What is a shareholder derivative action?

A shareholder derivative action is a type of legal action that is brought by shareholders on behalf of their company to challenge certain corporate acts, including violations of corporate law. The action is brought by a shareholder, on behalf of the company, against the directors, officers, or other shareholders of the company. This type of action is typically used when the company refuses to take action against wrongdoers and to protect the rights of shareholders. Examples of shareholder derivative actions could include a dispute over a company’s decision to enter into a particular transaction with an outside company or individual, wrongful or excessive payments or compensation to directors or officers of the company, or corporate mismanagement. In New Mexico, a shareholder derivative action must be filed in a court of competent jurisdiction, and the shareholders must be able to demonstrate that the challenged action is detrimental to the company or to its shareholders as a whole. The shareholders must also demonstrate that the company was not able to pursue the action itself, either due to an unwillingness to act or because of a conflict of interest. The court will review the case and decide whether the action is in the best interests of the company. If the court agrees, the directors and officers of the company may be held liable for the damages caused by the wrongful corporate act.

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What is a shareholder derivative action?

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