G. Inspection of corporate books.—The privilege of the stockholders to inspect the corporate books is a right incidental to that of control. I3y inspecting the books the stockholders are able to make this con trol intelligent and effective.
The books of a corporation are generally of two kinds—corporate and financial books. The former consist of the stock ledger, the transfer book and the minute books. Stockholders are generally given the right by statute peremptorily to demand to see these books, and to make abstracts and copies. If this right is denied, a stockholder may immediately sue the cor poration and the offending officers for the penalties prescribed by law, and may also get a mandatory in junction directing the officers to permit him to see the books. Ordinarily the stockholder has no such right, however, to see the financial books. If, in order to protect any of his prerogatives, it becomes necessary to examine the financial records, a court or der must first be procured.' The foregoing statement may be somewhat ampli fied with reference to Canadian law. It must first be stated generally that members of a corporation have no absolute right to inspect, whenever they think fit, all papers belonging to the aggregate body. It has been held in leading English cases that the privilege of inspection is confined to cases in which the mem ber has in view some definite right or object of his own, and to such documents as would tend to illus trate such right or object. The principle behind the restriction is that matters of internal economy and arrangement are not lightly to be interfered with. Apart from the cases mentioned, and without spe cial enactment, a shareholder has no right to examine the minutes of directors' meetings, for the reason that it is not usually considered advisable to allow such examination. One can readily see that matters of great concern to, the company might otherwise be come public. Of the statutory right of inspection of certain books and doetunents the shareholder cannot be deprived. All the Canadian letters patent acts provide for the inspection by shareholders, during rea sonable business hours of every ordinary business day, of certain books, and the making of extracts. These rglate to the (a) Company's letters patent and supplementary letters patent; (b) Preliminary memorandum of agreement; (c) By-laws of the company; (d) Register of shareholders and directors; (e) Stock register.
What the shareholder cannot get at under these provisions directly he may secure indirectly. Under several of the acts a certain proportion of the share holders may apply to the courts for the appointment of an inspector to examine the company's affairs and management. The company may by resolution it self appoint such an inspector. The inspector has very wide powers. He can order the production of all the company's books and documents and examine upon oath the officers and agents of the company. He is there to get information not otherwise to be disclosed. His position is not judicial or quasi-judi cial, and an action at law could not be based upon his report. His report does not bind even the com
pany. In certain of the pro-vinces his report is ad missible in legal proceedings to show his opinion in relation to any matter contained in the report. Under most of the acts an annual audit by account ants is compulsory, and this affords a means also of getting at the company's true financial position. The letters patent acts all provide that the directors must lay before the shareholders at or before the an nual meeting a full statement of the affairs and fi nancial position of the company. It must not be forgotten that directors are agents of the shareholders and appointed by them; and so even at common law, apart from statute, they are bound to keep proper and regular accounts of all transactions and at rea sonable and suitable times to render accounts, with out concealment, to the shareholders.
7. Rights of minorities.—Courts of equity discour age corporations from washing their dirty linen in public. "If the directors are dishonest or inefficient put them out," says the court. But suppose the di rectors are kept in office by a majority that is milking the corporation for their own benefit. Such a situa tion frequently arises in subsidiary companies, in which the minority feel that their corporation is be ing used to pull the parent company's chestnuts out of the fire.
The line between downright fraud, on the one band, and furthering legitimately the interests of the in dividual stockholder on the other hand, is difficult to draw. It has been held that a shareholder's vote to dissolve a company is not invalid because the dissolu tion would terminate a contract that is beneficial to the corporation but onerous, to himself. With the warning to the reader that fraud is always a difficult matter to prove, the subject will be dismissed with the following summary of the rights of a minority to prevent the majority from performing certain acts: 1 (1) The right to prevent ultra tires acts.
(2) The right to restrain a bare majority from ex ercising a power, which, by statute, by charter-provi sion or by law, requires the assent of a larger majority —two-thirds or three-quarters.
(3) The right to restrain the majority from com mitting fraud.
As was indicated above, the mere fact that a stock holder has a personal interest in a transaction is no reason why he should be prevented from exercising his right to vote in such a -way as to further his per sonal interests. There is, however, a very definite line between this rule and the rule that a corporation not be deprived of its property unjustly and without • proper consideration in return.
The principal difficulty arises in a case like this: A subsidiary is made to pay a dividend in order to pro vide income for the parent company, altho the divi dend reduces the surplus and exhausts the company's working capital. In such a case, unless there were no bona fide surplus from which dividends could be de clared, the minority would be without redress.