Legal Definitions - derivative suit

A derivative suit is a legal action brought by a shareholder on behalf of a corporation against a third party, usually a corporate officer, for failing to take action against them. This type of lawsuit is also known as a shareholder derivative suit, stockholder derivative suit, or representative action.

For example, if a corporation's CEO is accused of embezzlement and the board of directors fails to take action, a shareholder can file a derivative suit on behalf of the corporation to recover damages from the CEO.

It's important to note that a derivative suit is different from a direct action, which is a lawsuit brought by an individual to recover damages for their own injuries. In a derivative suit, the shareholder is seeking to enforce a right belonging to the corporation.