Disputes between shareholders are common in business. When a company’s director or officers take action that is illegal or against the company’s interest, the company’s shareholders have the option to file a shareholder derivative lawsuit. Wisconsin has specific laws to deal with derivative lawsuits, and you can learn more about them below.
What is a Shareholder Derivative Suit?
A shareholder derivative suit is a civil lawsuit initiated by a company’s shareholders against a company director, officer, or third party. The law states that a suit can only be brought against the offender if the company is aware of the issue, has a course of action, but refuses to act. Shareholder derivative lawsuits can be filed if one or more shareholders suspect illegal or damaging activity, or if they believe that such conduct could occur in the future. The purpose of derivative lawsuits is to correct any wrongdoings against the company itself.
Examples of Shareholder Derivative Lawsuits
One of the most common situations that necessitates a derivative lawsuit is breach of fiduciary duty. In a business relationship, there are many fiduciary relationships in which one party owes the other the duty to act in good faith. When one party acts in his or her own interest or against the interests of the company, there is a breach of fiduciary duty. For example, a company director who uses company funds for his personal benefit has committed a breach of fiduciary duty. He put his own interests ahead of that of the company. Violating the duty of loyalty and care he owes the shareholders. The shareholders may choose to file a derivative lawsuit against the director for his misappropriation of company funds.
Other instances of shareholder derivative lawsuits include:
- Self-dealing
- Fraud/unlawful activity
- Conflict of interest
- Insider trading
How do Shareholder Derivative Lawsuits Work in Wisconsin?
Shareholders are required to follow certain steps and abide by Wisconsin law in order to file a derivative lawsuit. Before filing, the suit must meet these requirements. Keep in mind that these are just the basics and you should seek the advice of a Wisconsin attorney before filing a suit.
Demand
Before filing a derivative lawsuit in Wisconsin, the shareholder must make a written demand for the company to take action with a 90-day waiting period for a resolution.
Standing
The shareholder who wishes to file a derivative suit must have been classified as a shareholder at the time of filing. Additionally, the shareholder must agree to represent the company fairly in the proceedings.
Dismissal
The court can choose to dismiss a derivative lawsuit if it finds that the suit isn’t in the best interest of the company. Because derivative suits are to make the company whole, it is the only one represented in a derivative suit.
Your Derivative Lawsuit Questions Answered at Atolles Law, S.C.
Are you a shareholder considering filing a derivative lawsuit in Wisconsin? Atolles Law, S.C. specializes in business law and commercial litigation by representing clients seeking justice. We are well-versed in Wisconsin law, allowing us to provide high-quality advice and legal representation to clients across the state. If you have questions about filing a derivative lawsuit and what it could mean for your company, contact the team at Atolles Law, S.C. to schedule a consultation.