Derivative Action: A lawsuit brought by a shareholder against the directors, management and/or other shareholders of the corporation, for a failure by management. In effect, the suing shareholder claims to be acting on behalf of the corporation, because the directors and management are failing to exercise their authority for the benefit of the company and all of its shareholders. This type of suit often arises when there is fraud, mismanagement, self-dealing and/or dishonesty which are being ignored by officers and the Board of Directors of a corporation. Derivative Action
Please note that a derivative suit is filed by a shareholder (or a group of shareholders), it is not filed by the corporation as a legal entity or the corporation's directors or officers. However, the filing of a derivative suit by an individual shareholder does not preclude the corporation from filing suit against current or former directors and officers.
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