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What are derivative actions taken by shareholders?

When the value of a California company is put at risk by a CEO or other individual in authority committing a crime, shareholders can take action. If you believe that the breach of duty has resulted in harming the corporation, you can assert your rights as a shareholder. There are a couple of ways stockholder relief can be found, one of which is filing a derivative action.

Company directors have legal duties and obligations to the corporation and the shareholders. As an investor, you also have rights and responsibilities. There are the transfer and voting rights that you have as a result of the ownership in a portion of the company. Also, you are entitled to dividends, paid out of the organizations’ profits and earnings. According to FindLaw, when an officer or director harms the organization, shareholders may sue them on behalf of that organization. This is called a derivative lawsuit.

You may file a suit to resolve conflicts between the stakeholders and the directors, board members or officers that have damaged the company as a result of wrongdoing or mismanagement, including a wrongful sale. Derivative actions are not the first course of action. Before filing a suit, it must demonstrate that the directors received notification in writing of the corporate governance issues and that there was no action taken. You must also establish that the conduct has caused harm. Notifying the other shareholders is also mandatory.

This is a distinct way to affect corporate governance. When stockholders prevail, the recovery obtained from the action is only for the corporation, although you may recoup the legal expenses.

This information is intended to be used for educational purposes. It should not be interpreted as legal advice.

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