The court next addressed whether Webre, a shareholder of the parent corporation, could bring a derivative suit on behalf of the wholly owned subsidiary. The court noted that “[i]n a ‘double derivative’ action, the shareholder is effectively maintaining the derivative action on behalf of the subsidiary, based upon the fact that the parent or holding company has derivative rights to the cause of action by the subsidiary.” Webre argued that his status as a shareholder of USC’s only shareholder provided him with a beneficial or equitable ownership interest in USC.
Indeed, under the applicable statute, ““shareholder” includes a beneficial owner whose shares are held in a voting trust or by a nominee on the beneficial owner’s behalf.” Thus, the court reasoned, in the closely held corporation context, the definition of a shareholder does not exclude those with a beneficial or equitable interest in a subsidiary and the derivative plaintiff is not required to be a shareholder of the corporation he is bringing suit on behalf of. In doing so, the court recognized that, were it to hold otherwise, the directors of a closely held corporation could simply create a wholly owned subsidiary to circumvent the legislature’s intent to make it easier for shareholders to assert derivative proceedings on behalf of closely held corporations. Accordingly, the court held that Texas law recognizes the availability of double-derivative action for shareholders of a closely held parent corporation to assert claims on behalf of a wholly owned subsidiary, as Webre did here.
This post was a part of a multi-post blog series on Texas double-derivative shareholder suit in the context of a closely held corporation. You can find the other posts by searching our blogs. If you have any questions about the content of this blog or other issues not discussed here, please contact us.
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About the Author
Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; firstname.lastname@example.org, or www.mcbrideattorneys.com.
 Id. at 30–31.
 Id. at 31.
 Tex. Bus. Corp. Act § 5.14(A)(2) (emphasis in original).
 Sneed v. Webre, supra n.1, at 35.
 Id. at 35–36.
 Id. at 37.