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Overview of a shareholder derivative action

On Behalf of | Nov 19, 2017 | Business Litigation

The way Nevada corporations work, a resident of the Las Vegas area who owns shares in a company, assuming it’s a minority stake, has relatively little power to change the way the business runs. After all, the majority shareholder or coalition of shareholders get to choose who sits at the helm of the business. This is true even for mid-sized businesses and even smaller corporations with just a few friends and family owning shares.

While, generally speaking, this system has worked and continues to work for the economy, in some cases it can lead to great unfairness. This is often exhibited when the business’s leadership acts in disregard of shareholder wishes and, in some instances, in contravention of the law.

Fortunately, Nevada shareholders who feel that those controlling a business have run afoul of the law can file a type of business litigation called a shareholder derivative action. This type of lawsuit allows an aggrieved shareholder to claim, in the name of the corporation, that a member of the corporate leadership has legally wronged the corporation or breached a fiduciary duty. One example of such a breach would be when one steals or skims off corporate property or profits.

It is important to note that this type of lawsuit exists to allow shareholders to protect themselves when the corporate directors and leadership itself will not do so, often because the bad actor is also legally in control of the corporation. Usually, before filing a derivative action, a shareholder has to try to get their issue resolved through the corporate channels. However, as this process can be enormously complex, it may be wise for those considering this legal avenue to speak with a business law firm for guidance.

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