Signed into law in 1968, New Jersey’s statute governing shareholder derivative actions remained virtually unchanged for more than 40 years. As corporate structures and governance mechanisms evolved, New Jersey’s laws did not keep pace, and the consequences were severe. In April 2013, New Jersey’s legislators finalized amendments to the state’s corporate statutes to restrict unfounded shareholder derivative actions. The much-needed amendments align New Jersey with surrounding jurisdictions, and should clear the courts of certain frivolous suits, streamline operations for existing companies and render the state fertile ground for emerging businesses.
Commencing a Derivative Action -
A shareholder derivative action allows a shareholder to bring a lawsuit against a corporation in order to stop or remedy a perceived wrong by the corporation. The action allows a shareholder to protect the interests of the corporation and compels the wrongdoer to compensate the corporation for any injury caused. While protecting these essential rights of shareholders to identify and address wrongdoing, New Jersey’s former statutes left corporations susceptible to frivolous litigation initiated by opportunistic shareholders.
Originally published in New Jersey Lawyer Magazine - April 2014.
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