(a) A person may not commence a proceeding in the right of a domestic or foreign corporation unless the person was a shareholder of the corporation when the transaction complained of occurred or unless the person became a shareholder through transfer by operation of law from one who was a shareholder at that time.
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Terms Used In Tennessee Code 48-17-401

  • board of directors: means the governing board of a corporation, whether denominated the board of directors or otherwise, except that no person or group of persons is the board of directors because of powers delegated to that person or group pursuant to §. See Tennessee Code 48-51-201
  • Class: when used with reference to membership interests, means a category of membership interests that differs in one (1) or more rights or preferences from another category of membership interests of the LLC. See Tennessee Code 48-202-101
  • Complaint: A written statement by the plaintiff stating the wrongs allegedly committed by the defendant.
  • Corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
  • Court: includes every court and judge having jurisdiction in the case. See Tennessee Code 48-202-101
  • Defendant: In a civil suit, the person complained against; in a criminal case, the person accused of the crime.
  • Interest: means either or both of the following rights under the organic law of an unincorporated entity:
    (A) The right to receive distributions from the entity either in the ordinary course or upon liquidation. See Tennessee Code 48-11-201
  • Litigation: A case, controversy, or lawsuit. Participants (plaintiffs and defendants) in lawsuits are called litigants.
  • Person: includes individual and entity. See Tennessee Code 48-202-101
  • Plaintiff: The person who files the complaint in a civil lawsuit.
  • Proceeding: includes civil suit and criminal, administrative, and investigatory action. See Tennessee Code 48-202-101
  • Settlement: Parties to a lawsuit resolve their difference without having a trial. Settlements often involve the payment of compensation by one party in satisfaction of the other party's claims.
  • Shareholder: means the person in whose name shares are registered in the records of a corporation or the beneficial owner of shares to the extent of the rights granted by a nominee certificate on file with a corporation. See Tennessee Code 48-11-201
  • Termination: means the end of an LLC's existence as a legal entity and occurs when the articles of termination are filed with the secretary of state under §. See Tennessee Code 48-202-101
(b) A complaint in a proceeding brought in the right of a corporation must be verified and allege with particularity the demand made, if any, to obtain action by the board of directors and either that the demand was refused or ignored or why the person did not make the demand. Whether or not a demand for action was made, if the corporation commences an investigation of the charges made in the demand or complaint, the court may stay any proceeding until the investigation is completed.
(c) A proceeding commenced under this section may not be discontinued or settled without the court’s approval. If the court determines that a proposed discontinuance or settlement will substantially affect the interest of the corporation’s shareholders or a class of shareholders, the court shall direct that notice be given the shareholders affected. If notice is so directed to be given, the court may determine which one (1) or more parties to the suit shall bear the expense of giving such notice, in such proportions as the court finds to be reasonable in the circumstances, and the amount of such expense shall be awarded as special costs of the suit and recoverable in the same manner as other taxable costs.
(d) On termination of the proceeding, the court may order:

(1) The corporation to pay the plaintiff‘s reasonable expenses, including counsel fees, incurred in the proceeding, if the court finds that the proceeding has resulted in a substantial benefit to the corporation;
(2) The plaintiff to pay any defendant‘s reasonable expenses, including counsel fees, incurred in defending the proceeding, if the court finds that the proceeding was commenced or maintained without reasonable cause or for an improper purpose; or
(3) A party to pay an opposing party’s reasonable expenses, including counsel fees, incurred because of the filing of a pleading, motion or other paper, if the court finds that the pleading, motion or other paper was not well grounded in fact, after reasonable inquiry, or warranted by existing law or a good faith argument for the extension, modification or reversal of existing law and was interposed for an improper purpose, such as to harass or cause unnecessary delay or needless increase in the cost of litigation.
(e) For purposes of this section, “shareholder” includes a beneficial owner whose shares are held in a voting trust or held by a nominee on the beneficial owner’s behalf.
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