What is Shareholder derivative suit?
In short
A shareholder derivative suit is a lawsuit a shareholder brings on behalf of the corporation to enforce a right the corporation itself has failed to enforce, such as a claim against directors for breaching their duties.
Key takeaways
- Any recovery goes to the corporation, not the shareholder.
- The shareholder usually must first demand that the board act, unless that would be futile.
- A direct suit, by contrast, enforces the shareholder's own rights, such as voting rights.
Where it's tested
REG: Business Law: Agency & Business Structures — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A principal fires an agent but does not notify a long-standing supplier who had regularly dealt with that agent. The former agent places an order with the supplier in the principal's name. Who is liable to the supplier?