UK Accounting Glossary
A Shadow Director is an individual with whom they are directors of a company are accustomed to act in accordance with directions or instructions. It should be noted that this does not include a professional advisor such as a lawyer or an accountant who is actually acting in that professional capacity.
It should be noted that if a non-director has significant influence within a company, and on how its run, it is important to consider whether or not that individual is a Shadow Director, or could be considered to be. If it is found that the individual is a Shadow Director, they could potentially get caught under certain offences under the Insolvency Act 1986 as well as under the Companies Act 2006 itself, and other relevant legislation.
It is important to consider that the codified duties of a director set out in the Companies Act 2006, in addition to common law duties will apply to both directors and Shadow Directors. Whilst someone may not consider themselves a director, as they are not registered at Companies House or formally part of a board, they could still be bound by this legislation.
The duties that a Shadow Director would need to comply with directors are the same as the directors as set out above. For example, they must act in accordance with the company’s constitution and company law which is set out at Section 171a of the Companies Act 2006. Further, they must only exercise their powers for the purposes for which they are actually conferred under Section 171b of the Companies Act 2006. Also, they have a duty to promote the success of the business. They must consider any decisions that they make, and the consequences of these in the long term, also the need to foster the company’s business relationships with both suppliers, customers and other third parties, consider the impact of the company’s operation on the community and the environment, at fairly between each of the shareholders of the company, as well as the other duties list in the Companies Act 2006 and a common law.
Shadow Directors often get caught by this as they feel that they are not “proper directors”, and there can be both civil and criminal penalties for breach on the directors’ duties, for which they need to consider, for example, the fiduciary duty of a director. This is particularly important when a Shadow Director is actually a director of another company that is either in conflict or direct dealings with this company and does not declare it because they feel that they are not formerly a director, despite the fact that when you look closely they would be considered to be a shadow director.
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This glossary post was last updated: 25th February 2020.