KembaraXtra - Legal Terms - Shadow Director

A shadow director is a person who is not formally appointed as a company director but whose instructions or directions the company’s directors are accustomed to follow.

The definition is contained in section 251 of the Companies Act 2006.

A shadow director:

• does not hold official office;
• is not simply a professional adviser (such as a solicitor or accountant giving independent advice); but
• effectively controls or influences the company’s decisions by directing the board.

To qualify as a shadow director:

• the board must habitually act on the person’s instructions or directions;
• occasional influence is generally insufficient; and
• giving professional advice alone does not create shadow director status.

Certain provisions of company law apply to shadow directors, including rules relating to:

• directors’ duties (in appropriate circumstances);
• transactions requiring shareholder approval; and
• liability for certain breaches of company legislation.

The concept prevents individuals from exercising the powers of a director while attempting to avoid the legal responsibilities that accompany formal appointment.