What is the procedure for a shareholder to bring a derivative action on behalf of an Ontario corporation?

The process starts before any lawsuit is filed: the shareholder must give the corporation's directors reasonable notice of their intention to apply to court for leave to bring the derivative action, giving the board an opportunity to address the complaint itself, for example by having the corporation pursue the claim directly, before an outside shareholder steps in. If the directors do not act, the shareholder then applies to court for leave and must satisfy the court that they gave that notice, are acting in good faith, and that the proposed action appears to be in the corporation's interest.

If leave is granted, the court can also give directions about how the action is to proceed, including who controls the litigation and how legal costs are handled, since the litigation is technically being pursued in the corporation's name and for its benefit. Any recovery from a successful derivative action generally belongs to the corporation itself rather than to the shareholder personally, though a court can order the corporation to cover the shareholder's reasonable legal costs given they are effectively litigating on the company's behalf. Because this is a multi-stage, court-supervised process, shareholders considering it should expect legal costs and delay even before the substantive dispute is heard.