There’s a simple truth in Delaware entity law: LLCs and corporations operate on fundamentally different philosophies. Nowhere is that contrast sharper than when it comes to a member’s or stockholder’s right to inspect the company’s books and records. The Court of Chancery’s recent decision in Bengson v. Elevate RCM Holdings, LLC, C.A. No. 2025-1347-DG (Del. Ch. Aug. 10, 2026), drives that point home in striking fashion.
The Facts
The facts are straightforward. Dena and Rick Bengson sold their company, Revenue Masters, to Elevate RCM Holdings, a Delaware LLC, and received cash and membership units as consideration. As part of the deal, they signed joinder agreements binding them to Elevate’s existing operating agreement. That operating agreement contained a sweeping waiver provision. Section 11.1(b) stated that each member “irrevocably and unconditionally waives, to the fullest extent permitted by applicable law,” any information, inspection, examination, or similar access rights, except to the extent “expressly required” under the Delaware LLC Act or the operating agreement itself.
When Elevate later sold a key subsidiary and distributed the proceeds, the Bengsons wanted documentation to verify they received what they were owed. Elevate refused the Bengsons’ inspection demand, pointing to the waiver. The Bengsons sued.
The Ruling: Freedom of Contract Wins
Magistrate Gibbs sided with Elevate. The opinion’s central holding is that Section 18-305 of the Delaware LLC Act, the statute granting members the right to inspect books and records, is a default provision, not a mandatory one, and that members can waive it in a clearly drafted operating agreement.
The reasoning follows a well-worn path in LLC jurisprudence. The LLC Act is built on the bedrock principle of freedom of contract. If the operating agreement addresses an issue, the agreement controls, unless it violates one of the Act’s relatively few mandatory provisions. Crucially, Section 18-305 does not contain any express language prohibiting waiver.
The court drew a thoughtful distinction between elimination and waiver. The Bengsons argued that because Section 18-305(g) allows operating agreements to “modify” inspection rights but doesn’t use the word “eliminate” (unlike Section 18-1101(c), which expressly permits the elimination of fiduciary duties), the statute must prohibit any total elimination of the right. The court rejected this framing. The operating agreement didn’t “eliminate” the right, it established a waiver: a knowing, voluntary relinquishment by each member. And because the LLC Act doesn’t expressly prohibit waiver of Section 18-305 rights, sophisticated parties are free to agree to one, provided the language is clear and unequivocal and the waiving party receives valuable consideration.
Both boxes were checked here. The waiver language was unmistakable, and the Bengsons received cash and membership units in a negotiated transaction. The court declined to require separate consideration specifically tied to the waiver provision itself; it was part of the overall bargain, and that was enough.
The Corporate Contrast: Section 220 is a Different Animal
This is where it gets interesting for practitioners who work across entity types. The court acknowledged that there is “legal and academic support” for the proposition that Section 220 of the Delaware General Corporation Law (the corporate analogue to Section 18-305) confers a mandatory right that cannot be waived.
Why the difference? It comes down to the animating philosophy of each statutory scheme. The DGCL is built around a set of mandatory structural protections — fiduciary duties, appraisal rights, inspection rights — that together form a baseline of investor protection. Even sophisticated stockholders cannot contract away these rights because they’re considered essential to the functioning of the corporate form and the integrity of Delaware corporate governance.
The LLC Act takes a different approach. LLCs are, as the Court of Chancery has repeatedly said, “creatures of contract.” The Act provides a set of default rules that apply in the absence of a contrary agreement, but it grants enormous latitude to vary or even eliminate those defaults. As the Delaware Supreme Court warned in Holifield v. XRI Investment Holdings, investors in alternative entities “must appreciate that with the benefits of investing in alternative entities often comes the limitation of looking to the contract as the exclusive source of protective rights.” Or, more bluntly: “equity will not save a bad contract.”
The Public Policy Safety Valve
To their credit, the Bengsons raised a compelling policy argument: if LLC members can be made to waive all inspection rights, what stops a manager from “swindl[ing] other members with impunity”? It’s a fair concern, and the court didn’t dismiss it entirely. But the court concluded that, at least under the facts of this case, where the plaintiffs were sophisticated parties who negotiated a deal, received valuable consideration, and signed a clear waiver, public policy did not counsel against enforcement.
The opinion leaves open the possibility, however, that a different set of facts might produce a different result. A “take it or leave it” contract of adhesion forced upon unsophisticated investors, or a waiver used to conceal fraud, might not survive public policy scrutiny. But Bengson signals that, for now, the Court of Chancery will hold LLC members to their bargain, even a bargain that trades away the right to inspect the books.
Practical Takeaways
For deal makers lawyers, Bengson offers several lessons:
- Drafting matters. If you represent an LLC sponsor or manager, you now have strong authority that a well-drafted waiver of Section 18-305 inspection rights is enforceable. The key is clarity: the waiver should be “irrevocable,” “unconditional,” and reference Section 18-305 specifically.
- Read before you sign. If you represent investors, Bengson is a cautionary tale. The Delaware courts will hold you to the terms you agreed to, including terms that strip you of your ability to demand information about your investment. Due diligence on the operating agreement is not optional.
- Don’t confuse LLC and corporate practice. A Section 220 demand in the corporate context rests on fundamentally different footing than a Section 18-305 demand in the LLC context. Rights that are considered mandatory and non-waivable for stockholders may be fully waivable for LLC members.
- The policy debate isn’t over. Bengson may prompt renewed academic and legislative attention to whether LLC inspection rights should be waivable. If waiver becomes widespread, the General Assembly may eventually weigh in. But for now, the court has spoken: freedom of contract prevails.
Recent Comments