This section contains the nature of the case and procedural background.

Miller (P) and Law (D) incorporated Magline. Law (D) has served as president to the present, but Miller (P) is no longer a corporate officer. Thorpe (P) joined the company as an officer and director. Ps own approximately 41% of the 4,138 shares of Magline stock issued and outstanding; Ds own the remaining 59%. Ds control all aspects of corporate activity. Magline had consistently shown a profit, but it has never paid a dividend. The board has adhered to the policy adopted in 1950 by Law (D), and Ps have been compensating corporate managers by means of a low base salary coupled with an incentive bonus plan based on a percentage of earnings, with the remaining profits being retained by the corporation to be used as working capital. Miller (P) was seriously injured and ceased to play an active role in corporate management. In the same year, Thorpe (P) resigned as vice-president of Magline. Ps continued as directors and shareholders. Ps were excluded from the incentive bonus program because they were no longer officers. Corporate earnings, and hence incentive bonuses, increased dramatically primarily from Magline's increased production under government defense procurement contracts during the Viet Nam War years. In 1966 the board reduced the percentages by which the incentive bonuses were paid. It rejected Ps' motion to declare a $10 dividend at the October 1966 meeting, and like motions at the 1967 and 1968 board meetings were also defeated. In 1963, Magline had net income of $55,760 on gross sales of $2,024,901 with earned surplus of $226,620. In 1968, Magline had net income of $569,670 on gross sales of $10,429,988 with earned surplus of $2,492,156. Ps filed this lawsuit to force the payment of dividends and to recover, for the corporation, excessive compensation allegedly paid to Ds. Ps claimed that Ds, by refusing to pay dividends, breached their fiduciary duties to the minority shareholders. The chancellor placed on Ps the burden of proving that the compensation paid was unreasonable. The chancellor ordered the payment of a $75 dividend and that Ps failed to prove excessive compensation. Both Ps and Ds appealed.

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