Business and Commercial Litigation
Business Disputes
A direct claim alleges injury to the shareholder personally, while a derivative claim alleges injury to the corporation with shareholder harm flowing from it. Delaware's Tooley test asks who suffered the harm and who would receive the recovery.
Characterization determines procedural requirements.
Alternative Names:
Direct or Derivative|Claim Characterization
Why it Matters?
Characterization as derivative imposes demand requirements, standing rules, and special litigation committee exposure that direct claims avoid entirely, which is why plaintiffs plead claims as direct and defendants move to recharacterize. Dilution claims are the recurring battleground, since dilution harms the corporation through undervalued issuance while also reducing the individual's proportionate stake. Getting the characterization right at the pleading stage frequently disposes of the case.
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Frequently asked questions
Why does characterization matter?
What is the recurring battleground?
