What is the strategy behind a derivative lawsuit in San Diego?  How can a shareholder with a minority interest protect their interests?  What should you do if you are concerned about the direction of the company or the actions of company executives or Board members?

A derivative lawsuit is brought on behalf of the company itself against the corporate executives or board members.  Generally speaking, shareholders may not sue a corporation in California for their own financial benefit.  Shareholders are required by California law to file a lawsuit against those who are taking inappropriate action(s) such as executives or board members.  The financial damages recovered during a derivative lawsuit go the corporation, with the usual goal of raising the value of shares in the company.

Derivative lawsuits were actually developed to protect corporations from rogue shareholders who were upset with company policies, practices or the values of their interest in the corporation.  This is further designed to limit the number of frivolous lawsuits while driving the parties to resolve the shareholder dispute internally.  The Watkins Firm has decades of experience resolving shareholder disputes and filing derivative lawsuits.  It is important to note that a written demand letter must be submitted to the officers and directors of the corporation containing the specific actions you request them to take and establishing a time frame for completion.  While this may seem like a waste of time it is generally required before filing a derivative lawsuit.

It is possible in rare cases to demonstrate that the demand letter would be a waste of time due to the overbearing attitudes and controlling behaviors of majority interests.  The strategy behind a derivative lawsuit is to compel those in power to act.  It is designed to protect the interests of a shareholder, usually a minority interest.  A derivative lawsuit benefits and protects the corporation itself, not the shareholders filing the lawsuit.  If you have questions about the behavior of controlling interests, executives, directors or feel like you are suffering intentional abuse or a “freeze-out” due to your minority shareholder status we invite you to contact the Watkins Firm for a free consultation at 858-535-1511.

 

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