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The ABCs of Corporate Law: Reforming Section 220 Demands

Management Liability

Walker Newell, Esq.

Jul 09, 2025

7 minutes

For many years, plaintiffs’ lawyers have used Section 220 requests to harass Delaware corporations. Typically, books and records demands are intrusive and annoying—and nothing more. However, in some cases, plaintiffs have used the Section 220 process to get invasive access to the emails—and even text messages—of officers and directors, all to create support for big-ticket shareholder litigation. To combat these abuses, the Delaware legislature passed legislation earlier this year that significantly narrows the scope of materials subject to books and records requests in most cases. My colleague and former securities litigator Walker Newell unpacks what the new law means for D&O risk for this week’s edition of the D&O Notebook. —Priya Huskins

Corporate law is a strange animal.

Stockholders own the corporation but, apart from matters put to a proxy vote, they don’t make decisions for the corporation. Instead, officers—overseen by the board—make the vital decisions. Stockholders get periodic updates on how things are going, but they generally don’t get to look over management’s shoulders to check their work.

At a basic level, investing, stepping back, and letting management operate is a trust fall. Luckily, the incentives of stockholders, officers, and directors are usually closely aligned. Everyone wants to make money. Sometimes everyone makes money; sometimes they don’t. Regardless, if management is working hard and trying to make money for everyone else, and if directors are loyally overseeing management, they have all done their jobs and no one should get in trouble.

This innovative structure has worked pretty darn well for almost 500 years (maybe even longer). The corporate form pools capital, distributes risk, and drives efficient and profit-maximizing decision-making.

But what if a company’s CEO inexplicably decides to go into a dark room and light everyone’s money on fire?

Since stockholders are, again, the owners of the corporation, it feels like they should be able to do something about this. But, because they only get periodic updates and are not on the ground operating the corporation, it can be difficult for them to find out about dirty deeds done in the dark until it’s too late.

To address this situation, judges a long time ago invented the concept of stockholder inspection rights. In recent years, however, plaintiffs’ lawyers have been using books and records demands aggressively to seek emails and text messages sent by directors and officers to use in litigation.

The ABCs of Section 220 Demands

According to this law review article, the idea that stockholders are entitled to inspect the books and records of a corporation comes from English common law. As a bewigged British judge put it almost 300 years ago, “every member of the corporation had, as such, a right to look into the books for any matter that concerned himself” because “such books . . . are the common property of aggregate bodies.”

In the early days, stockholder inspection rights were mostly unfettered. But there is a big difference between a shareholder in a closely held 18th-century-fur-trapping venture and a shareholder in 2025 who owns five shares in a trillion-dollar market cap company.

In the modern era, the general standard in Delaware—per Section 220 of the Delaware General Corporation Code, as interpreted by the courts—has been that stockholders can get books and records if:

They have a “proper purpose” reasonably related to their interest as a stockholder, which can include the need to investigate wrongdoing by management if the stockholder has a “credible basis” for thinking wrongdoing has occurred; and
The stockholder shows that each category of books and records is “essential” to achieve this “proper purpose”—e.g., they really need them to investigate wrongdoing by management.

Courts love big, flexible legal standards like these. These rules give courts optionality to decide individual cases based on their unique facts, while providing superstructural boundaries to make sure that individual judges don’t color outside the lines.

As we explained in this 2023 article, as Section 220 requests became an increasingly commonly used tool in the pre-litigation toolbox for crafty plaintiffs’ lawyers, Delaware courts have seemed increasingly willing to allow stockholders access to sensitive documents, including electronic communications sent and received by officers and directors.

These decisions—coupled with the increasing frequency of 220 demands over the years—have coincided with challenges to Delaware’s status as the premier state of incorporation (which we have discussed in the past here, here, and here.) So, when the Delaware legislature passed several D&O-friendly corporate legal reforms this year, the new laws included an amendment to Section 220.

“Books and Records” Are Really Just Books and Records

Before the amendments, the concept of books and records was not specifically defined by statute. This left the courts to work it out—and while they typically erred on the side of limiting requests to, for example, formal board and materials, from time to time, courts granted much more invasive requests for communications.

The Section 220 amendments address this concern head-on by specifically defining the group of records that are subject to stockholder inspection. The statute lists things like board minutes and materials—and does not list communications between and among directors and officers, such as emails and texts.

There are two important carve-outs, though.

First, if some of the records specifically subject to the new inspection rights are missing, the courts can order the production of “functional equivalent” records. So, for example, if a company forgets to create board minutes, a court could presumably order the production of notes taken at a board meeting. This shouldn’t cause much heartburn for companies with the sort of good corporate hygiene that leads to good board meeting minutes promptly created and properly maintained (although plaintiffs’ lawyers will certainly try to use the exception as expansively as possible, so watch this space).

Second, if a stockholder can demonstrate by “clear and convincing” evidence that there is a “compelling need” for other types of records, the court can order them to be produced. This is a very strict standard, but it gives plaintiffs a tiny wedge that could open the door to unofficial communications in the right circumstances.

Texas and Nevada’s Books and Records Statutes

Like Delaware, Texas also changed its law on books and records demands in 2025. Amendments passed earlier this year provide:
For purposes of this subsection, the records of the corporation shall not include e-mails, text messages or similar electronic communications, or information from social media accounts unless the particular e-mail, communication, or social media information effectuates an action by the corporation.

So, the new Texas approach is pretty similar to the new Delaware approach. If you carefully memorialize corporate actions through appropriate documentation (minutes, resolutions, etc.), you should be fine.

Nevada has an even more pro-D&O regime, which does not seem to create any daylight for stockholders to access director and officer communications through books and records requests.

D&O Risk Implications and Conclusion

Few officers and directors (and none of the readers of the D&O Notebook) are trying to light money on fire, and the Delaware and Texas amendments come as a welcome relief after the Chancery Court’s expansion of the books and records theory in recent years.

To take full advantage of the Delaware (and Texas) corporate law updates, officers and directors need to ensure that board minutes show their work; careful corporate blocking and tackling will be a powerful prophylactic against invasive books and records demands.

Like raptors testing the fence, plaintiffs’ firms will have every incentive to try to expand the exceptions to the new books and records rules. Here, I am reminded of the old lawyer’s adage that “bad facts make bad law.” It will be very hard for plaintiffs to show by “clear and convincing evidence” a “compelling need” for emails and text messages. But, in the presence of bad facts—for example, an ugly and public corporate scandal—judges might take a second look.

Setting aside communications, plaintiffs will continue to submit demands for board minutes and other enumerated records. While this process should be streamlined by the clarity provided by the amendments, it will still cost money. Happily, D&O insurance enhancements may be available to provide some limited coverage for books and records demands.