In a previous blog on business records, I addressed the right of an LLC member to periodically inspect the company's books and records on written request. The statute giving LLC members these inspection rights was recently interpreted by the Georgia Court of Appeals in Ridgewalk Holdings, LLC v. Atlanta Apartment Corporation, 358 Ga. App. 727 (2021).
In Ridgewalk, certain disputes arose between a group of real estate developers and brokers over a failed development deal. As part of that dispute, an entity, Advocate, claimed an ownership interest in another LLC's involved in the litigation, RPI. Based on that claim, Advocate demanded to see RPI's business records. RPI took the position that Advocate previously forfeited its ownership interest in RPI and refused to make any business records available.
Advocate filed suit, claiming an absolute right to inspect RPI's books and records. In denying that relief, the trial court found that the inspection right was only available to undisputed members, and questions about Advocate's ownership meant that Advocate was not entitled to review RPI's records until the ownership question was resolved. Advocate appealed and the Court of Appeals affirmed the trial court's decision.
A key take-away from this case is that LLC members filing suit to secure access to company records would do well to clearly establish their membership interest in the entity on the front end. This can be accomplished any number of ways, including K-1s from or evidence of capital contributions to the entity in question, contracts, capitalization tables and even correspondence.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.