Understanding Shareholder Claims
Shareholders may bring actions against the management of their companies for acts or conduct resulting in economic or financial loss. There are three ways to bring such an action:
- Individual suits
- Class action suits
- Derivative suits
Individuals may always bring their own action against a corporation and its directors or officers.
A derivative suit is one brought by at least one shareholder, on behalf of the corporation, that among other things alleges financial loss to the organization. The key to prevailing under this theory is that the harm must be to the corporation as a whole, such as a permanent decrease in market share, equity or asset positions. Any recovery goes to the entity itself.
What About Class Action Lawsuits?
Class actions are a type of lawsuit sanctioned under Federal Rule of Civil Procedure 23. They permit a single or small group of affected individuals who are “typical” of the group to seek recompense for a much larger group. The numerous individuals represented have experienced common losses, and common issues are involved. Frequently, organizations will turn to their directors and officers liability insurance company, as these organizations have designed policies to address such occurrences.