How a shareholder derivative action works

A previous post on this blog talked about what constitutes a breach of fiduciary duty. As that post discussed, officers and directors of corporations in the Portland area, from Nike all the way down to a small, family-owned Sunday brunch joint, have an obligation to put the best interests of the corporation and its shareholders over their own interests.

Unfortunately, many officers and directors do not live up to their fiduciary duties. Even if no crimes get committed, directors and officers can commit serious indiscretions that can damage or even ruin a business. It is sad that, on many occasions, other managers and directors fail to correct these problems right away.

This is a point in which a shareholder of the company's stock may wish to initiate what is called a shareholder derivative action. Basically, a shareholder derivative action is a type of business litigation in which an individual shareholder, on behalf of the corporation, seeks a court order either for damages or other relief that will prevent a rouge director or officer, or even a wayward board, from continuing to illegally harm the corporation.

A shareholder derivative action can be the last line of defense a shareholder can exercise on behalf of a business he or she loves. It is important to remember, though, that because this litigation allows shareholders to do the right thing when officers and directors will not, a shareholder must prior to filing an action first give the corporation's governing body the opportunity to address the issue directly.

Shareholder derivative actions in Oregon can be complicated affairs. However, a shareholder who feels that her business is being endangered by irresponsible actions at the top of the management ladder can explore this legal option with an experienced business attorney.

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