An employee of a private company is given company stock options. The employee exercises those options, and receives a signed certificate for the shares. Correct me if I'm wrong, but I think this makes the employee the holder of record for those shares. The employee later leaves the company, but still has the certificate representing ownership of those shares.

The company is still privately owned, not publicly traded. The ex-employee, who is still a shareholder, wants to know how the company is doing in order to better ascertain the value of their shares. Is the company required to disclose any financial information when the shareholder asks?

For applicable jurisdictions, the company is legally incorporated in Delaware, but its headquarters office is in California.

In Delaware state law, I found 8 Del. C. § 220 (emphasis added):

§ 220. Inspection of books and records.

(a) As used in this section:

(1) “Stockholder” means a holder of record of stock in a stock corporation, or a person who is the beneficial owner of shares of such stock held either in a voting trust or by a nominee on behalf of such person.

(2) “Subsidiary” means any entity directly or indirectly owned, in whole or in part, by the corporation of which the stockholder is a stockholder and over the affairs of which the corporation directly or indirectly exercises control, and includes, without limitation, corporations, partnerships, limited partnerships, limited liability partnerships, limited liability companies, statutory trusts and/or joint ventures.

(3) “Under oath” includes statements the declarant affirms to be true under penalty of perjury under the laws of the United States or any state.

(b) Any stockholder, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose, and to make copies and extracts from:

(1) The corporation’s stock ledger, a list of its stockholders, and its other books and records; and [...]

In California state law, I found Corporations Code, section 1601 (emphasis added):

(a) (1) The accounting books, records, and minutes of proceedings of the shareholders and the board and committees of the board of any domestic corporation, and of any foreign corporation keeping any records in this state or having its principal executive office in this state, or a true and accurate copy thereof if the original has been lost, destroyed, or is not normally physically located within this state shall be open to inspection at the corporation’s principal office in this state, or if none, at the physical location for the corporation’s registered agent for service of process in this state, upon the written demand on the corporation of any shareholder or holder of a voting trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to the holder’s interests as a shareholder or as the holder of a voting trust certificate.

(2) As an alternative to the procedure in subdivision (a), the shareholder or holder of a voting trust certificate may elect to request that the corporation produce the books, records, and minutes by mail or electronically, if the shareholder or holder of a voting trust certificate pays for the reasonable costs for copying or converting the requested documents to electronic format.

(3) The right of inspection created by this subdivision shall extend to the records of each subsidiary of a corporation subject to this subdivision.

(b) The inspection by a shareholder or holder of a voting trust certificate may be made in person or by agent or attorney, and the right of inspection includes the right to copy and make extracts. The right of the shareholders to inspect the corporate records may not be limited by the articles or bylaws.

My understanding of both of these states' laws is that, at most, the company could insist that the shareholder (or their agent or attorney) show up in person during business hours and deliver the request in writing and under oath, but if the shareholder does that then the company would be required to disclose sufficient information for the stated purpose of ascertaining the value of their shares.

Am I correct? If not, what did I miss?

  • 1
    You're on the right track in looking at the Corporations Code. In my experience, the rights of a shareholder depends on 1) the company's constitution as well as 2) legislation, which is typically codified under the Companies Act or its equivalent, in the company's legal jurisdiction. I'm not an expert in American corporate law, but I would expect that the company can fulfill the relevant obligations by sending you a copy of their audited financial statements. Dec 17, 2022 at 22:20
  • Not sure about American terminology, but "privately owned" and "stock company" contradict each other. A company that issues shares is, by definition, not privately owned, even though the majority of the shares might be owned by private persons (or even a single person).
    – PMF
    Dec 18, 2022 at 13:29
  • @PMF As I understand it, in American terminology "private", in reference to a company, just means that it's not listed on public stock exchanges. Combining it with another word such as "privately owned" or "privately traded" does not change that meaning.
    – Douglas
    Dec 18, 2022 at 19:43


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