August 25, 2026

The ABCs of Business Entity Rights

By Laura Trachtman

At first blush, an action for an accounting and an action demanding inspection of a business entity’s books and records might seem like the same thing. After all, both involve basically reviewing information pertinent to the entity, right? Actually, the two causes of action are grounded in entirely different aspects of law. Let’s start off in alphabetical order: 

A for Accounting!

So first: What is an accounting? It’s a report, formal or otherwise, which details all transactions, assets, income, expenses and distributions related to an estate, a trust, or a business. In other words, it’s a mechanism to ensure transparency and accountability when a person manages money or assets belonging to another. Usually this is demanded, informally at first, when partners/members/etc. think that an individual with access to money/resources is engaging in self-dealing or fiscal malfeasance. 

Not everyone can demand an accounting. “Under New York law, an accounting is an equitable remedy (Barry v. Clermont York Assoc. LLC, 144 A.D.3d 607, 608, 42 N.Y.S.3d 123 [1st Dept. 2016]), “premised upon the existence of a fiduciary relationship” (Castellotti v. Free, 138 A.D.3d 198, 210, 27 N.Y.S.3d 507 [1st Dept. 2016] ).” Est. of Calderwood v. ACE Grp. Int’l LLC, 157 AD3d 190, 199 (1st Dept 2017). So, in other words, the person who demands the accounting must have a fiduciary relationship with the person of whom the accounting is demanded. However, once you’ve demanded an accounting, you should be able to get a fairly clear understanding of the finances of an entity, and whether there’s been some funny business going on. This isn’t restricted only to the banking records, but also credit card transactions. 

Finally, wrongdoing must be established for a demand for an accounting to be granted but only in certain jurisdictions. For example, the First Department does not require wrongdoing to be established to grant an accounting, only that a fiduciary relationship be established. However, in an action for accounting, as in all equitable actions, one must demonstrate that there is no adequate relief available in law. 

B for Books and Records!

What is an action for books and records? It’s a common law-cum-statutory right of inspection available to shareholders/partners of a business entity. The statutory part is codified in Business Corporations Law § 624, but the common-law right, which existed first in time and which was supplemented by the statute, is broader. Matter of Crane Co. v Anaconda Co., 39 NY2d 14, 19-20 (1976); Matter of Steinway, 159 NY 250, 263-265 (1899), quoted by Retirement Plan for Gen. Empls. of the City of N. Miami Beach v McGraw-Hill Cos., Inc., 120 AD3d 1052 (1st Dept 2014). (Sidenote: I’m unsure why the State Legislature would feel the need to pass legislation which was narrower than a well-established common law right, but this is why I do not participate in politics.) As set forth in Retirement Plan for Gen. Empls. of the City of N. Miami Beach v McGraw-Hill Cos., Inc., 120 AD3d 1052, supra, a qualified person can demand more than simply financial information: they can request minutes of the Board, records of shareholders and their contact information, and additional information related to the oversight and management of the Board, as well as the Board’s independence (Board members therein were alleged to be self-interested and thus conflicted). 

Unlike in an accounting, a demand for books and records does not require wrongdoing to be first established; however, should a shareholder make such a demand for inspection, the shareholder may be required to make some demonstration. The First Department in Pomerance v. McGrath, 143 AD3d 443, 444 (1st Dept 2016) shed light on the limits of this action: “While inspection rights permit shareholders to examine records that are relevant and necessary for a valid purpose, they do not grant shareholders a right to be involved in day to day management. Whether a shareholder asserts statutory or common-law inspection rights, the shareholder may be required to demonstrate good faith and a valid purpose, and inspection may be limited to the scope of records relevant and necessary for such purpose [internal citations omitted].”

C for Conclusion!

Why are we even talking about these two actions? It’s important for anyone involved in a business entity to know what their rights are. When I first spoke with my brilliant partner Emily about an action for books and records last year, I’d never even heard of it, and wondered aloud how it was different from an accounting. And now, Dear Reader, we all know.