Limited Liability Company Derivative Actions

Derivative lawsuits generally refer to claims made relating to the mismanagement of a corporation or limited liability company. It is brought by a shareholder, as the corporation’s representative. Nickell v. Shanahan, 439 S.W.3d 223, 227 (Mo. 2014). The shareholder is only a nominal plaintiff, and the corporation or limited liability company is the real party in interest. Id.

When must a suit be brought derivatively? Generally, a derivative action is necessary when the directors, officers, or managers have breached their fiduciary duty, which results in an injury to the shareholders or owners as a whole. Id. The injury is to the owners collectively, not the individual owners. In contrast, a direction action by an owner is permitted if the injury is to a particular owner only, not the corporation. Id.

There are procedural pre-requisites to bringing a derivative action. For example, with a LLC, a member/owner must (1) be unable to bring suit under the provisions of the operating agreement and (2) make a demand on the authorized persons in the LLC to take corrective action. Suit can generally proceed thereafter if the authorized persons in the LLC refuse the demand or fail to respond.

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