Define: Stockholders Derivative Action

A stockholders derivative action is a lawsuit filed by a shareholder on behalf of a corporation against its directors, officers, or other insiders for alleged wrongdoing or breach of fiduciary duty.

The purpose of a stockholders derivative action is to hold corporate insiders accountable for their actions and recover damages on behalf of the corporation when the corporation’s management fails to take legal action.

Generally, any shareholder of a corporation can bring a stockholders derivative action, provided they meet certain requirements such as owning a minimum number of shares or having held the shares for a specific period of time.

Common claims in a stockholders derivative action include breach of fiduciary duty, fraud, mismanagement, self-dealing, insider trading, and other violations of corporate law.

In a stockholders derivative action, the shareholder is suing on behalf of the corporation, seeking relief for harm caused to the corporation. In a direct action, the shareholder sues to seek relief for harm caused directly to themselves as a result of the alleged wrongdoing.

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 stockholders derivative action can be settled if the parties involved reach an agreement. The settlement terms would need to be approved by the court to ensure they are fair and reasonable.

Remedies in a stockholders derivative action may include monetary damages, injunctive relief, removal of directors or officers, corporate governance reforms, and changes to internal controls.

Yes, a stockholders derivative action can be dismissed if the court determines that the shareholder lacks standing, fails to meet the necessary requirements, or if the claims lack merit.

While a stockholders derivative action is a civil lawsuit, if the alleged wrongdoing involves criminal conduct, it may lead to a separate criminal investigation and potential criminal charges against the individuals involved.