To make a written demand on the board in a derivative suit, a shareholder sends the corporation a certified letter that identifies the wrongful conduct, names the directors or officers responsible, documents the harm, and asks the board to pursue the claim on the corporation’s behalf — but before writing anything, you need to investigate the facts and confirm whether your state even allows you to skip the demand. The letter is the formal step, but the decisions around it are what determine whether your case survives.
Why the Demand Exists
A corporation is a legal person, and its board of directors decides whether that person sues anyone. A derivative suit lets a shareholder step into the corporation’s shoes to pursue a claim the board itself should have brought, usually against insiders. The demand requirement forces you to give the board the first chance to act. Courts use it to protect the business judgment rule, filter out harassing suits, and preserve the board’s authority over corporate litigation. Skip the step or handle it carelessly, and the suit gets dismissed.
Confirm Which Framework Your State Follows
This decision comes before drafting. Roughly half of all states follow the Model Business Corporation Act’s universal demand rule: a written demand is mandatory in every derivative case, with no exceptions, and you must wait at least 90 days for a response before filing suit. The board’s independence or conflicts are irrelevant to whether you have to ask.
The other states, including the jurisdiction where most large corporations are incorporated, let a shareholder skip the demand by pleading demand futility — showing that asking the board would be pointless because its members cannot evaluate the request impartially. The choice between demanding and pleading futility is the single most consequential strategic call in derivative litigation, and the sections below explain why.
Build the Factual Record First
A demand built on suspicion fails. Federal Rule of Civil Procedure 23.1 requires that any derivative complaint describe “with particularity” the shareholder’s efforts to get the board to act.1Cornell Law Institute. Federal Rules of Civil Procedure Rule 23.1 – Derivative Actions That particularity has to come from somewhere, and the main source is a books-and-records inspection.
Most states give shareholders a statutory right to inspect corporate records for a proper purpose, and investigating suspected mismanagement qualifies. You submit a written request describing the records you want and why. The evidentiary bar is low: courts have described it as the lowest possible burden of proof — a credible basis for suspecting wrongdoing. If the corporation refuses or ignores the request, you can ask a court to compel inspection.
What you can typically obtain includes board meeting minutes, materials the directors received in connection with the challenged decision, financial statements, and director independence questionnaires. These documents tell you whether directors had conflicts, whether the board actually deliberated, how much the corporation lost, and which directors are compromised. That last point is what makes the inspection critical to the demand-versus-futility decision: director questionnaires and board materials often contain the specific details needed to show which directors cannot impartially consider a demand.
What the Demand Letter Must Say
The letter is the “effort” your complaint will later have to describe with particularity, so vague language works against you. A demand that lacks specifics gives the board an easy reason to reject it and gives a court an easy reason to dismiss the resulting suit.
At minimum, the letter should cover:
- The specific wrongful conduct, whether it is self-dealing, breach of the duty of loyalty, waste of corporate assets, or some other harm.
- The names of the directors or officers involved.
- Dates and a timeline showing when the conduct happened and when you discovered it.
- The financial harm to the corporation, quantified as precisely as the evidence allows: dollar amounts, lost contracts, settlement payments, regulatory fines, declining asset values.
- Proof that you owned stock at the time of the alleged misconduct. This contemporaneous ownership requirement is embedded in Rule 23.1, and many courts also require you to maintain ownership throughout the litigation. Document your current ownership too.1Cornell Law Institute. Federal Rules of Civil Procedure Rule 23.1 – Derivative Actions
- A specific request for relief. Tell the board exactly what you want it to do: file suit against the responsible individuals, seek restitution, pursue disgorgement of profits, remove compromised officers, change governance practices. Asking for “appropriate action” lets the board do nothing meaningful and claim it responded.
Delivering the Letter
Send the letter by certified mail with return receipt requested to the corporate secretary or board chair at the corporation’s registered headquarters. The signed receipt fixes the exact date of delivery, which starts the response clock. In universal-demand states, the board generally has 90 days from receipt before you can file suit.
