Whose claim it is
When directors or officers harm the corporation, the injury belongs first to the company, so any recovery generally goes back to it rather than to individual shareholders. A shareholder can sue in the company's name only in limited circumstances, usually after first asking the board to act or showing why asking would be pointless because the board itself is conflicted. Courts also generally expect the shareholder to have owned shares when the wrong occurred and to keep holding them while the case runs. Some harms are direct rather than derivative, such as being denied a vote or treated differently from other shareholders, and sorting the two is often the first fight.
Investigating before filing
Because these early requirements are hard to meet with public information alone, shareholders often start with a request to inspect the company's books and records, which can supply facts a complaint needs. Keep your own records of share ownership, communications with the company, and any public disclosures that raised concern. Boards that receive a demand may form a committee of independent directors to investigate, and how a court treats that committee's conclusions depends on the state and on how independent and careful the committee was. The law of the state of incorporation governs most of these questions, so a Delaware company's derivative case follows Delaware rules even if filed elsewhere.
For shareholders and for boards
For shareholders, we evaluate whether the facts support a derivative claim, whether a direct claim fits better, and whether the cost makes sense when any recovery goes to the company. For boards and individual directors, we review the demand, the independence of those who will consider it, and the available indemnification and insurance. A derivative suit sometimes follows a securities class action or a regulatory investigation, and the matters then need to be managed together. Either way, the early procedural steps tend to decide whether the case moves forward at all.
