Shareholder Derivative Actions
A shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation. Generally, a shareholder can only sue derivatively on behalf of a corporation when the corporation has a valid cause of action, but the board of directors has refused to use it, or requesting the corporation’s board to do so would be futile. This often happens when the defendant in the suit is someone close to the company, like a director or a corporate officer. If the suit is successful, the proceeds go to the corporation, not to the shareholder who brought the suit.