If the corporation has a registered agent for service of process, that is another reliable address. Some shareholders send to both the registered agent and the corporate secretary to foreclose any argument about defective delivery. Keep the letter, the mailing receipt, and the return receipt. You will need to prove to a court exactly when and how the demand arrived.
The Hidden Cost of Making a Demand
In demand-futility states, sending the letter can quietly destroy your best legal argument. Courts have held that a shareholder who makes a demand concedes, by the act of asking, that the board is capable of evaluating the request independently and in good faith. You cannot turn around later and claim the board was too conflicted to consider it fairly.
That concession matters because the two paths lead to different standards. Pleading futility only requires raising a reasonable doubt about board independence. Challenging a rejected demand requires proving the rejection was made in bad faith or was grossly negligent — a far harder burden. A shareholder who demands when futility was available has traded the easier argument for the harder one.
This is where the pre-demand investigation earns its keep. If the records show that a majority of directors had personal financial interests in the challenged transaction or close ties to the people who benefited, futility is likely the stronger route. If the board looks mostly independent, demand is safer and often required. The three-part test courts use asks, director by director, whether the director received a material personal benefit from the alleged misconduct, faces a substantial likelihood of liability, or lacks independence from someone who did. If the answer is yes for at least half of the directors who would consider the demand, futility is established.1Cornell Law Institute. Federal Rules of Civil Procedure Rule 23.1 – Derivative Actions Conclusory allegations about conflicts will not carry the argument; you need particularized facts about each director’s financial interests, business relationships, and connections to the alleged wrongdoers.
Get this call wrong and the case may be over before it begins.
What the Board Does With Your Demand
Once the letter arrives, directors named in it or involved in the challenged transaction typically recuse themselves. Boards often appoint a Special Litigation Committee of uninvolved directors to investigate, usually with outside counsel and sometimes forensic accountants. The investigation can run for months. Discovery in any pending derivative case is often paused while the committee works, and the shareholder has little role during this period.
At the end, one of three things happens:
- The board adopts the demand and the corporation takes over the litigation. This is rare. When it happens, the corporation’s lawyers run the case and the shareholder’s active role ends.
- The board rejects the demand, concluding that litigation is not in the corporation’s best interest. The rejection is protected by the business judgment rule. You can only challenge it by showing the investigation was grossly negligent or the rejection was made in bad faith.
- The board does nothing. Silence within the response window — typically 90 days — functions as an implicit rejection and lets you file suit.
Overcoming a rejection is an uphill fight. You have to plead specific facts showing the decision-making process itself was fundamentally flawed, not just that you disagree with the result. Courts rarely second-guess a board that conducted a basic investigation and articulated a rational basis for declining to sue.
Don’t File a Demand You Can’t Support
Federal Rule of Civil Procedure 11 requires anyone who signs a court filing to certify that the claims have evidentiary support and are not being brought to harass or delay. A derivative complaint that fabricates board conflicts to plead futility, or alleges corporate harm with no supporting evidence, violates that obligation. Courts can impose sanctions, including orders to pay the opposing side’s attorney fees. The rule gives a 21-day safe harbor to withdraw a challenged filing before sanctions attach,2Legal Information Institute (Cornell Law School). Rule 11 – Signing Pleadings, Motions, and Other Papers; Representations to the Court; Sanctions but pushing forward on claims you never properly investigated means paying for the corporation’s defense on top of losing.
One last thing worth knowing before you commit: any recovery from a derivative suit goes to the corporation, not to you. You benefit only indirectly, through the increased value of your shares. The claim belongs to the corporation, and you are standing in its shoes. That structure is a feature of derivative litigation, and it is a large part of why the demand process — the investigation, the drafting, the strategic call about futility — deserves the care it does. The payoff is improvement in the company you own, not a check in your name.