CORPORATIONS - STOCKHOLDERS' SUITS - FEDERAL COURTS -REQUIREMENT OF STOCK OWNERSHIP AT THE TIME OF THE INJURY COMPLAINED OF

Authors

Robert E. Sipes, University of Michigan Law SchoolFollow

Abstract

When necessary to protect the interest of a stockholder, a court of equity will entertain an action by the stockholder to enforce a right belonging to the corporation. The suit is a derivative one, the corporation being the party primarily injured and the immediate beneficiary of the proceeds of any judgment. The basis for the suit has been explained in a number of ways. It has been held that in a proper case equity will disregard the corporate fiction and allow the derivative suit in order to protect the right which beneficially belongs to the stockholder although nominally to the corporation. An analogy has been drawn to the duty of a trustee to a cestui que trust. The stockholder is allowed to sue on the right of the corporation, as a cestui que trust may sue to enforce a right which the trustee refuses to enforce. One case compares the position of the stockholder, in enforcing rights which the board of directors refused to enforce, to a guardian ad litem appearing for a minor or incompetent. The right is sometimes expressly given by statute.

Recommended Citation

Robert E. Sipes, CORPORATIONS - STOCKHOLDERS' SUITS - FEDERAL COURTS -REQUIREMENT OF STOCK OWNERSHIP AT THE TIME OF THE INJURY COMPLAINED OF, 37 Mich. L. Rev. 773 (1939).
Available at: https://repository.law.umich.edu/mlr/vol37/iss5/7