Can a director of a for-profit corporation be unpaid, or paid a nominal salary?

Question

If a corporation has a director who doesn't actually do much and is just there to fulfill a legal requirement, and the director does not want to be paid, is that legal? What about a $1/year salary? Does it matter if the director is a shareholder?

Answer 1

A member of the board of directors of a corporation does not have to be paid, and can likewise be paid only a nominal amount. Members of the board of directors in closely held companies are rarely paid for that service, although some pay for members of the board of directors is the norm in publicly held corporations.

Most members of the board of directors in closely held companies are managers, owners, or representatives of owners of the company, who derived economic rewards from the company primarily in those roles. Compensation for outside directors in publicly held companies reflects the fact that these directors, collectively, typically own only a tiny percentage of the stock of the company upon whose board they serve and by definition are not employed by the company in another capacity. So, the value of their contributions is often not fully captured by other means of receiving economic rewards from the company.

Payments for serving as a member of the board of directors of a corporation, at least when one is not also an employee of the corporation, are classified as self-employment income.

Members of the board of directors who are not also employees of the corporation are usually considered independent contractors rather than employees.