “functional equivalent” of, for example, board records or financial statements may remain unclear and could provide an opening for aggressive stockholder demands. Accordingly, corporations would be advised to foreclose the use of §220(f) by observing corporate formalities and maintaining official records. For private corporations that do not prepare audited financial statements, this should include a set of board-approved annual financial statements.

• Documents Subject to a Compelling Need: Under new §220(g), the Chancery Court may compel additional records only if and to the extent the stockholder has:
  • Met all of the §220(b) requirements;
  • Made a showing of compelling need for an inspection of such records to further the stockholder’s proper purpose; and
  • Demonstrated by clear and convincing evidence that such specific records are necessary and essential to further such purpose.

Generally, new §220(g) enhances the burden of proof imposed on stockholders when they seek to compel the inspection of any records beyond those listed under new §220(a)(1). Where pre-amendment caselaw allowed stockholders to inspect informal board records and officer-level materials if the stockholder “demonstrated a need,”⁴ new §220(g) now requires a “showing of compelling need.” Likewise, in determining the scope of records that the corporation must produce, pre-amendment caselaw required the stockholder to “demonstrate by a preponderance of the evidence that each category of the books and records requested is essential and sufficient to its stated purpose.”⁵ Now, new §220(g) requires the stockholder to demonstrate, under the higher “clear and convincing” standard, that the specific records are “necessary and essential.” Typically, a preponderance of the evidence standard requires proof that something is more likely than not,⁶ while a clear and convincing evidence standard requires proof that something is “highly probable.”⁷ It is difficult to say what practical effect these modified evidentiary burdens will have in books and records inspection disputes.

• Amended §220 imposes additional conditions on a stockholder’s right to inspect books and records. Pre-amendment §220 required that a stockholder make a written demand under oath stating a proper purpose for the inspection. New §220(b)(2) now requires, in addition to the written demand and oath, that:
  • The stockholder’s demand be made in good faith and for a proper purpose and describe with reasonable particularity such purpose and the books and records sought; and
  • The books and records sought be specifically related to the stockholder’s purpose.

Proper Purpose: The amendments retain the existing definition of “proper purpose” (namely, “a purpose reasonably related to a stockholder’s interest as stockholder”) in new §220(a)(2), so existing caselaw interpreting that standard will apply.

Burden of Proof: The amendments did not change the burden of proof allocation for the corporation and the stockholder under existing law. With regard to the inspection of the stock ledger and stockholder list, an objecting corporation bears the burden of proof under §220(c) to establish that the inspection is for an improper purpose. Although amended §220 does not expressly address the burden of proof in other circumstances, it does not appear to change existing caselaw, which imposes the burden of proof on the stockholder to show that its inspection of books and records is for a proper purpose.

Restrictions on Production: New §220(b)(3) allows the corporation to impose conditions relating to the books and records produced in response to a stockholder demand under §220(b).

The corporation may:

• Impose reasonable confidentiality, use, and distribution restrictions on any books and records it produces to the stockholder.

• Condition production on the stockholder’s agreement that any information included in the corporation’s books and records is deemed incorporated by reference in any complaint filed by or at the direction of the stockholder relating to the subject matter referenced in the demand.

• Redact portions of any books and records produced to the extent the documents include portions not specifically related to the stockholder’s purpose.

Under new §220(h), the Chancery Court may impose these restrictions to records produced under §§220(f) and (g).

As discussed above, the limitations listed here were already permitted under pre-amendment caselaw. However, the amendments appear to go further, emphasizing that the corporation has more control over the production of records. Pre-amendment practice often involved the corporation and the stockholder negotiating a confidentiality agreement, which could include an agreement relating to the incorporation by reference of the records into a stockholder’s complaint. In contrast, new §220(b)(3) allows the corporation to unilaterally impose reasonable confidentiality, use, and distribution restrictions and to withhold production if the stockholder does not agree to incorporation by reference.

Likewise, new §220(b)(3) allows the corporation to redact all portions of the produced documents that do not specifically relate to the stockholder’s purpose. The amendment thereby resolves the previous uncertainty in the caselaw about the permissibility and the scope of redactions on relevance grounds. Further, statutory recognition of redaction for relevance in the §220 context may open the door to discussions of its permissibility in other litigation contexts. As a result, Delaware courts may be more inclined to revisit such redactions as part of the ordinary discovery process in other litigation.

¹ The amendments were passed as Senate Substitute No. 1 for Senate Bill No. 21 (referred to as the “Act”). The bill included amendments to DGCL §144 that were the subject of a previous Mayer Brown legal update, available at Delaware Law Alert: A Step-by-Step Approach for Boards Evaluating Conflicted Director, Officer, and Controlling Stockholder Transactions Under the Amended Delaware Corporation Law.

² Section 3 of the Act.

³ See, e.g., NVIDIA Corp. v. City of Westland Police & Fire Ret. Sys., 282 A.3d 1, No. 259, 2021 (Del. 2022).

⁴ Hightower v. SharpSpring, Inc., C.A. No. 2021-0720-KSJM (Del. Ch. 2022; McCormick, C.).

⁵ See, e.g., Rivest v. Hauppauge Digital, Inc., C.A. No. 2019-0848-PWG (Del. Ch. 2022; Laster, V.C.) (textual revisions in original not shown).

⁶ See, e.g., State of Rhode Island Off. of Gen. Treasurer on Behalf of Employees’ Ret. Sys. of Rhode Island v. Paramount Global, 331 A.3d 179, C.A. 2024-0457-SEM (Del. Ch. January 29, 2025; Laster, V.C.).

⁷ See, e.g., Hudak v. Procek, 806 A.2d 140, No. 416, 2000 (Del. 2002).