What is a shareholder derivative action?

A shareholder derivative action is a type of legal action that shareholders of a company can take in South Carolina when the company’s board of directors fails to take action against another party. This type of action allows shareholders to essentially “stand in the shoes” of the company itself and sue another party on behalf of the corporation. Shareholder derivative actions are typically used when corporate management does not take action against wrongdoing by another party that affects the company or its shareholders. This includes cases involving instances of fraud or mismanagement. Taking this type of action allows the shareholders to protect their interests and possibly receive damages for any losses incurred due to the other party’s wrongdoing. In South Carolina, a shareholder derivative action must be brought by a shareholder or group of shareholders who own at least 5% of the company’s common stock. The shareholder or group of shareholders must submit a demand to the board and wait 90 days before taking legal action. If the board fails to take action within the allotted time frame, the shareholders may proceed with the lawsuit. Shareholder derivative actions can be a beneficial tool for shareholders to hold corporate management accountable and protect their investments. However, they can also be costly for the company in terms of legal expenses and potential damages awarded in the lawsuit.

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What is a shareholder derivative action?

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