What is a shareholder derivative action?

A shareholder derivative action is a legal claim that is brought forward by a single shareholder or a group of shareholders of a corporation on behalf of the corporation. This type of lawsuit is typically used when the officers or directors of the corporation fail to act either in the best interests of the company or in a manner that is compliant with the law. In the state of California, a shareholder derivative action is allowed under both state and federal law. The lawsuit must be filed by a shareholder or group of shareholders who have “continuing ownership interest” in the corporation. The lawsuit must be brought against either the corporation itself, its officers, its directors, or other shareholders. The goal of the shareholder derivative action is to recover damages that were caused by the breach of fiduciary duty or wrongdoing of the defendant. The plaintiff in the lawsuit typically seeks to obtain a court order forcing the defendant to pay restitution or other relief to the corporation. If the lawsuit is successful, the damages obtained can be used to compensate the corporation and its shareholders. Additionally, the defendant can be ordered to change their behavior in the future to prevent a similar situation from occurring again.

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What is a shareholder derivative action?

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