What is the procedure for a shareholder to bring a derivative action?

Corporations are controlled by directors and officers. In an ideal world, those people would always act in the best interests of the corporation. Sometimes they don't. When the people running a corporation are causing harm to the corporation, sometimes it takes a hero to rescue the corporation. However, not everyone has the right to be a hero.

If Bob owns no stock in any corporation, he can't attempt to file derivative lawsuits when he hears about potential wrongdoing within an organization. In order to have the right to sue on behalf of a corporation, a shareholder must own at least 1 share not only at the time of the wrongdoing, but throughout the process of the lawsuit. In other words, if Bob notices a director of a corporation do something in breach of their duty, he can't then purchase a share and attempt to file a derivative suit (unless the harm is ongoing after he purchases his share). Likewise, if Bob is a shareholder of a corporation and decides to file a derivative lawsuit, he can't sell his share in the middle of the trial even if he's worried it may lose its value. The share that a shareholder owns is what gives them a legal right to have an interest in what the corporation is doing and whether or not it is being abused.

Owning a share isn't the only requirement for filing a derivative lawsuit. In addition to that, the shareholder must fairly and adequately represent the corporation's interests. In other words, if the shareholder and their attorney are just being jerks and filing suits to harass the company, or if they are using the lawsuit as a way to somehow gain personally, then they do not satisfy this element.

The final element is that before the shareholder files the lawsuit, they must first give the corporation a chance to bring a lawsuit itself. How do they do this? They provide the directors of the corporation with a written demand letter that outlines what is going on and why the corporation should stand up for itself and sue the people causing it harm. Once they've done this, they generally have to give the corporation 90 days to decide whether or not it wants to do anything about the demand. Only after 90 days have passed can the shareholder take it upon themselves to be the corporation's hero and swoop in to save it from its directors and officers.

Note that I said the 90 day wait is generally required. It isn't always required. A shareholder doesn't need to wait 90 days if it is arguably futile. For example, if a corporation's directors are committing blatant fraud against the corporation, then what good would it do to write a letter that asks the directors to sue themselves? They'd likely ignore it. Because of that, in these circumstances where it would be a waste of time to wait 90 days, the law excuses the 90 day requirement.