Derivative Action

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Derivative Action

A lawsuit brought by a shareholder of a corporation on its behalf to enforce or defend a legal right or claim, which the corporation has failed to do.

A derivative action, more popularly known as a Stockholder's Derivative Suit, is derived from the primary right of the corporation to seek redress of legal grievances through the courts. The procedure to be followed in such an action is governed by the rules of federal Civil Procedure and state provisions, where applicable.

derivative action

n. a lawsuit brought by a corporation shareholder against the directors, management and/or other shareholders of the corporation, for a failure by management. In effect, the suing shareholder claims to be acting on behalf of the corporation, because the directors and management are failing to exercise their authority for the benefit of the company and all of its shareholders. This type of suit often arises when there is fraud, mismanagement, self-dealing and/or dishonesty which are being ignored by officers and the Board of Directors of a corporation. (See: corporation)

References in periodicals archive ?
Cohen filed an additional derivative suit on behalf of the CannapharmaRx Corporation.
filed a derivative suit against certain of the company's officers and directors based on allegations that they caused Abercrombie to make misleading public statements.
Baker once represented a Park City resident in a shareholder derivative suit against a major company.
NCUA cited the CapCorp case in its WesCorp court documents, stating that "in dismissing the case, the district court held that in addition to failing to exhaust 27 administrative remedies, the plaintiffs lacked standing to bring the suit because only the board, and not the individual credit union members, could bring a derivative suit on behalf of the credit union.
There's a debate over to what extent can a derivative suit really be covered.
Alan's worst nightmare came true, starting with a derivative suit that was slapped on the company and its board of directors by a group of shareholders disgruntled with the levels of compensation paid to Abacon's upper management.
In August, Greenberg and Smith joined other defendants in agreeing to settle a derivative suit alleging accounting fraud.
The Board has appointed a Special Litigation Committee to investigate the claims in the shareholder derivative suit recently brought against certain of the Company's former and current officers and directors and make a recommendation as to whether it is in the best interests of the Company to pursue, dismiss or consensually resolve the claims.
While such cases rarely go to trial, the Delaware chancery court permitted a shareholder derivative suit alleging a breach of fiduciary responsibility against Disney's board to proceed.
The agreement does not cover the derivative suit filed by plaintiffs claiming to be acting on behalf of AFC on June 5, 2003 against certain current and former members of the Company's board of directors and the Company's largest shareholder or the derivative suit filed by plaintiffs claiming to be acting on behalf of AFC on August 7, 2003 against certain current and former members of AFC's board of directors.
is pleased to announce that the shareholder derivative suit brought against the Company prior to last year's Presidential election, relating to the Company's decision to air portions of the documentary "Stolen Honor," was voluntarily dismissed and the litigation has now ended.