What Shareholders Should Know About Derivative Lawsuits

 Posted on December 12, 2024 in Business Law & Litigation

If you are a shareholder in a corporation, one way that you may take legal action if you believe the company’s officers, controlling shareholders, or directors are not acting in its best interests is through a derivative lawsuit. A derivative lawsuit is unique in that shareholders bring the lawsuit on behalf of the company rather than in their own names. An experienced Arlington Heights shareholder dispute attorney can provide advice on derivative lawsuits.  

What is a Derivative Lawsuit?

A derivative lawsuit protects shareholders against corporate misconduct. It is usually brought by minority shareholders against the directors or officers of the corporation when they assert that the corporation’s high-ranking employees have harmed the corporation. Shareholders file a derivative suit as representatives of the company that has been damaged. Any remedies received in the suit will go to the corporation and not the shareholder.

Derivative Lawsuit Claims 

Some causes of action that shareholders can use to fight corporate wrongdoing include:

• Breach of fiduciary duty: Alleges that fellow shareholders owed them a fiduciary duty from a relationship of trust and that they violated this duty.

• Fraud: Alleges that shareholders, corporate officers or directors engaged in fraudulent behavior such as failing to disclose material information.

• Breach of contract: Alleges that corporate officers or directors breached the shareholder agreement.

• Theft of trade secrets: Alleges that corporate members stole trade secrets belonging to the corporation for their own private gain.

• Unjust enrichment: Alleges that corporate officers or directors unjustly enriched themselves at the expense of the corporation.

• Breach of trust: Alleges that corporate members violated the rights or duties owed to shareholders and that this constitutes a breach of trust.  

Is the Lawsuit Direct or Derivative?

In a derivative lawsuit, the claim is "derivative" because it is brought by the shareholder on behalf of the corporation, whereas in a "direct" lawsuit, the shareholder is suing for their own benefit. If a shareholder can win the lawsuit by proving that the corporation was injured, it is usually safe to categorize the claim as derivative. Conversely, if the shareholder would be able to come out on top without showing that the corporation was harmed, the claim is likely direct.

Contact a Cook County, IL Corporate Dispute Attorney

Whether you are a shareholder concerned about corporate wrongdoing, or a corporate officer facing a derivative lawsuit, the Arlington Heights, IL business law attorneys at Dickler, Kahn, Slowikowski & Zavell, Ltd. can ensure that your rights and interests are protected in a corporate dispute. With over 150 years of combined experience, our attorneys can advise you on your derivative lawsuit. Contact the firm at 847-593-5595 for a professional consultation today.