Are You A Director Of A Company? Who Is Calling The Shots?

Are you a director of a company, where there is an individual that is a shareholder who continually wants the board to follow their way or no way? It is likely that such an individual will be held to be a Shadow Director!

A director is defined under s.250 of the Companies Act 2006 (CA06) as "any person occupying the position of a director by whatever name called". This definition is quite vague but in practice a director of a company is an individual who is either appointed on incorporation of a company or appointed after incorporation by a resolution of the company and the filing of the statutory form AP01 at Companies House (CH). In both cases the individual concerned must consent to the appointment and in either case the Registrar of Companies will contact them to confirm this is the case.

A Shadow Director is defined under s.251 CA06 as "a person with whose directions and instructions the directors of the company are accustomed to act". The leading case on Shadow Directors is the Secretary of State v Deverell. In this case the judge stated that the definition should not be construed strictly. If it was interpreted strictly it would mean that professional advisors to companies would be deemed to be 'Shadow Directors' and this was not the intention of the legislation. Instead, a Shadow Director is the individual who has a "real influence" on the decisions that the directors make with regards to the running of the business. The "real influence" does not have to be all the directors' decisions as it is enough for it to be some of the company's affairs.

Under the Small Business Enterprise and Employment Act 2015 s.170 of the CA06 has been amended with an additional paragraph (5) and this states "the general duties apply to a Shadow Director of a company where and to the extent that they are capable of so applying". Therefore, the 7 codified directors' duties in ss. 171-177 CA06 also apply to Shadow Directors!

How can directors resolve the issue of these individuals continually wanting to call the shots? The short answer is - to ensure the directors have good corporate governance!

The directors should record all their decision making in detail noting what was proposed and how the directors...

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