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Clarifying the Meaning of 'Stockholder'

By Jack Jacobs and S. Patrick Kelly
October 13, 2016

In a decision with facts egregious enough to justify two references to the definition of “chutzpah,” Vice Chancellor Sam Glasscock III of the Delaware Court of Chancery provided helpful guidance on how to establish and refute “stockholder” status for purposes of bringing an action to inspect corporate books and records under 8 Del. C. Section 220, in Pogue v. Hybrid Energy, C.A. No. 11563-VCG (Del. Ch. Ct. Aug. 5). The vice chancellor held that “inclusion on a stock ledger is prima facie evidence of stock ownership but … the corporate defendant may rebut that presumption by clear and convincing evidence.”

Section 220

Section 220 allows a stockholder to make a demand to inspect the books and records of the corporation so long as it is for a “proper purpose,” which the statute defines as being “a purpose reasonably related to such person's interest as a stockholder.” The corporation has five days to respond to such a demand once it has been made. If the corporation does not respond within that time or if in its response it refuses to allow a books-and-records inspection, then the stockholder may bring an action to compel production of those records in the Delaware Court of Chancery. Of particular relevance here is the statutory requirement that a Section 220 demand ' and any action based on the refusal of that demand ' must be brought by “a stockholder.” The issue of whether one who claims to be a stockholder is truly a stockholder for Section 220 purposes was presented front and center in Pogue.

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