What are Derivative Actions?

Simply stated, a derivative action is a lawsuit brought by a shareholder or a group of shareholders on behalf of the corporation against a third party. Derivative actions allow shareholders to initiate litigation when corporate management has failed to do so.

It is understood that When a corporation has a legal claim against an individual or legal entity, the directors presumably should honor their duty to the corporation and bring suit to protect the corporation’s interests. This may be considered to be a matter of fiduciary duty, especially when large sums of money are at stake.

However, there are occasions when conflicts of interest, negligence or other forms of unacceptable behavior result in the corporation failing to act. This failure to file suit against wrongdoers may diminish the value of the corporation, resulting in loss to shareholders. The directors of a corporation have a duty to shareholders to exercise due diligence to protect and increase the value of shares held by investors. When this duty is breached, individual shareholders or groups of shareholders can bring a lawsuit against a wrongdoer on behalf of the corporation, to protect and increase the value of the shares of investors.

The Most Effective Course of Action

Many clients of John McDuff have found derivative actions — whether threatened or pursued — to be an effective way of protecting their shares’ value. Our law firm will first attempt to take other approaches to this matter before filing suit on a derivative actions (such as talking with the directors). However, litigation is often necessary in these cases. It is an extremely useful tool for those shareholders who feel they have been wronged. Frequently, a cause of action against the directors is also included in the pleadings.

Considering a Derivative Action Lawsuit in Austin? Contact McDuff.

I am business lawyer, John McDuff. Contact me to discuss your concerns regarding a derivative action lawsuit. My law firm is a valuable resource for shareholders and corporate directors alike who become involved in derivative actions as plaintiffs or defendants. I am an experienced litigation attorney with a significant business background. My effective advocacy on behalf of shareholders and other key players in the world of business is well-recognized by past clients. I primarily serve clients in Austin, Travis County and Central Texas. Call 512.457.1177 to schedule an appointment.

The information that you obtain at this site is not, nor is it intended to be, legal advice, and any use of this information will not create an attorney-client relationship. We invite you to contact us to get advice.