A derivative action is a lawsuit brought by one or more shareholders of a corporation on behalf of the corporation. The action seeks to enforce a right the corporation has which the officers and directors are not enforcing. In order to bring a derivative lawsuit on behalf of the corporation, a shareholder must first make a written demand to the board of directors requesting that the board take action to enforce the corporation’s right.
Once the shareholders make demand upon the board of directors, the board of directors needs to decide if they are going to have the corporation sue. Sometimes the board of directors will decide itself whether to sue or not, and other times it will put together a special litigation committee to make the decision. If the board decides not to sue, the shareholders can file a derivative lawsuit. However, the first thing the court will look at is whether the court should give deference to the board’s decision based on the business judgment rule. The business judgment rule applies when the board’s made a business decision, which was proper under the circumstances, not to sue. When the business judgment rule applies the court is prohibited from allowing the case to go forward.il
Philadelphia Business and Commercial Litigation Lawyers at Sidkoff, Pincus & Green Handle Derivative Action Lawsuits
The Business Lawyers at Sidkoff, Pincus & Green represent shareholders of a corporation in derivative action lawsuits. If you need an experienced Philadelphia Litigation Lawyers, contact us online or call 215-514-0600.