Wednesday, March 15, 2006

Derivative Suits

Been busy lately with our School's Law Week Celebrations and English Fest (ill have a post on this later) so this is going to be a short topic.
The rights of a stockholder to sue:
There are 3 types of suits which a stockholder may institute based on wrongful or fraudulent acts of directors or other persons:
1. Individual suits - wrong done personally to the stockholder and not to other stockholders. (example - when right of inspection is denied to a particular stockholder).
2. Class suit - wrong done to a group of stockholders (example - the whole class of preferred stockholders' rights violated)
3. Derivative suit - wrong dome to a corporation intself.
Requirements Relating to Derivative Suit:
1. The party bringing the suit must be a stockholder at the time of the act or transaction complained of. (no of shares immaterial)
2. Intra-corporate remedies have been exhausted. (the SH has made a demand on the BOD but the latter refused to heed his plea)
3. The cause of action actually devolves on the corporation and not to the particular SH bringing the suit. (any benefit recovered must be accounted for the corporation who is the real party in interest.
Who may institute derivative suits?
1. a minority stockholder;
2. a corporate officer;
3. a treasurer;
4. a director; or
5. a majority stockholder when requirement of 2/3 affirmative vote is necessary.

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