Shareholder Derivative Suits
A shareholder derivative suit is an action brought by a shareholder on behalf of a corporation against a corporation’s executive officer or a director. Most shareholder derivative suits are based on alleged breach of fiduciary duty. This suit allows a shareholder to initiate a lawsuit when management has failed to do so.
In a corporate set-up, shareholders are considered the owners of the corporation. However, they are not empowered to control its daily operation. Instead, shareholders appoint directors who, in turn, assign officers or executives.
When an officer or executive official fails to perform his duties and cause harm to the corporation, a shareholder may petition the director, officers or employees to proceed. If this fails, a shareholder may file a derivative suit on behalf of the corporation. The proceeds of a successful derivative suit are usually awarded to the corporation and not to the individual shareholder who initiated the suit.
However, a derivative suit is more complex than a direct suit filed by a shareholder which often involves suits relating to contractual or statutory rights, the share themselves, or rights relating to ownership of shares.
Generally, before allowing a shareholder to proceed, various requirements or qualifications must be met such as minimum value of shares, duration of holding by the shareholder, among others.
Pursuing a shareholder derivative suit may involve an understanding of complex corporate laws. Hence to protect your rights and the interest of your corporation, you need to consult with an experienced corporate lawyer.
Business and Corporate Attorney is knowledgeable with issues involving various business and corporate lawsuits such as shareholder derivative suits.
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