Corporations Bar Practice Exam

In a derivative suit, shareholders bring action on behalf of the corporation to address harms that have been done to the corporation itself, typically due to the actions of its directors or officers. The requirement regarding ownership is that the shareholder must have owned shares either at the time of the alleged wrongful acts or must have acquired them by operation of law (for example, through inheritance or stock transfer). Therefore, while it's common for states to have threshold requirements regarding the percentage of shares owned, there is no universal requirement that a shareholder must hold at least 10% of the shares to initiate a derivative suit. The other requirements are essential to sustain a derivative action. Contemporaneous stock ownership ensures that the shareholder bringing the suit has a vested interest in the corporation's well-being at the time of the alleged wrongdoing. Adequate representation of the corporation's interests by the shareholder is crucial because the suit is fundamentally meant to benefit the corporation, not the individual shareholder. Furthermore, making a demand on the directors before filing a suit is often necessary to give the board the opportunity to address the issue themselves, thereby respecting the corporate governance structure. Thus, the absence of a mandated minimum ownership percentage of 10% for bringing a derivative suit accurately identifies why that choice is