Wiles and three other individuals formed a corporation to operate a nursing home

Question

Wiles and three other individuals formed a corporation to operate a nursing home many years ago. The four corporate shareholders were also elected directors, and they served as employees of the close corporation. Plaintiff had a quarrel with one of the other directors after years of successful operation. As a result, the other board members canceled plaintiff’s salary, refused to reelect him as director, and stopped paying dividends in an attempt to freeze him out. He sued for damages on the ground that the majority had breached the fiduciary duty owed to him. Is plaintiff’s argument correct? Why?

Explanation / Answer

Yes, because a quarell can't justify the salary stopping, dividend pay and re-election as director. In order to perform all these actions there should be some legitimate proof related to non-performance as per expectations, or not complying with company norms and then a majority vote should be taken. Refusal to re-elect is something that the board members can decide, but stopping salary and dividends is not legal untill and unless you have an illegal case or compliance issue against him (which is not the case here)

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