Corporations Derivative Action Law and Legal Definition

A derivative action is a lawsuit brought by a corporation shareholder against the directors, management and/or other shareholders of the corporation, for a failure by management. Since a corporation has a duty to act in the best interest of its shareholders, a shareholder has a right to bring a lawsuit acting on behalf of the corporation when the directors and management are failing to act for the benefit of the company and all of its shareholders. A derivative action often arises in cases of fraud, mismanagement, self-dealing and/or dishonesty which are being ignored by officers and the board of directors of a corporation.

The following is an example of a state statute dealing with derivative actions:

  1. " A member may bring an action in the right of a limited liability company to recover a judgment in its favor if the members or managers with authority to do so have refused to bring the action or if an effort to cause those members or managers to bring the action is not likely to succeed.
  2. In a derivative action, the plaintiff shall be a member at the time of bringing the action or have succeeded to the right of a member.
  3. If a derivative action is successful, in whole or in part, or if anything is received by the plaintiff as a result of a judgment, compromise, or settlement of an action or claim, the court may award the plaintiff reasonable expenses, including reasonable attorney's fees, and shall direct the plaintiff to remit to the limited liability company the remainder of those proceeds."