What is a shadow director?

The legal definition of a shadow director is someone who is not an appointed director, but who still instructs other, properly appointed directors on how to act.

For instance, majority shareholders sometimes occupy this role and persuade the appointed directors to act according to their wishes.

People who act as a shadow director are liable in the same way as an appointed director. This means that if the company goes into liquidation and they are found to have acted in a negligent manner or to have been otherwise unfit for the role, the liquidator can start proceedings against them.

It isn’t automatically an offence to be a shadow director, but it is often seen to raise risk levels and suggests that the company is trying to hide something by failing to list one of its directors.

However, you cannot be a shadow director if:

• You are undischarged bankrupt
• You are subject to a Directors Disqualification Order or undertaking

Acting as a shadow director whilst you are a banned director and subject to a Director Disqualification Order is a breach of the order – and could land you in prison.