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Derivative Claim
Practical Law Glossary Item 2-383-2767 (Approx. 2 pages)
Glossary
Derivative Claim
A litigation claim brought by a holder of ownership interests in an entity (such as a stockholder in a corporation or a member in a limited liability company) on behalf of the entity against the entity's management or board of directors typically alleging breach of fiduciary duty, fraud or mismanagement. The procedure for a derivative claim is governed by state law, but typically an interest holder must:
- Have been an interest holder at the time of the alleged wrong doing.
- Retain ownership throughout the litigation.
- Make a demand on the board of directors (or governing persons in an alternative entity) to take corrective action or show that such a demand would be futile.