An action initiated by a shareholder on behalf of a corporation against its management or a third party is a specific type of legal proceeding. This legal recourse is pursued when the corporation itself fails to act, often due to the very individuals whose conduct is being challenged. For example, if a board of directors knowingly approves a self-dealing transaction that benefits a director at the expense of the company, and the board refuses to take action to recover the lost value, a shareholder can initiate this type of suit to remedy the harm suffered by the company.
This shareholder action serves as an essential check on corporate power, ensuring accountability and protecting the interests of the company and its shareholders. Its significance lies in providing a mechanism to address internal wrongdoing that would otherwise go unaddressed, preserving corporate assets, and upholding fiduciary duties. Historically, these legal actions have played a vital role in shaping corporate governance standards and promoting responsible business practices.
