Before one can turn to the derivative lawsuit as a solution for a foreign action, one must research how these suits are used in that jurisdiction’s codes. First, one must obtain a foreign language translation of the code and legal translation of the relevant legal documents to see if derivative lawsuits are allowable and, if so, what mechanisms are available, if any, to make this a feasible solution.
Once one understands the role derivative lawsuits play in foreign jurisdictions, the next step is to understand how they work within the cultural context of a jurisdiction’s legal code. In most jurisdictions, the purpose of derivative lawsuits is to promote corporate governance. In order to develop economically, countries must protect modern corporations by creating a fair environment open to competition. When shareholders are confident that their interests will be protected, they are more likely to invest in a corporation. As foreign investment is an important factor in any nation’s economic development, derivative lawsuits have gained a favorable reputation.
Although many nations share this same purpose, the manner in which derivative lawsuits are used may differ. For example, many European nations have made derivative lawsuits available to aggrieved shareholders but vary the utilization of them. Take, for instance, Italy, where the corporate code was altered to allow for derivative lawsuits but where no steps have been taken to encourage their use. Japan, on the other hand, changed its corporate code in 1993 to include both derivative lawsuits and the mechanisms needed to take advantage of them. The result was a 10,000 percent increase in filings.
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