Legal Updates

Fiduciary rights of a shareholder require a right to review company documents and data

November 17, 2020

A shareholder demanded to receive documents and data from the company, needed to him for the purpose of dealing with claims brought on by the Tax Authority arising from actions taken by the company.
The Court (partially) accepted the claim and held that a shareholder has the right to review the company documents for the purpose of maintaining his monetary rights or ensuring the company’s financial welfare. In order for a person to be entitled to receive accounts and financial documents from a company, the person must have a special relationship with the company and a right to the funds regarding which he is requesting the information. When dealing with a shareholder in the company, his right to review company documents is also established in the fiduciary duties of shareholders and control holders in the company. Receiving information from the company by the shareholder is necessary in order to allow him to maximize his rights in the company shares, because, in the absence of such information, the shareholder will not be able to perform his duties, vote in the shareholders meetings, supervise the actions of the board of directors and protect his assets. The right to receive information is renewed daily, thus allowing to demand such information for a period of 7 years retroactively. The claim for information is even stronger when dealing with a private company with a small number of shareholders, and when the party requesting the information is the minority shareholder, or when the majority shareholder is also an officer of the company. However, the right to receive data may be denied when used for improper objectives such as a wish to harm the company or its trade secrets. Here, allowing the right to review the information does not constitute an undue incumbrance or harm for the company and that the shareholder, being a minority shareholder in the company, requires the data for legitimate reasons, in order to preserve his rights, deal with third party claims arising from company actions and preserve his rights as a minority shareholder. Therefore, the shareholder is entitled to review the company documents relating to its financial dealings for a period of 7 years prior to the claim.