Use of Bonds & Undertakings in Shareholder Derivative Lawsuits
Business and corporate litigation attorney Gregory G. Brown talks about the use of bonds /undertakings in shareholder derivative lawsuits. Click here to watch video
Use of bonds in derivative or shareholder lawsuits. Often a shareholder’s (or owners’)
only way to prevent waste, mismanagement or self-dealing by corporate directors is to file a derivative action. A shareholder derivative action is a legal action that is taken by one or more shareholders, who act as representative plaintiffs. The shareholder plaintiffs (or members of LLC) actually file suit on behalf of the corporation seeking compensation back to the corporation from the wrong doers. Shareholder derivative actions are complex legal actions that can be costly to prosecute and defend. However, California’s Corporations Code gives defendants and companies who have been made a party to a derivative action a powerful tool to guard against meritless lawsuits. Under California Corp Code 800 (for corporations) and 17501 (for LLCs) a Defendant or company involved in a shareholder derivative action may require the Plaintiff to post a security bond in order to maintain the action.
Requirements. Upon the filing of a motion, CA Corps Code sections 800 & 17501 provide two circumstances where the posting of a security is necessary. The first is when there is no reasonable possibility that the causes of action alleged in Plaintiff’s complaint will benefit the company or its members. The second is when the non-company defendant did not participate in the transaction complained of in any capacity. This option can only be asserted by a defendant being sued in his individual capacity. If either of these requirements are met, the Court in its discretion will require the Plaintiff to post a bond or security in order to maintain its suit. This security can be up to $50,000. Now, The relief provided under these Corporations Code sections is only available in derivative actions. An action is derivative if the Plaintiff’s damages are merely incidental to the damages suffered by the company and its shareholders. An action is clearly derivative if it seeks to recover assets for the corporation, and not directly for the Plaintiff who is filing suit.
For more information on this topic, or if you have other business-related legal issues or disputes, call us today at 714.505.3000 or email us at firstname.lastname@example.org.
Getting Legal Help
Brown & Charbonneau, LLP represents individuals as well as large and small companies in cases involving all forms of business disputes, including fraud, breach of contract, breach of fiduciary duty, real estate, construction, employment and many other types of disputes. If you are involved in a business dispute, or would like to learn about your options, rights and how to protect them, we can provide you with the information you need. Contact us or call today at 714-505-3000 to schedule a consultation and learn more about how we can help you.
For the latest legal news, follow Brown & Charbonneau, LLP on Twitter and join us on Facebook, Instagram, and LinkedIn.
Brown & Charbonneau, LLP is a top-rated business litigation, corporate, real estate and family law firm in Irvine, California. We are honored to be named by Best’s Lawyers® as one of the Top Law Firms in the US. As an AV-rated law firm, we are proud of our 10.0 Superb Client Rating from Avvo. Our top-reviewed Southern California attorneys have also earned specializations from the State Bar of California, as Certified Trial Specialists and are included amongst the elite attorneys to be named Super Lawyers®. To see all our awards and ratings, click here.
Should you have any other issues involving any of the below areas of practice, please feel free to contact us.
- General Business & Corporate
- Business Litigation & Contract Disputes
- Civil Litigation
- Partnership & Shareholder Disputes
- Fraud Claims
- Breach of Fiduciary Duty Claims
- Real Estate & Construction Disputes
- Trade Secrets, Non-Competes & Unfair Competition
- Employment Disputes
- Personal Injury & Elder Abuse Cases
- Trial Specialist
- Family Law
Our website is full of valuable information and resources. Our goal is to provide as much information as possible to assist all our clients in making fully informed decisions. Just click any area of interest.