Special Litigation Committees

Summary

This practice note discusses the use of a special litigation committee (SLC) to investigate shareholder derivative claims under Delaware corporate law. Shareholder derivative claims are actions brought by a shareholder on behalf of the corporation itself. When a shareholder brings a derivative action, the board of directors must determine if such a suit is in the best interest of the corporation. A board may delegate this task to an SLC made up of disinterested, independent directors, who conduct a thorough investigation of the shareholder's claims, typically with the aid of outside counsel. Forming an SLC can be a valuable tool for a board to maintain or regain control of the derivative suit from the shareholder. When advising a board of directors in response to a shareholder demand or the filing of a derivative litigation, you should understand the qualifications for serving on an SLC and requirements for conducting an investigation in order to withstand judicial review.