Law Commons^™

Direct Vs. Derivative, Or "What's A Lawsuit Between Friends In An 'Incorporated Partnership'?", Daniel S. Kleinberger

Faculty Scholarship

In any context the distinction between direct and derivative claims carries significant consequences. The procedural requirements are different, as are the available remedies. In addition, the remedies benefit different parties. A successful derivative claim typically enriches the corporate treasury, while a successful direct claim typically puts money directly in the hands of the shareholder claimant. Moreover, derivative defendants can shelter behind several powerful bulwarks-including special litigation committees and the business judgment rule-that are unavailable to direct defendants.

Under the 'internal affairs' doctrine, Minnesota law governs the direct/derivative issue for all Minnesota corporations. Current Minnesota law provides inadequate guidance when the …