Shareholder Derivative Claims in Closely Held Corporations in Illinois

Under the Illinois Business Corporation Act (BCA), derivative claims may be brought by shareholders of closely held corporations. A derivative claim is a legal action brought by a shareholder on behalf of the corporation against a third party, such as a director or officer, for harm caused to the corporation.

In Illinois, a closely held corporation is defined as a corporation with fewer than 35 shareholders. Shareholders of closely held corporations may bring derivative claims on behalf of the corporation if certain requirements are met. These requirements include:

• The shareholder must have been a shareholder at the time of the transaction or event giving rise to the claim or must have become a shareholder through transfer by operation of law from someone who was a shareholder at that time.
• The shareholder must make a written demand on the corporation to take action, and the corporation must have refused or failed to take action within 90 days of the demand. In certain instances a demand is not needed under the futility doctrine,
• The shareholder must adequately represent the interests of the corporation and its shareholders in bringing the claim.
• The derivative claim must be brought in good faith and with reasonable investigation.

If these requirements are met, a shareholder of a closely held corporation may bring a derivative claim on behalf of the corporation. It is important to note that the shareholder does not bring the claim in his or her own name, but rather on behalf of the corporation. Any recovery obtained in the derivative action belongs to the corporation, not the shareholder bringing the claim.

Our Chicago shareholders' rights attorneys have extensive experience litigating derivative claims under the BCA in situations involving oppression and breach of fiduciary or failure to pay adequate distributions. Call us for a free consultation at 630-333-0333.