Define: Shareholder Derivative Suit

A shareholder derivative suit is a legal action filed by a shareholder on behalf of a corporation against a third party, typically a director or officer, for a breach of fiduciary duty or other wrongdoing that has harmed the corporation.

Any shareholder of a corporation can file a shareholder derivative suit, provided they meet certain requirements, such as owning shares at the time of the alleged wrongdoing and making a demand on the corporation’s board of directors to take action.

The purpose of a shareholder derivative suit is to hold directors and officers accountable for their actions that have harmed the corporation and to recover damages on behalf of the corporation.

Shareholder derivative suits can be brought for various claims, including breach of fiduciary duty, fraud, mismanagement, self-dealing, insider trading, and other wrongful acts that harm the corporation.

In a direct lawsuit, the shareholder sues on their own behalf for harm suffered personally, while in a shareholder derivative suit, the shareholder sues on behalf of the corporation for harm suffered by the corporation.

The process typically involves filing a complaint in court, providing notice to the corporation, conducting an investigation, and obtaining court approval to proceed with the lawsuit on behalf of the corporation.

Yes, a shareholder derivative suit can be settled if the parties involved agree to a resolution. However, the settlement must be approved by the court to ensure it is fair and in the best interest of the corporation.

Remedies in a shareholder derivative suit can include monetary damages, injunctive relief, removal of directors or officers, corporate governance reforms, and other appropriate relief to benefit the corporation.

Yes, a shareholder derivative suit can be dismissed if the court determines that the shareholder has failed to meet the necessary legal requirements or if the lawsuit lacks merit.

In some cases, a shareholder may be able to recover attorney’s fees and costs if they are successful in a shareholder derivative suit. However, this will depend on the specific laws and rules of the jurisdiction in which the lawsuit is filed.