Where a demand to inspect a limited liability company’s books is made by a member’s counsel and not by the actual member, the demand is insufficient under the statute. Extra Care, LLC v. Carolina All. For Residential Excellence, LLC, 2024 NCBC 41 (J. Earp). While counsel could conduct the actual inspection, the member’s failure to sign the demand subjected its “books and records” request to dismissal.

Plaintiff is a member of each of the Defendant entities.  As a preferred member (based upon the amount of its capital contribution), Plaintiff was entitled to monthly distributions.  When it had not received its distributions for several months, it made a demand (through a letter written by its counsel) on Defendants to inspect their books and records.  After receiving some documents, Plaintiff made an additional demand that was again signed by its counsel and delivered by email to Defendants’ counsel.  When Defendants refused to produce any further records, Plaintiff filed suit.  Defendants filed a motion to dismiss, contending Plaintiff’s demand was statutorily insufficient.

The Business Court agreed and dismissed Plaintiff’s lawsuit.  Recognizing that the 2014 amendment of Section 57D-3-04 of North Carolina’s Limited Liability Act required a member to sign a “notice of exercise,” the Business Court held that because Plaintiff’s demand for inspection in this case was signed by its counsel and not by Plaintiff, it did not satisfy the statute.  (Opinion, ¶20).  As a result, Plaintiff’s lawsuit for inspection of books and records had to be dismissed inasmuch as Plaintiff had failed to follow the statutory requirements.

Based upon this decision, any LLC receiving an inspection demand from one of its members should ensure that the member actually signed the request, rather than the member’s lawyer.

Additional Legal Points: While an LLC providing multiple responses to a books and records request that went beyond what is statutorily required may waive the LLC’s ability to later object to the member failing to follow the statute, each request would be examined individually and an LLC’s waiver related to a prior request may not apply to any future requests.  (Opinion, ¶¶23-24).