In a shareholder derivative action, when might the recovery go to the shareholder rather than the corporation?

In a shareholder derivative action, when might the recovery go to the shareholder rather than the corporation?

• A. The recovery goes to the shareholder if the wrongdoer enriched themselves at the expense of the corporation
• B. The corporation always receives the recovery
• C. The shareholder always receives the recovery
• D. The recovery is paid to the court

Answer: (A)

In a shareholder derivative action, the harmed party is the corporation, so the usual result is that any recovery goes to the corporation to restore the company to its proper position. The exception to this rule occurs only in a narrow situation: if the defendant personally enriched themselves through the wrongdoing at the corporation’s expense, the court may allow the shareholder to obtain the recovery as a disgorgement of those personal profits. This makes sense because the personal gain came directly from the corporate wrongdoing, so allowing the wrongdoer to keep that enrichment would unjustly reward the individual rather than address the corporate harm. So, the idea is that the shareholder can receive the recovery only when the specific misconduct produced a personal benefit for the wrongdoer at the corporation’s expense; in all other cases, the recovery stays with the corporation.

In a shareholder derivative action, the harmed party is the corporation, so the usual result is that any recovery goes to the corporation to restore the company to its proper position. The exception to this rule occurs only in a narrow situation: if the defendant personally enriched themselves through the wrongdoing at the corporation’s expense, the court may allow the shareholder to obtain the recovery as a disgorgement of those personal profits. This makes sense because the personal gain came directly from the corporate wrongdoing, so allowing the wrongdoer to keep that enrichment would unjustly reward the individual rather than address the corporate harm.

So, the idea is that the shareholder can receive the recovery only when the specific misconduct produced a personal benefit for the wrongdoer at the corporation’s expense; in all other cases, the recovery stays with the corporation.