Business Litigation

THE CAPACITY OF A CORPORATION to sue and be sued derives from the rule that a corporation has all of the powers of a natural person in carrying out its business. A de facto corporation also is entitled to sue and be sued unless dissolved in a government proceeding.

On the other hand, a foreign corporation can commence an action but cannot maintain and action or proceeding relating to its business in California unless it is in compliance with specified qualification requirements. However, a foreign corporation’s capacity to be a defendant and to defend is unaffected by its failure to comply with qualification requirements.

While a shareholder can bring a lawsuit against a corporation for injuries to the shareholder, a derivative action is a different type of lawsuit that is brought by one or more shareholders of a corporation seeking to recover for the benefit of the corporation and its entire body of shareholders. The action is brought when injury is caused to the corporation that is not otherwise redressable because of the corporation’s failure to pursue the claim. The corporate management owes a duty to the shareholders to take proper steps to enforce all claims that the corporation may have. Management owes a fiduciary duty to the shareholders, and when management fails to perform this duty, the shareholders have a right to do so by instituting a derivative suite.

CONCLUSION

The two types of lawsuits discussed above offer protections to the shareholder. If a shareholder believes he has been personally harmed by the action of the corporation, he or she can bring an action against the corporation. On the other hand, if a shareholder feels that the corporation has been harmed, he is entitled to bring a derivative action on behalf of the corporation. These kind of actions tend to be complex and the advice of a qualified corporate/business lawyer is strongly advised.