Unlike a class action, brought on behalf of investors, a shareholder derivative action is a lawsuit brought by a shareholder of a public company on behalf of and for the benefit of the company itself against the directors and/or officers of that company. In a derivative action, shareholders “step into the shoes” of the directors and officers of a company and bring litigation that the board would be unwilling to pursue on its own. Such unwillingness typically relates to the fact that the board members themselves are alleged to have participated in the misconduct and thus would be unlikely to “sue themselves.” Shareholder derivative litigation can recover damages back to the company for financial or reputational harm caused by the conduct of its insiders, and also can be used to improve the governance of public companies in order to guard against such harms in the future.
Any shareholder of a company can serve as a plaintiff in a shareholder derivative action provided that the shareholder has held stock in the company continuously at least from the period in which the wrongful conduct began and through the present, generally provided that they continue to hold at least one share through the conclusion of the litigation.
To learn more about our shareholder derivative litigation practice, contact us today!