What defines a derivative action?

A derivative action is a legal claim brought by a shareholder on behalf of the company to enforce a right that the company itself has failed to enforce. This action is typically taken when the company's management or board of directors do not act in the best interests of the company, often due to conflicts of interest or mismanagement. The key aspect of a derivative action is that it is not the shareholder's personal claim against the company, but rather a lawsuit intended to benefit the company as a whole.

When a shareholder files a derivative action, it is on behalf of all shareholders and seeks remedies that would ultimately benefit the company, such as damages for corporate wrongs or enforcing corporate governance. This highlights the shareholder's role in holding the company's management accountable.

The other options do not accurately represent the essence of a derivative action. For instance, initiating actions to distribute profits does not encapsulate the concept of a derivative lawsuit, which is more about governance and accountability than profit distribution. Claims made against a competitor relate to competitive practices and do not involve the company's internal management. Lastly, actions filed by a company against its own shareholders represent a different legal scenario unrelated to derivative actions, which focus solely on the company's interests pursued by a shareholder's initiative.