What is a derivative lawsuit and when should it be used in San Diego and Southern California?  What should you do if you are genuinely concerned about the direction of the company or the actions of company executives or Board members? How can you draw on the Watkins Firm’s proven track record of more than 40 years to assert and protect your rights, investment(s) and interests as a minority shareholder?

What is a Derivative Lawsuit?

What is a derivative lawsuit and how can this action enforce the rights of the corporation itself in order to remedy harms done through the actions or inaction of its Board of Directors or officers?  A derivative lawsuit is brought by one or more of a company’s shareholders on behalf of the corporation itself against the corporate executives or board members.

A derivative lawsuit (also referred to as a derivative action) asserts the rights of the corporation against those who have a duty to protect it.  Therefore, a derivative lawsuit will usually be based upon allegations of a breach of fiduciary duty, negligence, fraud, self-dealing, mismanagement or commingling and/or wasting corporate assets.

Generally speaking, shareholders may not sue a corporation in California for their own financial benefit.  Shareholders are required by California law to file a derivative lawsuit as a representative of and on behalf of the corporation, and against those who are taking inappropriate action(s) resulting in harm to the corporation such as the corporation’s executives or board members.  The financial damages recovered during a derivative lawsuit go the corporation, with the usual goal of correcting the direction of the corporation while 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.

When Should a Derivative Lawsuit Be Considered?

When should a minority shareholder or shareholders consider a derivative lawsuit?  Are there steps which must be taken prior to the filing of a derivative lawsuit?

The Watkins Firm has decades of experience resolving shareholder disputes and filing derivative lawsuits.  A derivative lawsuit is a serious legal strategy that requires the satisfaction of specific California statutory requirements.

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.

Minority shareholders usually consider a derivative lawsuit when board members or executives are taking actions which are in violation of their duties to the corporation and/or damaging the value and viability of the corporation itself.

Do You Have Serious Concerns About Your Interests as a Shareholder in a Corporation?

What is a derivative lawsuit and when should it be used? Do you have serious concerns about your interests as a shareholder in a corporation here in San Diego or Southern California (or across the nation)?

The Watkins Firm works with our shareholder clients to develop a strategy to assert and protect their legal and financial interests.  We take a unique approach to resolving shareholder disputes which is specifically designed to accomplish our client’s goals in a cost-effective and timely manner.

It may surprise you to learn that after more than 40 years of experience in these matters the proven shareholders’ rights attorneys at the Watkins Firm are able to resolve the vast majority of shareholder disputes through effective, leveraged negotiation.  This is the fastest and least expensive strategy for resolving any dispute you have with the officers or board members of your corporation.

Once the Watkins Firm steps in on your side the time for games and wrongful actions is over, and opposing parties know it.  California law provides specific protections for minority shareholders.  The Watkins Firm has a long, proven and distinguished track record of successfully asserting and protecting our clients interests in negotiations, mediation, arbitration and at trial.

If you have questions about the behavior of controlling interests, executives and/or directors or feel like you are suffering intentional abuse or financial harm it is important to take action to protect your legal and financial interests as a minority shareholder.

We invite you to listen to our Podcast Episode 14 – Shareholders’ Rights and Disputes as well as review the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.