Shareholder’s Rights v. the Accountant-Client Privilege

By on September 19, 2019

Executive Summary of an article written by
Allen M. Levine and Jonathan D. Silver, Becker & Poliakoff

It is common for a business or its executives to be presented with allegations of mismanagement or wrongdoing by a minority shareholder, accompanied by requests for company financial records. When such allegations arise, it is important to efficiently address the allegations while protecting privileged communications with accountants.

Shareholders and members have an absolute right to inspect and copy the corporation’s articles of incorporation and bylaws. A shareholder’s right to examine additional company documents and private financial records is not absolute.

In one Colorado case, shareholders demanded to inspect financial records possessed by the corporation’s accountants. The court upheld the defendants’ assertion of accountant-client privilege. In another case, the same court concluded that the petitioners “established good cause to put aside the protections of the accountant-client privilege,” focusing on the fact that the discovery requests related to communications that were directly related to the allegations. Since it is difficult to reconcile the two Colorado cases, it appears that the only court that has considered this issue twice has ruled in favor of providing the shareholders with the requested information. However, when documents other than financial records satisfy the shareholder’s request or the privileged information can be redacted, the accountant-client privilege should continue to trump the shareholder’s right to inspect a corporation’s privileged financial records.

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