As a shareholder, you own a “share”, or a percentage of ownership, in the company in which you have invested. The officers and directors of the company are obligated to act in the best interests of the company at all times. If they fail to act in the company’s best interest by wasting corporate assets, profiting personally at the company’s expense, or failing to keep shareholders informed of material information, you have certain options to protect the corporation from the officers and directors who are supposed to act on behalf of the corporation.
One of these options comes in the form of a shareholder derivative lawsuit, or a stockholder suit. This type of litigation is brought by one or more shareholders to remedy or prevent a wrong to the corporation. In a derivative suit, the plaintiff shareholders file suit in a representative capacity on a cause of action that belongs to the corporation but that the corporation is unwilling to pursue.
The principal reason that derivative suits are permitted is that they provide a means for shareholders to enforce claims of the corporation against officers and directors of the corporation. Officers and directors in control of the corporation are unlikely to authorize the corporation to bring suit that only arose because of the directors’ and officers’ own wrongdoing. So a derivative suit permits a shareholder to prosecute these claims in the name of the corporation.
If more than one shareholder brings the same type of lawsuit, the court might consolidate claims into one case, or even allow for the creation of a class, a group of people who are similarly affected, and might be able to raise the same claims in their own lawsuit.
Call a Los Angeles Securities Fraud Attorney Today
If you are a shareholder in a company whose corporate officers or directors are not acting in the best interest of the company, you may have certain legal rights that require your immediate attention.
Contact an experienced Los Angeles securities fraud attorney today for a consultation to discuss your rights and options.