Shareholder Derivative Action Process - Explained

The video explains the process for shareholders to bring a derivative action on behalf of a corporation. It covers the concept of derivative action, where shareholders sue officers or directors for damages caused to the corporation. The process involves making a demand on the corporation, which may be rejected or ignored by the board. Shareholders can then proceed to court if they demonstrate the board's failure to act in the corporation's best interest. The business judgment rule protects directors unless gross negligence or bad faith is shown. A special committee may evaluate the need for litigation, and shareholders can bypass the demand if it's deemed futile due to conflicts of interest.

What is a derivative action and how does it benefit shareholders?

What steps can shareholders take to initiate a derivative action against an officer or director?

What happens if the board of directors rejects a shareholder's request for derivative action?

What is the business judgment rule and how does it affect the board's decision-making?

How can a special committee be involved in the decision to pursue litigation?

What challenges do shareholders face when trying to prove bias in a special committee's decision?

What criteria must shareholders meet to demonstrate that demand on the board was futile?