Shadow director

Shadow director is a person who can manage a company and will not be the official person holding a managerial position. The shadow director's tasks include negotiating contracts on behalf of the company. Shadow directors have a huge power and influence of management the company. They can manage one or several segments of company or even all of them.

Requirements for shadow directors

In order for the shadow director function to work, the following conditions must be met:

• both actual and auxiliary directors must be identified,
• a particular individual must show directors how to act,
• directors are required to act in accordance with the instructions given,
• shadow directors must act as subordinates.

How to prevent suspicions of management Shadow Director

If the company wants to minimize the probability that one of the people in the company may be considered a Shadow Director, it is recommended to introduce some restrictions :

• Only advisory consultation should be given instead of management a hole company or a project.
• The counselor should strictly define the rules and limits of the proceedings and should not undertake other additional activities going beyond this scope.
• Detailed guidelines and clear rules and responsibilities should be specified according to the role of this person.
• This person should make sure that the board of directors has not waived the rules and meet regarding the advice on which the minutes of the meeting are drawn up.

Consequences of being shadow director

Shadow directorships can have personal consequences such as :

• in the event of insolvency, companies may be deprived of their right to hold office
• are criminally and personally liable for any breach of their duties in the post
• in the event of insolvency of the company are responsible for the assets contributed to the undertaking

Identification of shadow directors

Elements to help establish and identify the shadow directors have been established by the court of law :

• demonstrating that the person performing this function has a real influence on the decisions that are made in the company,
• individual councils or guidelines will be assessed by the following
• shadow directors advice may be tantamount to instructions

Examples of Shadow director

• An individual who has significant influence over a company’s decisions, but who is not formally appointed as a director, such as a shareholder or a senior figure in the company who is not named as a director.
• A lawyer or accountant who provides advice to a company’s directors and who is not formally appointed as a director.
• A person who is not on a company’s board of directors but who makes decisions for the company, such as a CEO or other senior executive.
• A person who is not formally appointed as a director but who is involved in the day-to-day management of the company, such as a financial controller or operations manager.
• A person who has been removed from a company’s board of directors but who still influences the decisions of the company, such as a former CEO or chairman.

Advantages of Shadow director

A shadow director provides a company with a number of advantages, including:

• Increased flexibility in decision making, allowing for more informed decisions based on the expertise and experience of the shadow director.
• Greater negotiating power, allowing the company to get the best deals from vendors and other partners.
• Increased cost savings, as the shadow director may be able to negotiate for better deals or find alternative sources of funding.
• Improved communication between the company and its stakeholders, as the shadow director can provide a more informed view of the company’s operations.
• Increased accountability, as the shadow director can be held responsible for any wrongdoing or mismanagement.

Limitations of Shadow director

A shadow director is limited in their ability to act on behalf of a company, as they are not officially acknowledged as a managerial position. The following are some of the limitations of a shadow director:

• They have limited access to company information, such as financial records, making it difficult for them to make decisions on behalf of the company.
• They are not able to sign official documents, such as contracts, on behalf of the company.
• They may not be able to represent the company in meetings or other official functions, as they are not officially affiliated with the company.
• They may not be able to make decisions independently, as their decisions must be approved by the official directors of the company.
• They may not be able to access certain resources, such as legal advice, without the approval of the company’s directors.
• They may not have the same authority as an official director, and their advice may not be taken as seriously.

Other approaches related to Shadow director

A shadow director is someone that can manage a company without holding an official managerial position. There are a number of approaches associated with being a shadow director, including:

• Negotiating contracts: Shadow directors are often called upon to negotiate contracts for the company, ensuring the best deal possible for the company’s interest.
• Acting as an advisor: Shadow directors may act as advisors for the company, providing an extra layer of decision-making power.
• Supervising finances: Shadow directors are often involved in overseeing the company’s finances, making sure that the company’s finances are managed and monitored appropriately.
• Assisting with recruiting: Shadow directors can help recruit and select the right people for the right positions, helping to ensure the company’s success.

In summary, a shadow director is someone who can manage a company without holding an official managerial position, and there are a number of different approaches associated with being a shadow director. These approaches include negotiating contracts, acting as an advisor, supervising finances, and assisting with recruiting.

Footnotes

Shadow director — recommended articles

Nominee director — Corporate trustee — Quasi partner — Project sponsor — Minute book — Proxy solicitation — Board — Extraordinary general meeting — Staff authority

References

• Atkin D., Cheilyk D. (2015), Jumping at shadows — shadow and de facto directors, "Governance Directions", nr. 8
• Davies J. (2007),A guide to directors’ responsibilities
• Idensohn K. (2010), The Regulation of Shadow Directors, "SA Mercantile Law Journal" nr. 22
• Kolohoida O.V.(2016), The Concept of Shadow Directors’ Liability under the United Kingdom and Ukrainian Legislation"Recht der Osteuropäischen Staaten", 03/16
• Moore C. R.(2016), Obligations in the Shade: The Application of Fiduciary Directors’ Duties to Shadow Directors, "University of Kant"

Author: Julia Kręcioch