In Hogans v. Hogans Agency, Inc., the Court of Special Appeals tackled the rarely litigated topic of demands for access to books and records under the Maryland General Corporation Law (MGCL).

By way of background, stockholders of a Maryland corporation are granted access to certain books and records of the corporation pursuant to Sections 2-512 and 2-513 of the MGCL. Stockholders owning less than 5% of the corporation are limited to the right to inspect the bylaws, minutes of stockholder meetings, the annual statement of affairs, and any voting trust agreements on file at the corporation’s principal office. But persons who, individually or collectively, “for at least six months have been stockholders of record or holders of voting trust certificates of at least 5 percent of the outstanding stock of any class of a corporation” may also inspect and copy the corporation’s books of account and its stock ledger (along with certain other rights).

Those acquainted with Section 220 of the Delaware General Corporation Law may be surprised to learn that Maryland lacks any “proper purpose” requirement. Indeed, while Section 220(c) of the Delaware General Corporation Law requires that a stockholder seeking inspection of the books and records of a Delaware corporation (other than the stock ledger) establish that the stockholder has a “proper purpose” for doing so, Maryland has no analogous provision.  In the absence of such a provision, friction typically arises between the Maryland corporation and stockholders seeking access to the books of account of the corporation for two reasons: (1) “books of account” is not defined by Maryland law, and (2) regardless of the meaning of the phrase, most (if not all) corporations take the view that any non-public financial information pertaining to the corporation is confidential.  The latter issue was at the center of Hogans.

In Hogans, appellant, a minority stockholder holding in excess of 5% of the outstanding stock of the appellee, demanded access to the books and records of the corporation. Appellee provided copies of the bylaws, minutes of the proceedings of stockholder meetings, an annual statement of affairs and the stock ledger, but conditioned inspection of the books of account on the signing of a confidentiality agreement. As appellee later explained, this agreement was allegedly necessitated by appellant’s competing business. In response to this condition, appellant sued for, among other things, an injunction allowing him immediate access to the books of account of the corporation. Thus, the sole issue in Hogans was whether a stockholder’s access to the books of account of his corporation could be conditioned on confidentiality. Ultimately, the trial court granted appellee’s motion for summary judgment denying the appellant immediate access to the records and, instead, ordering that appellant deliver a confidentiality agreement prior to being granted access to the books of account.

On appeal, the Court of Special Appeals affirmed the judgment of the circuit court. The court held that the right of the stockholder to inspect the books of account is limited by the corporation’s right to protect itself and provided as follows:

“A corporation may not deny a stockholder the right to inspect the books of account, as provided in [Section 2-513 of the MGCL]. A corporation may, however, require the stockholder to sign a confidentiality agreement where the confidentiality agreement and its terms advance the purpose of protecting the corporation against disclosure and misuse of confidential documents and information by the stockholder.” 

Slip. Op. at 12 (citations and quotations omitted).

Given this clear guidance, we anticipate that most Maryland corporations will require entry into a confidentiality agreement prior to granting stockholders access to the books of account of the corporation.

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