Derivative Claims

When shareholders take action against those in charge of a corporation who are not acting in the best interest of the company and its shareholders, it is called a Derivative Claim. Such claims are taken by a shareholder against one or more defendants within a corporation. The shareholder in derivative claims cases is representative of the shareholders as a whole, and the attorney working the case usually directs the shareholders. Such cases typically involve accusing members of the executive body of a corporation of inadequate leadership, and of taking actions that have had negative impacts for the shareholders as a whole.

This is not a case brought by one shareholder on behalf of themselves or a small group of shareholders. These cases are brought by individuals on behalf of all the shareholders (and in turn the corporation). These cases seek compensation for, or remediation of, negative events that have been a result of poor leadership and/or mismanagement of the company. Derivative claims give shareholders a voice in the operation of a company, and allow them to address problems in the company without directly suing the corporation and harming their own interests.

Two courses of action that can be taken in derivative claims cases are breaches in duty of loyalty and duty of care. The duty of loyalty concept means that the director understands that they should do what is best for the company, even if it means they give up their own payment. The duty of care concept centers on the idea that the director failed to lead the company honestly. Typically, lawsuits are more successful when challenging an executive’s duty of loyalty. Derivative claims result in monetary settlements, dismissal of the case, or compromises on the course of action of the company.