The Difference Between Derivative and Personal Lawsuits
In Eting v. Spector the Tel Aviv District Court defined the difference between a derivative lawsuit filed by director or shareholder and personal action filed by a shareholder.
In general the court noted that the classification of the lawsuit depends on the entity whose rights have been infringed. When the interests of the company were damaged by the defendant but the company’s officers decline to take action (for example if the defendants are the officers of the company) a shareholder can file a derivative lawsuit on behalf of the company. On the other hand, when the cause of action relates to a right of a shareholder then the lawsuit is filed on behalf of such shareholder.
In Eting the plaintiff, a minority shareholder, claimed that the husband of the controlling shareholder, who acted as CEO of the company, bilked the company by receiving excessive salary and benefits. Honorable Judge Gerstel presiding over the case held that although plaintiff’s claims relate to some extent to the company’s rights to reimbursement, the fact that the defendants’ alleged actions caused the company to distribute lower dividends to its shareholders, thus causing plaintiff a personal loss, and giving place to a personal cause of action.
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