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Simple English definitions for legal terms
derivative suit
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A quick definition of derivative suit:
A derivative suit is a type of lawsuit where a shareholder sues a third party on behalf of a corporation because the corporation failed to take action against the third party. It is also called a shareholder derivative suit or stockholder derivative suit. Another type of derivative suit is when someone sues on behalf of another person who was injured by a third party, such as a husband suing for loss of companionship because his wife was injured by someone else.
A more thorough explanation:
A derivative suit is a legal action brought by a shareholder on behalf of a corporation against a third party, usually a corporate officer, for failing to take action against them. This type of lawsuit is also known as a shareholder derivative suit, stockholder derivative suit, or representative action.
For example, if a corporation's CEO is accused of embezzlement and the board of directors fails to take action, a shareholder can file a derivative suit on behalf of the corporation to recover damages from the CEO.
It's important to note that a derivative suit is different from a direct action, which is a lawsuit brought by an individual to recover damages for their own injuries. In a derivative suit, the shareholder is seeking to enforce a right belonging to the corporation.