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What is a shareholder derivative action?

On Behalf of | Mar 5, 2020 | Business Law |

Ohio businesses of all sizes, whether they are corporations or limited liability companies, are prone to different types of shareholder disputes. After all, those who own shares in a corporation or LLC have the right to expect that the company’s leadership will act in the company’s best interests and will also take steps necessary to protect the company from risks both from within and from without.

When things are working properly, the company’s board of directors or individual officers are supposed to respond to threats and also to steer the company on the course to profitability. Unfortunately, sometimes management, for a variety of reasons, will not take action against a threat when they really should. In many cases, it is because management itself bears some responsibility for the problem.

In other cases, it may just be that the corporation’s leadership are unwilling, or unable, to see the full extent of the issue.

After bringing the matter to the attention of the board, a shareholder may have the option to file a shareholder derivative lawsuit. In this type of lawsuit, an individual shareholder, in the name of the corporation, can sue those responsible for harms they have caused the business. A suit can name individual corporate officers and directors who may have acted negligently, who had a conflict of interest or who breached their fiduciary duty to the corporation.

While the object of the suit is to benefit all of the shareholders, the individual or individuals who file the action may be able to recover some of their legal expenses. Filing shareholder derivative litigation can be an important step for shareholder who otherwise may risk seeing their valuable investment in a business not turn a profit.


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