Modern Counsel for Growing Companies
In plain English
A direct claim addresses an injury to the claimant personally. A derivative claim is brought on behalf of a company for an injury belonging to that company, with recovery generally belonging to it. The distinction affects who may sue, the required procedures, and who receives the recovery.
Types and key distinctions
Direct Action
A claim asserted to remedy an injury to the claimant personally, rather than an injury belonging only to the company. An owner may have direct contractual or other rights even when related conduct also harms the entity. The distinction affects standing, available procedures, and who receives a recovery.
Derivative Action
A claim brought by an owner on behalf of a company to address an injury belonging to the company. Recovery generally belongs to the company rather than automatically to the suing owner. Standing, demand requirements, and other procedures depend on the entity, governing law, and any applicable closely held-company provisions.