Which of the following describes a futility criterion for demand?

• A. Majority of board is interested
• B. The board conducts a full independent investigation
• C. The shareholder has not demanded
• D. There is a non-binding committee

Answer: (A)

Demand futility occurs when the directors who would decide whether to sue are not able to act with independent judgment because they have a personal stake in the outcome. If a majority of the board is interested, their ability to impartially evaluate the derivative claim is compromised, so a shareholder can sue without making a demand. The idea is that no fair decision can be expected from a board dominated by conflicted directors.

The other scenarios don’t describe futility: an independent board investigation suggests the board can review the claim impartially, supporting a valid demand; not making a demand is a procedural issue, not the indicator of futility; and a non-binding committee does not by itself cure conflicts or create true independence.