Derivative Lawsuit

In a derivative lawsuit, shareholders cause a corporation to bring a lawsuit against directors, officers, or a third party that allegedly harmed the corporation. In a derivative lawsuit, the shareholders argue that the corporation was injured but because the corporation cannot act on its own, the shareholders must bring the lawsuit on its behalf. These types of lawsuits often result from alleged breaches of duty by directors and officers where the shareholders allege that the directors and officers fail to protect the interests of the corporation and, of course, the same directors and officers will not cause the corporation to bring a lawsuit against themselves. Therefore, the shareholders derivatively must cause the corporation to bring the lawsuit.