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    Derivative Suit

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    Shannon Patricia Sepian
    A derivative suit is a lawsuit filed by a shareholder on behalf of a corporation against a third party. It allows shareholders to seek action when corporate officers or directors refuse to do so despite harm being done to the corporation. There are four key requisites for a valid derivative suit: 1) the cause of action must involve harm to the corporation, not individual shareholders; 2) the suit is filed in the name of the corporation; 3) internal remedies within the corporation have been exhausted; and 4) the shareholder(s) bringing the suit were shareholders at the time the action began. A derivative suit differs from a class action suit, which is filed by a representative on behalf of a class of similarly situated people to v

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    Derivative Suit

    Uploaded by

    Shannon Patricia Sepian
    140 views1 page
    A derivative suit is a lawsuit filed by a shareholder on behalf of a corporation against a third party. It allows shareholders to seek action when corporate officers or directors refuse to do so despite harm being done to the corporation. There are four key requisites for a valid derivative suit: 1) the cause of action must involve harm to the corporation, not individual shareholders; 2) the suit is filed in the name of the corporation; 3) internal remedies within the corporation have been exhausted; and 4) the shareholder(s) bringing the suit were shareholders at the time the action began. A derivative suit differs from a class action suit, which is filed by a representative on behalf of a class of similarly situated people to v

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    A derivative suit is a lawsuit filed by a shareholder on behalf of a corporation against a third party. It allows shareholders to seek action when corporate officers or directors refuse to do so despite harm being done to the corporation. There are four key requisites for a valid derivative suit: 1) the cause of action must involve harm to the corporation, not individual shareholders; 2) the suit is filed in the name of the corporation; 3) internal remedies within the corporation have been exhausted; and 4) the shareholder(s) bringing the suit were shareholders at the time the action began. A derivative suit differs from a class action suit, which is filed by a representative on behalf of a class of similarly situated people to v

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    140 views1 page

    Derivative Suit

    Uploaded by

    Shannon Patricia Sepian
    A derivative suit is a lawsuit filed by a shareholder on behalf of a corporation against a third party. It allows shareholders to seek action when corporate officers or directors refuse to do so despite harm being done to the corporation. There are four key requisites for a valid derivative suit: 1) the cause of action must involve harm to the corporation, not individual shareholders; 2) the suit is filed in the name of the corporation; 3) internal remedies within the corporation have been exhausted; and 4) the shareholder(s) bringing the suit were shareholders at the time the action began. A derivative suit differs from a class action suit, which is filed by a representative on behalf of a class of similarly situated people to v

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 1

    Derivative Suit

    A derivative suit is a lawsuit or an action filed in court by a shareholder or a group of shareholders in


    behalf of the corporation against third persons in cases where the corporate officers or the board of
    directors refuse to file the proper action against the third person or against the corporate officers or
    board of directors of the corporation for acts which has violated the rights of corporation.

    What is material in a derivative suit is that the right being vindicated is the right of the corporation
    and the shareholders are only a nominal party representing the corporation.
    The Requisites for a valid derivative suit are as follows:
    1. The cause of action devolves from a right of the corporation, the harm or wrongdoing must
    have been made against the corporation and not the individual shareholder/ or the
    shareholders;
    2. The lawsuit must be in the name of the corporation;
    3. Intra-corporate remedies must have been exhausted and the issue remains to be unresolved;
    4. The shareholder/shareholders bringing the suit must be shareholders at the time that they
    initiate the action.

    E.g.
    1. A member of the board of director had committed fraudulent acts against the corporation by
    forging the signatures of other members of the board and passing a board resolution on his own. If
    intra-corporate remedies have been exhausted, the shareholders can file a case against the erring
    director in behalf of or in representation of the corporation.
    2. A foreign corporation had defrauded the corporation in a contract which they entered into by
    delivering counterfeit products. Due to fear of the board of directors that other corporations from
    that state wouldn’t want to do business with the corporation anymore if they filed a lawsuit, a
    shareholder or some shareholders can file a derivative suit in behalf of the corporation against the
    foreign corporation
    A derivative suit should not be confused with a class suit. A class suit is a lawsuit filed in court be
    anyone who is a member/part of a particular class or those who are similarly situated in vindication
    of their own rights. A class suit is filed when the parties in a suit would be too numerous to include
    every single interested party.
    E.g. The students of a school who had fraudulent credentials. There were 2,000 defrauded students.
    One or some of the students can file a lawsuit against the school in behalf of all the students as they
    are all similarly situated or belong to the same class. Thus, even if only 20 of the students files a case,
    if it is a class suit in behalf of all the 2,000 students, the judgment would benefit all of the students.
    A derivative suit on the other hand, will only benefit the corporation itself.

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