What is a shareholder derivative action?

A shareholder derivative action is a type of lawsuit filed by a shareholder on behalf of a corporation in Delaware. Typically, these types of lawsuits are filed when the corporation’s board of directors has failed to act in the best interest of the company or the shareholders. The lawsuit is filed in order to try and recover damages the company or shareholders have suffered, usually due to someone at the company engaging in illegal or unethical behavior. In Delaware, a shareholder derivative action is very different from a normal lawsuit. In a normal lawsuit, the plaintiff (the person filing the suit) is directly affected by the damages or harm caused by the defendant (person being sued). However, in a shareholder derivative action, the plaintiff is the company, and the defendant is usually a corporate officer or member of the board of directors. The plaintiff in a derivative action is not seeking damages on their own behalf, but on behalf of the company. A successful shareholder derivative action will help the company gain back money it lost due to the illegal or unethical behavior of the defendant. In Delaware, shareholder derivative actions can be filed without the board of directors’ approval and the shareholder filing the suit can be awarded attorney’s fees and other costs if the action is successful. Legal counsel should be consulted when considering a shareholder derivative action.

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What is a shareholder derivative action?

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