Dispelling Three Of The Most Common Myths About Shareholder Derivative Lawsuits

As a shareholder, your interests matter. You can take legal action if your rights have been violated. There are two types of shareholder lawsuits: Derivative claims and direct claims. The Cornell Legal Information Institute defines a shareholder derivative suit as “a lawsuit brought by a shareholder on behalf of a corporation.” There are many misconceptions about what exactly derivative actions are and how they work. In this article, our West Palm Beach shareholder dispute lawyers dispel three of the most common myths about shareholder derivative claims in Florida.

Myth #1: A Shareholder Derivative Lawsuit is Filed Against the Company Itself 

False. The most important thing to understand about a shareholder derivative lawsuit is that it is not filed against the corporation. Instead, it is filed on behalf of the corporation. With a derivative lawsuit, a shareholder (or group of shareholders) is essentially stepping forward and taking action to protect the interests of the corporation. Most often, shareholder derivative lawsuits are filed against corporate officers, corporate directors, or another party in an insider position. 

Myth #2: A Shareholder Can File a Derivative Claim If they Disagree With Management 

False. Corporate officers and other key decision makers have broad authority to use their own judgment. A shareholder cannot bring a successful lawsuit simply because they disagree with management. In fact, they do not necessarily have a viable derivative claim even if management made decisions that worked out poorly. A shareholder derivative suit must have valid grounds. In general, shareholders must allege some sort of wrongdoing on the part of key decision makers. Some notable examples of grounds to file a civil RICO lawsuit include:

• Breach of fiduciary duty;
• Corporate fraud, waste, and/or abuse;
• Excessive payments of executive compensation;
• Self-dealing by a corporate officer or executive; and
• Misappropriation of a corporate opportunity. 

Myth #3: A Shareholder Derivative Lawsuit Can Be Filed Right Away 

False. A shareholder derivative claim cannot be filed immediately in Florida. Our state uses a demand futility standard for shareholder derivative suits. Under the demand futility standard, shareholders generally need to prove that their demand for a remedy was ignored by management, unreasonably delayed, or that they have such a time-pressing matter that they cannot go through the normal channels to attempt to resolve the issue. Failure to satisfy demand futility could result in a derivative claim being dismissed outright. If you have any specific questions about the demand futility standard in Florida, our shareholder derivative attorney can help.  

Speak to Our South Florida Shareholder Derivative Lawyer Today

At Pike & Lustig, LLP, our Florida shareholder rights attorneys have the legal skills and professional expertise to handle shareholder derivative claims. If you have any specific questions or concerns about shareholder rights or shareholder derivative actions, we are here to get you answers. Call us now to set up an appointment with a top-rated commercial litigation attorney. Our firm handles shareholder derivative claims from our law offices in West Palm Beach, Wellington and Miami.

Resource:

law.cornell.edu/wex/shareholder_derivative_suit#:~:text=A%20shareholder%20derivative%20suit%20is,has%20refused%20to%20use%20it