Shareholder litigation

Question 1

Direct lawsuit definition

Answer 1

Shareholder sues in his OWN NAME for damages, damages go directly to him

Question 2

Derivative lawsuit definition

Answer 2

Shareholder suing on behalf of corporation for harms that principally damage CORPORATION

Question 3

WHEN may shareholder bring direct lawsuit?

Answer 3

ONLY IF harmed directly, including interference in voting rights or dividends, misinformation

Question 4

Defining harm to corporation?

Answer 4

Bad business decisions (e.g. disloyalty)

Question 5

Requirement for derivative lawsuit claim

Answer 5

in corporation’s NAME

all recovery belongs to CORPORATION

Question 6

Standing requirement to bring derivative lawsuit

Answer 6

1) must maintain contemporaneous stock ownership –

a) shareholder at time of harm
b) hold shares throughout litigation
c) fairly and adequately represent corporation’s interest

Question 7

Demand requirement for derivative lawsuit

Answer 7

Plaintiff shareholder usually required to DEMAND that board of directors bring lawsuit BEFORE individual P can bring lawsuit

Question 8

Demand futility provision

Answer 8

Demand NOT required if it would be futile (e.g. board of directors are defendants)

Only recognized in some states

Question 9

Derivative lawsuit recovery: where does it go

Answer 9

Goes to corporation NOT shareholder

Question 10

Derivative lawsuit: when are attorney fees awarded?

Answer 10

Awarded if litigation produces ‘substantial benefit’ to corporation, Ps attorneys have fees paid