What is the legal term for a lawsuit brought by shareholders on behalf of a corporation?

What is the legal term for a lawsuit brought by shareholders on behalf of a corporation? The answer is a derivative suit.

The corporation—not the individual shareholder—owns the underlying legal claim. A shareholder uses this procedure when directors or officers allegedly harmed the company but the corporation’s management refuses or is unable to sue. Any judgment or settlement normally goes to the corporation, although the successful shareholder may sometimes recover reasonable litigation expenses.

Derivative litigation developed from the common-law principle that the corporation is a separate legal person whose board controls its lawsuits. The English case Foss v. Harbottle, decided in 1843, strongly influenced modern rules governing shareholder actions. In U.S. federal court, Federal Rule of Civil Procedure 23.1 generally requires the complaint to explain what demand the shareholder made on the board—or why demand should be excused.

A common mix-up is a direct suit. In a direct action, the shareholder seeks a remedy for a personal injury, such as denial of voting rights. In a derivative suit, the alleged injury belongs to the corporation and the shareholder acts as its representative.