Shareholder Derivative Claim Help

When a corporation suffers a loss or injury due to the actions of its officers, directors, or other entities, the shareholders may have the right to bring a shareholder derivative claim. This type of claim is a legal action that allows shareholders to step into the shoes of the corporation and sue on its behalf to recover damages or other relief. In this article, we will explore the concept of shareholder derivative claims, the requirements for bringing such a claim, and the potential benefits and challenges of pursuing this type of litigation.

Understanding Shareholder Derivative Claims

A shareholder derivative claim is a lawsuit brought by a shareholder on behalf of the corporation to recover damages or other relief for injuries suffered by the corporation. The claim is typically brought against the corporation’s officers, directors, or other entities that have caused harm to the corporation. The purpose of a shareholder derivative claim is to hold those responsible for the corporation’s injuries accountable and to recover damages or other relief on behalf of the corporation. Key elements of a shareholder derivative claim include the existence of a valid claim, the breach of a fiduciary duty, and the failure of the corporation to take action to address the injury.

Requirements for Bringing a Shareholder Derivative Claim

To bring a shareholder derivative claim, the shareholder must meet certain requirements. These requirements vary by jurisdiction, but generally include:

• Ownership of shares: The shareholder must have owned shares in the corporation at the time of the injury and must continue to own shares throughout the litigation.
• Demand on the board: The shareholder must make a demand on the corporation’s board of directors to take action to address the injury, unless such a demand would be futile.
• Futility of demand: The shareholder must demonstrate that making a demand on the board would be futile, such as when the board is dominated by those who are responsible for the injury.
• Good faith: The shareholder must bring the claim in good faith and not for personal gain.

Potential Benefits of Shareholder Derivative Claims

Shareholder derivative claims can provide several benefits to the corporation and its shareholders. These benefits include:

1. Accountability: Shareholder derivative claims can hold officers, directors, and other entities accountable for their actions and ensure that they are not able to escape liability for their wrongdoing.
2. Recovery of damages: Shareholder derivative claims can result in the recovery of damages or other relief for the corporation, which can help to compensate the corporation for its losses.
3. Improved corporate governance: Shareholder derivative claims can help to improve corporate governance by ensuring that officers and directors are acting in the best interests of the corporation and its shareholders.

Challenges of Shareholder Derivative Claims

Despite the potential benefits of shareholder derivative claims, there are also several challenges that shareholders may face when bringing such a claim. These challenges include:

• High costs: Shareholder derivative claims can be expensive to bring, with costs including legal fees, expert witness fees, and other expenses.
• Lengthy litigation: Shareholder derivative claims can be lengthy and time-consuming, with litigation potentially lasting for several years.
• Risk of failure: There is always a risk that the shareholder derivative claim may not be successful, which can result in the shareholder being liable for the costs of the litigation.