California  |  Business Law

Legal Question

Asked on: 5/08/08, 4:26 pm

Corporation Question

My husband is president of our small corporation and his siblings constitute the rest of the board. They want to terminate his salary as president. He works on the corporation dairy, handles all lease agreements, troubleshoots mechanical problems etc. Do the other share holders have the right to terminate his pay? They hold 58 shares and my husband 42.

4 Answers


Answered on: 5/08/08, 4:58 pm by Gregg Gittler

Re: Corporation Question

As the question appears, your siblings, the majority shareholders, want to terminate your husband's employment with the company. Does he have a written contract with the Company? If so, his employment is governed by the terms of that contract. Otherwise, he may be an at-will employee, whom the Board of Directors can terminate an officer. However, while they can stop your husband from getting paid, they can't make him work for free.


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GITTLER & BRADFORD 10537 Santa Monica Blvd., 3rd Fl. Los Angeles, CA 90025-4999

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Answered on: 5/08/08, 4:58 pm by Gregg Gittler

Re: Corporation Question

As the question appears, your siblings, the majority shareholders, want to terminate your husband's employment with the company. Does he have a written contract with the Company? If so, his employment is governed by the terms of that contract. Otherwise, he may be an at-will employee, whom the Board of Directors can terminate an officer. However, while they can stop your husband from getting paid, they can't make him work for free.


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GITTLER & BRADFORD 10537 Santa Monica Blvd., 3rd Fl. Los Angeles, CA 90025-4999

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Answered on: 5/08/08, 4:59 pm by Gregg Gittler

Re: Corporation Question

As the question appears, your siblings, the majority shareholders, want to terminate your husband's employment with the company. Does he have a written contract with the Company? If so, his employment is governed by the terms of that contract. Otherwise, he may be an at-will employee, whom the Board of Directors can terminate an officer. However, while they can stop your husband from getting paid, they can't make him work for free.


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GITTLER & BRADFORD 10537 Santa Monica Blvd., 3rd Fl. Los Angeles, CA 90025-4999

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Answered on: 5/08/08, 7:57 pm by Bryan Whipple

Re: Corporation Question

Ownership of shares isn't necessarily controlling, especially in the short run. Makeup of the board of directors is more significant. The directors run the company, subject to the bylaws, and can fire employees or reduce or eliminate their pay, even the president.

Of course, in exercising its power to fire or not pay an employee, the board might also breach an employment contract. Although it has the POWER to fire (subject to a possible contrary provision in the bylaws) that isn't necessarily the same as the RIGHT to fire.

Furthermore, it's possible the minimum wage provisions of state and federal law might kick in if he were expected to perform duties but not receive minimum pay.

As Mr. Gittler points out, the board can't force your husband to work for nothing; if they don't pay him, he doesn't have to work. He may face a difficult choice of letting everything go to ruin versus becoming a volunteer.

I'd say the family business is involved in a power struggle. This needs to be diagnosed and fixed or the business may be in big trouble fast.


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Bryan R. R. Whipple, Attorney at Law P O Box 318 Tomales, CA 94971-0318

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