Before Investing, Secure the Right to Verify Distribution Calculations

When a joint venture sells its property, investors typically receive a wire transfer and a brief distribution statement. An investor who wishes to confirm that the distribution was calculated correctly will want to examine the expenses deducted, the preferred return (the return investors receive before the sponsor shares in profits), and the promote (the sponsor’s additional share above that return). That examination requires access to the supporting records, and whether an investor has that access depends on the operating agreement.

A recent decision of the Delaware Court of Chancery confirms that an investor who waives inspection rights in an operating agreement may be held to that waiver. The protection investors need must therefore be negotiated before they commit capital.

The Bengson Decision

Dena and Rick Bengson sold their company, Revenue Masters, to Elevate Patient Financial Solutions (“ElevatePFS”), an indirect subsidiary of Elevate RCM Holdings, LLC, in 2023. As consideration, they received cash and membership units in Elevate, a Delaware limited liability company, and signed joinders binding them to its existing operating agreement.

In July 2025, Elevate sold ElevatePFS and distributed the proceeds. The Bengsons requested support for their payout. Elevate provided a waterfall summary showing that they had earned the same multiple on invested capital as the other members who invested alongside them, but it declined to provide more. Elevate offered to allow an independent accounting firm to review on site, for a single day, the records Elevate chose to make available. The Bengsons declined that offer and sued under Section 18-305 of the Delaware Limited Liability Company Act, which gives members a default right to inspect books and records.

The court denied the request. The operating agreement provided that each member waived information and inspection rights to the fullest extent permitted by law. In Bengson v. Elevate RCM Holdings, LLC, No. 2025-1347-DG, 2026 WL 2409798 (Del. Ch. Aug. 10, 2026), a magistrate in the Court of Chancery held that the Act does not prohibit such a waiver, that the language was clear, and that the Bengsons, as sophisticated sellers who had negotiated their transaction, were bound by it. Their agreement to join the operating agreement as part of the sale supplied sufficient consideration.

The court acknowledged support for treating a corporate stockholder’s inspection right as mandatory. It explained, however, that the contract governs in the LLC context, and it cited the Delaware Supreme Court’s observation in Holifield v. XRI Investment Holdings LLC, 304 A.3d 896 (Del. 2023), that “equity will not save a bad contract.”

The Exception the Bengsons Could Not Use

The waiver contained an exception. It did not apply to information rights that the operating agreement itself expressly granted. The court observed, however, that the Bengsons had not pointed to any provision in the operating agreement requiring Elevate to provide information to members.

This is the practical lesson for investors. A waiver of statutory inspection rights is not necessarily harmful on its own. A waiver unaccompanied by affirmative reporting obligations, however, leaves the investor with no reliable means of verification.

The decision should be read with its limits in mind. It was issued by a magistrate in the Court of Chancery rather than by the Chancellor or a Vice Chancellor. The parties agreed, however, to treat it as a final ruling, subject to the same review and appeal as a decision of those judges. The opinion is also unreported, and it involved sophisticated parties who had negotiated the underlying sale. It does not establish that every waiver will bind every investor. It does indicate how Delaware courts are likely to read clear waiver language.

Recommended Negotiating Points for Investors

Investors should assume that the statutory inspection right may be waived and should negotiate contractual rights sufficient to verify distributions. The operating agreement should require the following:

1. Annual financial statements and quarterly operating reports for each property, delivered by fixed deadlines.
2. The annual budget, a comparison of actual results to budget, and an explanation of material variances.
3. With each distribution, a complete calculation showing sources of cash, expenses and reserves, accrued preferred return, and the promote.
4. All fees paid to the sponsor or its affiliates and all contracts with related parties.
5. The right to have the investor’s accountant review supporting records on reasonable notice, with the sponsor bearing the cost if the review identifies a material error.
6. A defined procedure for information disputes, such as referral of calculation disagreements to an independent accountant.

Investors should also review the waiver itself. Elevate’s waiver preserved rights expressly granted elsewhere in the agreement. Where a waiver makes the operating agreement the exclusive source of information rights, the contractual reporting provisions will be the investor’s only protection, and they should be drafted accordingly.

Considerations for Sponsors

Sponsors have legitimate reasons to limit access. Venture records often contain confidential tenant, lender, and transaction information, and responding to extensive document requests can require significant staff time and expense. Elevate’s agreement treated information it was required to share with members as confidential, and its proposal for a limited accountant review illustrates one approach to controlled access.

A blanket waiver with no reporting obligations, however, may deter investors during capital raising and invite disputes after each sale. Sponsors are better served by clear reporting obligations paired with confidentiality provisions, reasonable access procedures, and limits on the frequency and scope of requests.

Conclusion

Before accepting a waiver of statutory inspection rights, an investor should identify the provision that specifies what information the venture must provide. If no such provision exists, the investor’s ability to verify a distribution depends entirely on the sponsor’s discretion. Reporting rights should be secured before capital is committed.