A. Derivative Action Flowchart
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
IS SUIT DIRECT OR DERIVATIVE? DIRECT S/H Suit Allowed DERIVATIVE
(MCBA §7.42)
(Delaware/NY)
Did Board Find Suit NOT in Corp’s Best Interest? Yes No
IS DEMAND FUTILE?
DelawareTest (Aronson) Reasonable Doubt That: 1. Maj. Of Board is Independent; or NY Test (Marx) Π Shows That: 1. Maj. Of Board has a direct interest in the challenged trans; or is controlled by an interested party; or 2. Directors failed to reasonably inform themselves; or 3. Challenged transaction so egregious that it could not have been of sound business judgment.
S/H Suit Allowed
2. BJR applies; or 3. Carelessness & Waste
Was Decision Based on Good Faith or Reasonable Investigation? Burden on S/H Only if Majority of Board is Independent or Court Appointed. Yes No
Yes
No
Demand Excused; S/H Suit Allowed; Corp. May Use SLC’s to Get Court To Dismiss
Demand NOT Excused Demand Made? Yes No
S/H Suit Dismissed
S/H Suit Allowed
Demand Refused?
Wrongful Refusal? (Apply BJR To Decision)
Yes
S/H Suit Dismissed or Stayed Until Demand Made No
Yes
No Board Takes Control of S/H Suit.
S/H Suit Allowed
S/H Suit Dismissed
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net
DERIVATIVE ACTION HURDLE #2: DEMAND REQUIREMENTS
Universal Demand
Non-Universal Demand
More Free Outlines: http://c.finamore.home.comcast.net or http://finamore.net