Derivative Action Legal Meaning and Definition

Here is a simplified definition of the legal term Derivative Action.

Derivative Action (noun): A type of lawsuit initiated by a shareholder on behalf of a corporation against a third party (often the corporation's executives or directors). This action typically arises when the corporation has suffered a wrongdoing due to fraud, mismanagement, or dishonesty, and the individuals supposed to protect the corporation's interests fail to act. The shareholder, in effect, steps into the corporation's shoes to seek justice.