Derivative litigation

Question 1

Shareholder plaintiff

Answer 1

A shareholder who brings a derivative action on behalf of a corporation must have owned stock in the corporation at the time of the wrong.

Because derivative actions are brought on the corporation’s behalf, the shareholder plaintiff need not establish that she has suffered harm as a consequence of the wrongdoing.

Question 2

Demand requirement

Answer 2

A shareholder is generally required to plead with particularity that the shareholder has made a demand upon the board of directors that the board take corrective action.

In the absence of a demand, however, the shareholder may state reasons why such a demand was not made.

Question 3

Demand requirement: futility

Answer 3

When a majority of the directors is alleged to have participated in the wrongdoing, the shareholder may assert the futility of demanding corrective action.