derivative suit

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Stockholder Derivative Suit

A lawsuit filed by one or more shareholders of a publicly-traded company in the name of the company. Often, this lawsuit is filed against a member of the company's management who committed an illegal, unethical, or negligent act. Directors' and officers' liability insurance can protect the management from losses as the result of one of these lawsuits. They are also called derivative suits and derivative action.

derivative suit

References in periodicals archive ?
10) Likewise, damages received from a settlement of a stockholders' derivative action against a corporation's directors and officers for fraud and mismanagement were nontaxable, because they did not exceed the plaintiff's basis in the worthless stock.