When people invest in a company, they trust its leaders to act in the company’s best interest. But sometimes shareholders believe those leaders acted unfairly or caused harm. In California, these disputes can lead to two kinds of lawsuits.
What is a shareholder lawsuit?
A shareholder lawsuit, also called a direct lawsuit, happens when an investor sues the company for harm done to them personally. For example, a shareholder might sue if the company blocks their voting rights or treats them differently from others. This is separate from a claim for harm done to the company itself.
What is a derivative action?
A derivative action is a special lawsuit that a shareholder files for the company, not for personal gain. The goal is to protect the business. These cases claim that company leaders hurt the business by wasting money or breaching their duties.
Before filing, shareholders usually must ask the board of directors to fix the issue. However, they can skip this step if doing so would be useless. For instance, if shareholders ask the same board members who are accused of wrongdoing to take action, the request would make no sense since it would mean asking them to sue themselves. In that case, the shareholders can take the matter straight to court.
Why these cases matter
These lawsuits help keep company leaders honest and protect investor rights. They also make sure businesses follow California law.
Still, these cases can be complicated. They may involve reviewing financial records, bylaws, and messages between executives. If shareholders think company leaders acted improperly, it helps to learn more about California’s business laws and consider speaking with an attorney who can explain their options in more detail.
