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 ?
derivative suit, the circumstances under which such a demand may be
Furthermore, the derivative suit moves to install an interim management committee to oversee the finances of Alliance Select.
In addition to intracorporate remedies, minority shareholders generally have access to the judicial remedy of a derivative suit to challenge corporate disbursements alleged to have been made for improper corporate purposes or merely to further the personal interests of management.
Two of the relevant requirements for the initial admissibility of the derivative suit are in the form of bright-line rules: The plaintiff must be a shareholder, (252) and she must have been a shareholder when the challenged transaction occurred.
* Double derivative claim: A rare derivation on derivative suits, this is a lawsuit brought by a shareholder of a parent corporation on behalf of a wholly owned subsidiary for alleged wrongs to a subsidiary.
Schwartz, The Survival of the Derivative Suit: An Evaluation and a Proposal for Legislative Reform, 81 COLUM.
A court may order indemnification of amounts paid to settle a shareholder derivative suit or a suit alleging a director received an improper financial benefit if the court determines that indemnification is "fair and reasonable" in light of "all relevant circumstances." See id.
"In Overstock.com's eight year history, we've never been joined in a shareholder's derivative suit," says Jonathan Johnson, president.
As the above analysis demonstrates, institutional investors are just as active in derivative suits as in securities class actions, and there is an active plaintiffs' bar in derivative suit litigation just as in securities class actions.
Derivative Suits over Alleged Sexual Misconduct at Google, D&O DIARY
Accordingly, SMHC has the right to institute a derivative suit on behalf of CMMTC,' the CA reiterated.
Specifically, if a company operates through a board of directors, then: (1) allegations might be levied by the victim of the alleged harassment stating that the board failed to properly ensure company policies and practices were enforced; (2) a board member's conduct might cause one of the corporation's shareholders to initiate a derivative suit; (3) the company might have to indemnify a board member alleged to have done the harassing if the company's by-laws require it; and/or (4) the company may be served with subpoenas or other requests for information as part of an investigation into the harassing board member's conduct.

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