Five Examples Of Corporate Violations That May Warrant A Shareholder Derivative Lawsuit
Through a shareholder derivative suit, an individual shareholder or group of shareholders can bring a claim on behalf of the company. Most often, shareholder derivative lawsuits are filed against someone close to the corporation, such as an officer, director, or other insider. Here, our West Palm Beach shareholder dispute attorneys highlight five specific examples of corporate violations that could warrant a shareholder derivative lawsuit.
- Corporate Waste and Unreasonable Executive Compensation
Under Florida law, Delaware law, and other state corporate laws, the officers and directors of corporations have a legal responsibility to act in good faith and loyalty to the company, including when negotiating and receiving executive compensation. The waste and/or abuse of corporate assets through unreasonable executive compensation could be addressed in a shareholder derivative action.
- Accounting Fraud and Financial Misstatements
One of the core responsibilities of a corporate officer or corporate director is to ensure that the company’s finances are fully accounted for. When accounting fraud occurs or there are serious financial misstatements, it can cause serious damage to the individual shareholders. In some cases, the matter is best handled through a shareholder derivative claim.
- Self Dealing Transactions
Self dealing is, by definition, a breach of fiduciary duty. As described by Investopedia, self dealing occurs when a person takes advantage of their controlling/insider position at a company to act “in their own best interest in a transaction, rather than in the best interest of their clients.” You could file a shareholder derivative lawsuit on the grounds of self dealing.
- Insider Trading
There are strict federal and state rules and regulations in place regarding securities transactions. An example of conduct that could run afoul of these laws is insider trading. With an insider trading case, there are typically allegations that a corporate officer violated their fiduciary obligations or their duty to act in good faith by personally trading on non-public information. Through a shareholder derivative lawsuit, shareholders that suffered losses as a result of illegal insider trading may be able to recover financial compensation.
- Corporate Governance Issues
Finally, a dispute over a corporate governance issue may also serve as the basis of a shareholder derivative lawsuit. These types of cases are especially complicated, as corporate officers and corporate directors are assumed to have wide discretion to make business decisions. Still, a corporate governance matter may warrant a shareholder derivative action if the officers/directors of a company failed to act properly under the law.
Speak to Our West Palm Beach Shareholder Dispute Lawyers Today
At Pike & Lustig, LLP, our Florida shareholder law attorneys are committed to reliable legal representation. If you have questions about shareholder derivative suits, we can help. Give us a call today or send us a message online for your fully confidential case review. With an office in Miami and an office in West Palm Beach, we handle shareholder derivative actions throughout South Florida, including in Palm Beach County, Miami-Dade County, Broward County, and Monroe County.