A derivative action is a lawsuit brought by an owner on behalf of the business entity rather than for a direct personal claim alone.
Why It Matters
This type of action matters because harm to a corporation or similar entity may not always be addressed by managers or directors. A derivative suit can be a tool for owners to pursue claims that belong to the entity itself.
Where It Appears
Derivative actions appear in corporate and business disputes involving fiduciary-duty claims, misuse of corporate assets, self-dealing, and failures by those in control.
Practical Example
A shareholder claims that directors harmed the corporation by self-dealing and that the company itself should recover the loss. That may become a derivative action.
How It Differs From Nearby Terms
A direct claim seeks relief for a personal injury to the owner. A derivative action seeks relief for injury to the entity. Fiduciary-duty litigation often overlaps because those duties are a common source of the underlying dispute.
Related Terms
Knowledge Check
- Who is the real party harmed in a derivative action? The real party harmed is the entity, even though an owner brings the suit.
- How is a derivative action different from a direct claim? A derivative action seeks recovery for harm to the entity, while a direct claim seeks recovery for harm to the owner personally.