Whose claim it really is
In a derivative case, the shareholder sues on behalf of the corporation, and any recovery generally goes to the company rather than to the shareholder who brought the case. That is different from a direct claim, where a shareholder sues over harm to his or her own rights, such as being denied a vote or being treated differently from other holders. Telling the two apart is not always easy, and courts look closely at whose injury is being claimed. Because the claim belongs to the company, the board normally controls whether to pursue it. A shareholder can only step in under conditions set by state law, usually the law of the state where the company was incorporated.
What usually has to happen first
In New York and Delaware, a shareholder generally must either ask the board to take action before suing or explain in detail why asking would be pointless, for example because a majority of the board is personally involved. Courts take this step seriously, and complaints that skip it or address it in general terms are often dismissed. Shareholders are usually required to have owned their shares when the wrong occurred and to keep holding them while the case continues. Before filing, many shareholders use their right to inspect corporate books and records to gather facts. Keep your brokerage statements and records of when you acquired the shares, and save the public filings or communications that first raised your concern.
Questions for an initial meeting
We look at whether the claim belongs to the company or to you directly, which state's law governs, and whether a demand on the board or a records inspection makes sense as a first step. We discuss the practical side as well: these cases take time, any recovery goes to the company, and settlements often include governance changes rather than large payments. In many states, including New York, a derivative settlement needs court approval. If you are a shareholder in a closely held company, a direct claim or a dissolution or buyout proceeding may fit your situation better, and we compare those paths with you.
