What is a derivative action?
A derivative action is a lawsuit brought by a shareholder of a corporation, on behalf of the corporation, to enforce a cause of action against a third party, such as an officer or director of that corporation. Derivative actions most often involve charges that officers and directors are wasting corporate assets, or that a corporation’s management or board of directors breached fiduciary duties owed to shareholders by negligence, mismanagement or self-dealing.
Derivative actions are lawsuits filed by shareholders on behalf of the corporation to enforce a cause of action against a third party, such as an officer or director of that corporation. Derivative actions are brought when a corporation possesses, but does not enforce, its rights against third parties, which may include insiders. It is often necessary for shareholders to institute a derivative action because the corporation, which is run by officers and directors, will not bring a lawsuit against one of its own, even where there is serious wrongdoing.
A derivative action is a lawsuit brought by a shareholder of a corporation, on behalf of the corporation, to enforce a cause of action against a third party, such as an officer or director of that corporation. Derivative actions are brought when a corporation possesses, but does not enforce, its rights against third parties. It is often necessary for a shareholder to institute a derivative action because the corporation, which is run by officers and directors, will not bring a lawsuit against one of their own, even if there has been serious wrongdoing.
