Is a Shareholder Derivative Lawsuit Necessary?

Whenever you invest money in a company, you expect that its officers and directors – those in charge – will do their best to run that company in the best way for the company no matter what the situation is. Unfortunately, and from time to time, someone in a position of authority in a company might use that authority to show preference to certain shareholders or even the officers and directors over the best interests of the company.

When that happens, you have several options, including filing a shareholder derivative lawsuit, to remedy the situation:

  • Send a letter to the officers of the company explaining their misconduct and why it needs to be remedied. When officers and directors may be personally profiting from their actions, it may be difficult to get them to change their ways.
  • Contact the appropriate regulatory authority (such as the SEC or FINRA)
  • File a shareholder derivative lawsuit on behalf of you and the other shareholders in your situation.

Shareholder Derivative Lawsuit: What to Know

A shareholder derivative lawsuit is a suit brought by a shareholder on behalf of a corporation against a third party. Often, the third party is an insider of the corporation, such as an executive officer or management director of the company. Generally speaking, a shareholder can only sue on behalf of a corporation when the corporation has a valid cause of action but has refused to use it.

Examples of Company Misconduct Related to a Shareholder Derivative Lawsuit 

Examples of misconduct that might give rise to a shareholder derivative lawsuit can include, but are not limited to:

  • Various types of fraud, including securities fraud, tax fraud and more
  • Unfairly compensating company executives
  • A pattern of business decisions exposing the company to losses or unnecessary risks
  • Material nondisclosure of facts related to a merger or other key proposal

Lawsuits are Not Always the Answer

It is important to remember that not every unwise or bad decision may rise to the level that filing a shareholder derivative lawsuit is the only remedy. Executives can and do make bad decisions that can harm a company as long as the decision does not include fraud, self-interest or some other unlawful activity.

If you own stock in a company and believe its officers or directors have broken the law, you may have certain legal rights that require your immediate attention.

Call a Corporate Litigation Attorney Today

With offices in Los Angeles, our corporate litigation attorneys have helped investment fraud victims throughout Santa Monica, Beverly Hills, and Hollywood and recovered over $100 million from banks and brokerages firms for their wrongful actions.

If you are considering filing a shareholder derivative lawsuit, contact an attorney at Dimond Kaplan & Rothstein, P.A. today to schedule an appointment or consultation to review your rights and options.

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