Corporations can sue only by and through the authority of its board of directors. The stockholders, who are the owners, by law and necessity, are deemed to have turned over the complete management of the enterprise to their representatives who are called directors. If these directors, by default, unwillingness or breach of loyalty, do not take any action to protect the corporation from ultra vires or injurious acts, a stockholder, as an exception, can initiate legal action under the principle of derivative suits.
A derivative suit is defined as one brought by one or more stockholders in the name and on behalf of the corporation to redress wrongs committed against it whenever its officials refuse to sue, or are the ones to be sued, or hold control of the corporation (De Leon, The Corporation Code, p. 577). In cases of mismanagement where the wrongful acts are committed by the directors themselves, a stockholder may find that he has no redress because the former are vested by law with the right to decide whether or not the corporation should sue, and they will never be willing to sue themselves. The corporation would then be helpless to seek remedy. Common law thus recognized the right of a stockholder to sue through what is now known as a derivative suit (Herbosa&Recalde, The Revised Corporation Code, p. 263).