A shareholder's derivative suit is an equity proceeding instituted by a shareholder on behalf of himself and all other shareholders to assert corporate rights. Both the corporation and the parties allegedly liable to the corporation are necessary parties. The question to be considered in this comment is, when must the plaintiff shareholder show that he sought redress for the corporation through collective action of the shareholders and failed to secure it? As a preliminary matter, we may ask what sort of collective action the shareholders are expected to take. A few authorities suggest that the shareholders, as a body, bring suit against the directors where misconduct by the directorate is alleged; but such a suit would also be derivative, and its advantages over the ordinary derivative suit are not apparent. The common suggestion is that the shareholders will act in a meeting and either adopt a resolution directing the management to bring suit or elect a new management pledged to do so.
Thomas L. Waterbury S.Ed.,
CORPORATIONS-SHAREHOLDERS' DERIVATIVE SUITS-WHEN DEMAND ON SHAREHOLDERS IS A PREREQUISITE TO MAINTENANCE OF SUIT,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol48/iss1/6