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Inspection When The Subsidiary Is A Limited Liability Company

Section 1601 of the California Corporations Code grants any shareholder the right to inspect the accounting books, records, and minutes of board and shareholder meetings for a purpose reasonably related to the shareholder's interest as a shareholder.  Subdivision (a)(3) of the statute provides:

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

If the corporation is the sole or a controlling member of a limited liability company, does Subdivision (a)(3) grant a right to inspect the records of the limited liability company?  It would if the limited liability company is a subsidiary of the corporation.  

Section 189 of the Corporations Code, however defines a "subsidiary" of a corporation as a "corporation" shares of which possessing more than 50% of the voting power are owned directly or indirectly through one or more subsidiaries by the corporation.   Section 162 defines "corporation" as a corporation organized under or subject to the California General Corporation Law pursuant to Section 102(a).  Because a limited liability company is neither organized under or subject to the General Corporation Law, it is not a "corporation".  Because a limited liability company is not a corporation, it cannot be a "subsidiary" as defined in Section 189.  

Subdivision (a)(3) was added to Section 1601 in 2018.   AB 2237 (Maienschein), 2018 Cal. Stats. ch. 76.   Thus, the legislature's failure to account for limited liability companies in the statute cannot be attributed to the fact that the statute preceded the existence of limited liability companies.

© 2010-2022 Allen Matkins Leck Gamble Mallory & Natsis LLP National Law Review, Volume XI, Number 342
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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm
Partner

Keith Bishop works with privately held and publicly traded companies on federal and state corporate and securities transactions, compliance, and governance matters. He is highly-regarded for his in-depth knowledge of the distinctive corporate and regulatory requirements faced by corporations in the state of California.

While many law firms have a great deal of expertise in federal or Delaware corporate law, Keith’s specific focus on California corporate and securities law is uncommon. A former California state regulator of securities and financial institutions, Keith has decades of...

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