Five Things to Know About Shareholder Derivative Suits

As a shareholder in Florida, you have important legal rights. If your rights are violated, you can take legal action to protect your financial interests and hold the responsible parties accountable. Shareholder derivative actions are one of the most common but least understood types of shareholder lawsuits. Here, our Miami shareholder dispute attorneys highlight five key things you should know about shareholder derivative suits in Florida.

1. A Derivative Suit is Brought On Behalf of the Corporation Itself
   

First and foremost, it is important to understand how shareholder derivative actions work. As simply defined by the Cornell Legal Information Institute, a “shareholder derivative suit is a lawsuit brought by a shareholder on behalf of a corporation.” In other words, the shareholder is filing a lawsuit on the grounds that the company itself suffered damage due to the improper or unlawful conduct of another party. 

2. Most Derivative Actions are Filed Against Corporate Officers/Directors
   

While there are some exceptions, the majority of shareholder derivative actions are filed against corporate officers, corporate directors, or other decision-making officials. Generally, the underlying claim is filed on grounds that the defendant (officer, director, etc.) did something wrong and caused damage to the company. A shareholder derivative suit may allege breach of fiduciary duty, negligence by a corporate official, insider trading, unjust enrichment, or several other causes of action. 

3. Any Recovery Goes to the Corporation—Not Directly to the Shareholder
   

If a shareholder derivative lawsuit is successful, then any financial compensation recovered goes to the corporation, not to the specific shareholder. This is because, technically speaking, the lawsuit is filed by the corporation. Of course, a shareholder benefits from the corporation’s gain—often substantially so. 

4. Only a Shareholder at the ‘Time of the Incident’ is Eligible to File a Suit
   

Under Florida law, a shareholder is only eligible to initiate a derivative action if they were a shareholder at the time that the alleged misconduct occurred. Put another way, you cannot buy a share of stock today and then initiate a shareholder derivative action for an alleged breach of fiduciary duty that occurred three years ago. 

5. A Shareholder Must Comply With Complex Pre-Suit Requirements to Bring a Claim
   

Shareholder derivative lawsuits are extremely complicated. Indeed, they are among the most complex types of shareholder disputes. In Florida, there are many pre-lawsuit requirements that a shareholder must satisfy before they can bring a derivative action. An experienced shareholder attorney will make sure that your case is handled properly and that all criteria are met.

Call Our South Florida Shareholder Dispute Attorney Right Away

At Pike & Lustig, LLP, our Florida shareholder lawyers are strong, effective advocates for our clients. If you have any questions or concerns about shareholder derivative suits, our legal team is here to help. Call us now for a confidential review of your shareholder rights case. We handle shareholder disputes throughout South Florida, including in Miami, West Palm Beach, Palm Beach Gardens, Coral Gables, Hollywood, Hialeah, and Pembroke Pines.

Resource:

law.cornell.edu/wex/shareholder_derivative_suit