Shareholder Derivative Claims Flashcards
What is a shareholder Derivative Claim?
A derivative claim is a lawsuit brought by a shareholder on behalf of the corporation. The shareholder is suing to enforce the corporation’s rights when the corporation has a valid cause of action, but has failed to pursue it. This often occurs when the defendant in the suit is someone close to the corporation (e.g., a director or officer)
As it pertains to derivative lawsuits, what is a “Demand”?
Generally a shareholder must make a written demand on the board before commencing a derivative action. After submitting the written demand, the shareholder must wait 90 days to file the derivative action, UNLESS the board rejects the demand during the 90 day period.
How does futility of making a Demand pertain to derivative lawsuits?
Under the common law, and in some jurisdictions today, the plaintiff shareholder does NOT have to make a demand on the board if it would be futile to do so (e.g., the board is interested in the transaction being challenged).
Who gets the damages in a derivative action?
If a derivative claim is successful, the proceeds go to the corporation, not the shareholder who brought the action. However, if the award to the corporation benefits the defendants, the court may order the damages be paid directly to the shareholder.
What is a direct claim?
A direct claim is a lawsuit by a shareholder to enforce his OWN rights. The shareholder must prove actual injury that is NOT solely the result of an injury suffered by the corporation. If a direct claim is successful, the proceeds go to the shareholder.
