Pennsylvania Consolidated & Unconsolidated Statutes
Chapter 17 - Officers, Directors and Shareholders
Section 1781 - Derivative action

(a) General rule.--Subject to section 1782 (relating to eligible shareholder plaintiffs and security for costs) and subsections (b) and (g), a plaintiff may maintain a derivative action to enforce a right of a business corporation only if:
(1) the plaintiff first makes a demand on the corporation or the board of directors requesting that the corporation bring an action to enforce the right, and:
(i) if a special litigation committee is not appointed under section 1783 (relating to special litigation committee), the board determines that:
(A) an action based on some or all of the claims asserted in the demand not be brought by the corporation but that the corporation not object to an action being brought by the party that made the demand; or
(B) an action already commenced continue under the control of the plaintiff; or
(ii) if a special litigation committee is appointed under section 1783, a determination is made:
(A) under section 1783(e)(1) that the corporation not object to the action; or
(B) under section 1783(e)(5)(i) that the plaintiff continue the action;
(2) demand is excused under subsection (b);
(3) the action is maintained for the limited purpose of seeking court review under section 1783(f); or
(4) the court has allowed the action to continue under the control of the plaintiff under section 1783(f)(3)(ii).
(b) Prior demand excused.--
(1) A demand under subsection (a)(1) is excused only if the plaintiff makes a specific showing that immediate and irreparable harm to the business corporation would otherwise result.
(2) If demand is excused under paragraph (1), demand shall be made promptly upon commencement of the action.
(c) Contents of demand.--A demand under this section must be in record form and give notice with reasonable specificity of:
(1) the material facts relied upon to support each of the claims made in the demand against each proposed defendant; and
(2) in the case of a derivative action commenced by a shareholder, the basis on which the person making the demand has standing under section 1782.
(d) Additional claims.--If a derivative action is commenced after a demand has been made under this section and includes a claim that was not fairly subsumed under the demand, a new demand must be made with respect to that claim. The new demand shall not relate back to the date of the original demand for purposes of subsection (e).
(e) Statute of limitations.--The making of a demand tolls any applicable statute of limitations with respect to a claim asserted in the demand until the earlier of the date:
(1) the plaintiff making the demand is notified either:
(i) that the board of directors has decided not to bring an action and not to appoint a special litigation committee; or
(ii) of a determination under section 1783(e) after the appointment of a special litigation committee under section 1783; or
(2) the plaintiff commences an action asserting the claim.
(f) Certain provisions of articles ineffective.--This section may not be relaxed by any provision of the articles.
(g) Exception.--This subchapter does not apply to an action brought by a holder of an equity security of a business corporation under Subchapter H of Chapter 25 (relating to disgorgement by certain controlling shareholders following attempts to acquire control).
(Nov. 21, 2016, P.L.1328, No.170, eff. 90 days; Nov. 3, 2022, P.L.1791, No.122, eff. 60 days)

2022 Amendment. Act 122 amended subsecs. (a) and (c) and added subsec. (g).

Structure Pennsylvania Consolidated & Unconsolidated Statutes