A derivative suit, also known as a shareholder derivative suit or stockholder derivative suit, occurs when a shareholder files a lawsuit against a third party on behalf of a corporation due to the corporation’s failure to take action against the third party. Another form of derivative suit involves someone suing on behalf of another individual who was harmed by a third party, such as a husband suing for the loss of companionship resulting from his wife’s injury caused by someone else.
A derivative suit, also referred to as a shareholder derivative suit, stockholder derivative suit, or representative action, is a legal action initiated by a shareholder on behalf of a corporation against a third party, typically a corporate officer, for their failure to take appropriate action against them. This type of lawsuit allows shareholders to seek damages from the accused party, such as in the case of a CEO accused of embezzlement where the board of directors neglects to act. It is important to distinguish a derivative suit from a direct action, as the former aims to enforce a right belonging to the corporation, while the latter is brought by an individual seeking damages for their own injuries.
A derivative suit is a legal action brought by a shareholder on behalf of a corporation to enforce a right that the corporation has failed to enforce itself.
Typically, a shareholder of a corporation can bring a derivative suit if they believe that the corporation’s management has failed to take action on a legal matter that is in the best interest of the corporation.
Derivative suits are typically brought for claims such as breach of fiduciary duty, corporate waste, and other actions that harm the corporation and its shareholders.
The process for bringing a derivative suit involves filing a complaint in court, notifying the corporation’s board of directors, and obtaining court approval to proceed with the lawsuit on behalf of the corporation.
If successful, the outcome of a derivative suit may result in the recovery of damages for the corporation, changes in corporate governance, and other remedies to benefit the corporation and its shareholders.
Yes, a derivative suit can be settled out of court through negotiation between the parties involved.
There may be limitations on bringing a derivative suit, such as the requirement to first make a demand on the corporation’s board of directors to take action before filing a lawsuit.
Yes, derivative suits can be brought against public companies if there is evidence of wrongdoing by the corporation’s management.
The potential costs of bringing a derivative suit may include legal fees, court costs, and other expenses associated with litigation.
The timeline for resolving a derivative suit can vary depending on the complexity of the case, but it may take several months to several years to reach a resolution.
This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.
This glossary post was last updated: 17th April 2024.
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