A Derivative Action is the right of a shareholder (partner) to file a lawsuit on behalf of the company against a director or other manager when the company itself (controlled by that director) refuses to do so. This is a powerful mechanism for protecting minority rights. If a director steals money, harms the company, or breaks the law, they will not sue themselves. This is where the derivative action comes in — the partner "steps into the company's shoes" and demands compensation for the company. In Georgia, this institution is relatively new but significantly strengthened by the new "Law on Entrepreneurs." Legal.ge offers lawyers specializing in derivative disputes who know how to protect your investment from dishonest management.
What Does Derivative Action Service Cover?
This service involves complex procedural actions on behalf of the shareholder. Services include:
- Sending Pre-Suit Demand: The law requires the partner to first ask the company to sue. The lawyer prepares this formal demand.
- Filing the Lawsuit: If the company refuses or remains silent, filing a suit in court on behalf of the company.
- Appointing Special Representative: Requesting that the company be represented by an independent person, not the accused director.
- Damages Recovery: Demanding that the director reimburse losses or return misappropriated property to the company's account.
- Cost Reimbursement: If the suit is successful, the company is obliged to reimburse the partner's legal costs.
Real-World Scenarios Where You Need a Lawyer
For example, you own a 10% share in a company. The director (who owns 90%) sold the company's expensive property to their child at one-tenth of the market price. The company obviously won't sue the director. You, as a 10% partner, file a derivative lawsuit demanding invalidation of the transaction and damages. The recovered money returns to the company, thereby restoring the value of your share.
Georgian Legal Framework
Derivative actions are regulated by the "Law of Georgia on Entrepreneurs." According to the law, any partner has the right to file a lawsuit, regardless of share size (previously there was a threshold). The procedure is two-stage: first, you must apply to the company, and only after refusal or ignorance — to the court. If the court deems the lawsuit to be in good faith, it admits it. Upon success, the company must cover the litigation costs.
The Process Step-by-Step
1. Fact Analysis: Identifying the breach. 2. Company Demand: Written request to sue (30-day period). 3. Refusal: If the company doesn't answer or refuses. 4. Lawsuit: Filing in court. 5. Proceedings: Litigating against the director on behalf of the company.
Why Choose a Specialist on Legal.ge?
Derivative actions are technically complex because the plaintiff acts not for themselves but for the company. Strict adherence to procedures is needed for the court to admit the claim. On Legal.ge, you will find lawyers experienced in using this rare but effective tool.
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