Chapter 21: Direct and derivative shareholder suits: towards a functional and practical taxonomy
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Shareholder litigation is an indispensable part of corporate law and governance. There is no shortage of excellent legal scholarship on various aspects of shareholder litigation from a comparative and functional perspective. Well-executed scholarly writing on comparative shareholder litigation can be informative and even enlightening for students and scholars of comparative corporate law. The goal of this chapter is to offer a taxonomy of shareholder litigation mechanisms informed by considerations relevant to a minority shareholder’s decision whether and how to proceed with a lawsuit. The central questions animating the chapter are: What substantive outcomes are possible for a minority shareholder litigant, and which of these can each mechanism be used to achieve? To do so, we draw on Anglo-Commonwealth examples (including from Asia), as well as the United States (Delaware and the Model Business Corporation Act), Japan, and Germany. This chapter focuses exclusively on mechanisms of ‘private’ enforcement/civil litigation by shareholder litigants, and begins by setting out four key considerations relevant to litigators, namely (1) type of company; (2) length and cost of litigation; (3) legal relief (i.e. the outcome of a successful suit; and (4) funding. The core of this chapter is a novel framework that classifies direct shareholder litigation mechanisms functionally into five categories, with a primary distinction being whether the outcome the mechanism leads to is a monetary or non-monetary one. A given legal mechanism in a jurisdiction may, according to the framework in this chapter, fall simultaneously into multiple categories. This is followed by an overview of derivative litigation mechanisms that draws attention to the differing procedural and substantive hurdles involved for the shareholder litigant. The chapter ends with two observations on opportunities for future comparative research on direct and derivative litigation.

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