The Battle of Derivative Actions: Common Law vs Statutory
Derivative actions are an important tool for shareholders to protect their rights and hold corporate boards and officers accountable for their actions. In the United States, derivative actions can be brought under common law or under statutory provisions. Type derivative action set rules procedures, important shareholders understand differences two.
Common Law Derivative Action
Common law derivative actions are based on judicial decisions and precedent rather than specific statutory provisions. In Common Law Derivative Action, shareholders show made demand corporation action, corporation wrongfully refused act. Burden proof shareholders show board directors officers breached fiduciary duties.
| Pros | Cons |
|---|---|
| Flexibility in applying legal principles | Uncertainty in outcome due to reliance on precedent |
| Ability to hold corporate insiders accountable | Potential for lengthy and costly litigation process |
Statutory Derivative Action
Statutory derivative actions, on the other hand, are brought under specific laws and statutes that govern shareholder rights and corporate governance. These laws may vary by state, but generally provide a framework for shareholders to bring derivative actions on behalf of the corporation. Statutory derivative actions often have procedural requirements that shareholders must follow, such as providing notice to the corporation and obtaining court approval to proceed with the action.
| Pros | Cons |
|---|---|
| Clear procedural requirements | Potential limitations on shareholders` rights |
| Statutory remedies and protections | Potential for forum shopping and conflicting laws |
Case Study: Smith v. Jones Corporation
In recent case Smith v. Jones Corporation, the court considered whether the shareholder`s derivative action should proceed under common law or statutory provisions. The court ultimately decided that the shareholder had followed the procedural requirements under the state`s statutory derivative action law, and allowed the case to proceed as a statutory derivative action. This case illustrates the importance of understanding the differences between common law and statutory derivative actions, and the impact it can have on the outcome of a case.
Both common law and statutory derivative actions serve an important role in holding corporate boards and officers accountable for their actions. Shareholders should carefully consider the pros and cons of each type of derivative action, and seek legal counsel to determine the best course of action in their particular circumstances.
Frequently Asked Questions about Common Law Derivative Action vs Statutory Derivative Action
| Question | Answer |
|---|---|
| What is a common law derivative action? | A common law derivative action is a lawsuit filed by a shareholder on behalf of a corporation to remedy a wrong done to the corporation. It is based on principles developed through court decisions rather than specific statutes. |
| What is a statutory derivative action? | A statutory derivative action is a lawsuit brought by a shareholder on behalf of a corporation as specifically authorized by state corporate law statutes. |
| What are the key differences between common law and statutory derivative actions? | The key difference is that common law derivative actions are based on court-developed principles, while statutory derivative actions are specifically authorized by state statutes. Common law actions are more flexible and may allow for greater judicial discretion, while statutory actions are governed by specific statutory requirements. |
| Which type of derivative action is more common in practice? | In practice, statutory derivative actions are more common due to the clarity and specificity provided by state statutes. However, common law derivative actions are still relevant in jurisdictions where statutory provisions are not as detailed. |
| What are the procedural requirements for bringing a common law derivative action? | Procedural requirements for common law derivative actions may vary depending on jurisdiction, but generally, shareholders must first make a demand on the corporation`s board of directors to take action, and if the board refuses or fails to act, the shareholder may then bring suit on behalf of the corporation. |
| How do statutory derivative actions differ in terms of procedural requirements? | Statutory derivative actions are subject to specific procedural requirements set forth in state corporate law statutes, which may include pre-suit demand requirements, standing and ownership requirements, and notice provisions. |
| What are the remedies available in common law derivative actions? | Remedies in common law derivative actions may include monetary damages, injunctive relief, and corporate governance reforms. Courts have broad discretion to fashion appropriate remedies based on the specific circumstances of each case. |
| Are the remedies available in statutory derivative actions different? | The remedies available in statutory derivative actions are also determined by state statutes and may include similar forms of relief, but the specific procedures for obtaining such remedies may differ from those in common law actions. |
| Which type of derivative action should shareholders consider pursuing? | The decision to pursue a common law or statutory derivative action will depend on various factors, including the specific laws of the jurisdiction, the nature of the alleged wrongdoing, and the preferences of the shareholder and legal counsel. |
| What should I do if I am considering bringing a derivative action on behalf of a corporation? | If you are considering bringing a derivative action, it is important to consult with a knowledgeable attorney who can evaluate the specific circumstances of your case and provide guidance on the most appropriate course of action based on the relevant legal principles and procedural requirements. |
Comparison of Common Law Derivative Action vs Statutory Derivative Action
In the legal world, derivative actions are an essential tool for shareholders to enforce their rights against the directors and officers of a corporation. There are two main types of derivative actions: common law derivative actions and statutory derivative actions. This contract aims to explore and compare the key differences between these two types of derivative actions.
| Aspect | Common Law Derivative Action | Statutory Derivative Action |
|---|---|---|
| Origin | Developed through judicial decisions and precedent. | Created and governed by specific statutory provisions in corporate law. |
| Standing | Shareholder must demonstrate that they exhausted all internal corporate remedies before bringing the action. | Shareholder can bring the action without the need to exhaust internal corporate remedies. |
| Procedure | More flexible and less formalized, allowing courts to exercise discretion in determining whether to permit the action. | More structured and procedural, following specific statutory requirements for initiating and conducting the action. |
| Remedies | Courts have broader discretion in granting remedies, including damages and injunctive relief. | Remedies are typically limited to those prescribed by the relevant statutory provisions. |
| Scope | Applies to corporations where there are no specific statutory provisions governing derivative actions. | Applies to corporations subject to statutory provisions governing derivative actions. |