High School

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Before a derivative lawsuit can be filed, which of the following must occur?

A. The chairman of the board of directors must resign.
B. Directors are allowed time to take corrective action.
C. The articles of incorporation must be amended.
D. The bylaws must be amended.

Answer :

Answer:

Before a derivative lawsuit can be filed, directors are allowed time to take corrective action.

In a derivative lawsuit, shareholders file a lawsuit on behalf of a corporation against directors or officers for breaching their fiduciary duties. However, before shareholders can take legal action, they are generally required to give the corporation's directors an opportunity to address the issue and take corrective action.

This process is known as the demand requirement or demand futility. It ensures that the directors have an opportunity to address any alleged wrongdoing and potentially rectify the situation without the need for litigation. By allowing directors time to take corrective action, it aims to protect the interests of the corporation and its shareholders.

Therefore, among the given options, the requirement for directors to be allowed time to take corrective action is the correct one. The other options, such as the chairman of the board of directors resigning, amending the articles of incorporation, or amending the bylaws, are not necessary prerequisites for filing a derivative lawsuit.

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