Opinion ID: 2156563
Heading Depth: 1
Heading Rank: 10

Heading: The Statute Defines Subsidiary

Text: The parties' dispute over the proper interpretation of the 2003 amendment to section 220 raises an issue of first impression. The term subsidiary is defined in the conjunctive: Subsidiary means any entity directly or indirectly owned in whole or in part, by the corporation of which the stockholder is a stockholder and over the affairs of which the corporation directly or indirectly exercises control . . . . [6] That statutory definition required the Court of Chancery to make a determination not only that Mays is an entity directly or indirectly owned, in whole or in part by Weinstein, but also that Weinstein exercises control, directly or indirectly, over the affairs of Mays. There is no helpful legislative history [7] to inform our construction of the definition of subsidiary in section 220. Weinstein submits that only one interpretation is consistent with section 220's overriding purpose, which is to provide for the inspection of corporate books and records in a timely fashion by a stockholder of a Delaware corporation. According to Weinstein, subsidiary must be defined to accomplish that purpose while simultaneously protecting the legitimate interests of subsidiary corporations in the confidentiality of their own documents. Weinstein and Orloff both agree that the 2003 amendment must be construed in a manner that is consistent with the actual ability of the parent corporation before the Court of Chancery to cause the subsidiary corporation that is not before the Court of Chancery to make its documents available for inspection. Establishing that an entity is a subsidiary of the corporation that is before the Court of Chancery is a condition precedent to invoking the 2003 amendment to section 220. As in this case, usually the extent of the parent corporation's direct or indirect ownership will not be an issue. Therefore, the dispositive inquiry in making that determination will be whether the stockholder controls the affairs of the corporation. Importantly, section 220 is not limited to wholly-owned subsidiaries. A parent corporation may control a corporation that it does not wholly own and even one in which the parent has less than a majority stock interest. Even a cursory examination of how subsidiary is defined in other contexts shows that the range of control may start as low as 20% ownership, e.g., Del.Code Ann. tit. 8, § 203.