The Andres Lopez Law Firm

The business judgment rule in shareholder derivative actions

This blog has previously discussed shareholder derivative actions. Through a shareholder derivative action, which is a form of business litigation, a stockholder or group of stockholders in a corporation can sue an individual officer or a group of officers in a company for malfeasance.

Generally speaking, the person wanting to file this type of action first has to give the board of directors of the business the opportunity to file suit themselves. The reason the board has first dibs on legal action is that ordinarily, it is the board that is supposed to be making such important decisions for the business.

It is important for a Floridian who is thinking about filing a shareholder derivative action also to be aware of the business judgment rule. As the name implies, under the business judgment rule, board members and individual officers and directors are protected from decisions about the business that are made in good faith and reasonable objectivity.

In other words, as long as the officer or director is trying to do her job legally and ethically, she's not going to be held legally responsible for a legitimate business decision, even if several other key stakeholders disagree with the decision and even if the decision turns out to be a bad one.

In short, a shareholder derivative action or other litigation might not be the right option when a person simply disagrees with a particular decision or even with the overall direction that a business is taking.

If, on the other hand, a resident of South Florida who owns stock in a business has evidence that a high ranking officer or director has engaged in self-dealing or other improper behavior, or even flagrantly irresponsible behavior, then legal action may be possible. Seeking out the help and advice of an experienced business lawyer may be an important step in this respect.

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