Derivative Actions

Derivative Actions

A derivative action, also known as a shareholder derivative suit, is a lawsuit brought by a shareholder on behalf of a corporation against a third party. This type of lawsuit is typically brought when the corporation’s management or board of directors has failed to take action against the third party for wrongdoing, such as fraud or breach of fiduciary duty. The shareholder acts as a representative of the corporation in the lawsuit, and any damages awarded go to the corporation rather than the shareholder individually. The purpose of a derivative action is to hold third parties accountable for their actions and to protect the interests of the corporation and its shareholders.

Nevada also recognizes individual claims by shareholders for breach of the shareholder’s agreement where there has been direct harm to the shareholder’s interests. Typically, these actions arise where stock price or company value is significantly lowered because of grossly wrongful acts (or failures to act) that have harmed the company. An individual action of this sort will typically be considered as an option in addition to any derivative suit that is brought.

Nevada has certain procedural requirements that must be met before a derivative action may be filed in a Nevada court. Also, shareholders may have other leverage at their disposal to influence or direct the company’s actions to address wrongful conduct that should be explored as an option prior to filing suit. We protect and advance shareholder interests by helping them craft a strategic approach to achieving their goals. Contact us today to schedule an appointment if you have a reason to believe you may have a derivative action to enforce company rights that company management refuses to enforce.