A shadow director is a person whose directions or instructions the board of a company is accustomed to follow, as defined in section 251 of the Companies Act 2006. A de facto director is someone who openly acts as a director without having been validly appointed. Both can be held to most of the duties and personal liabilities of a properly appointed director, including wrongful trading, disqualification and HMRC personal liability notices.

Who counts as a director if they were never appointed?

The Companies Act 2006 does not limit the word “director” to people named on the Companies House register. Section 250 says a director “includes any person occupying the position of director, by whatever name called”. The Company Directors Disqualification Act 1986 (CDDA) uses the same wording in section 22(4). A title such as “chief executive”, “managing partner” or “consultant” therefore decides nothing on its own.

The Insolvency Service puts it plainly in its director information hub: most legal responsibilities apply to anyone performing the role of a director, and the test is based on what you do, not your job title. Its guidance names people who act without formal appointment, people who influence or control decisions, and people who hide their involvement behind appointed directors.

That gives two distinct categories:

  • De facto director: HMRC’s National Insurance Manual (NIM12203) describes this as someone who takes on the role of a director and presents themselves as a director, despite never being formally appointed.
  • Shadow director: someone who stays off the board but whose instructions the appointed directors are accustomed to follow.

What exactly makes someone a shadow director?

Section 251(1) of the Companies Act 2006 defines a shadow director as “a person in accordance with whose directions or instructions the directors of the company are accustomed to act”. The word “accustomed” points to a pattern of the board following that person, rather than a single instruction that happened to be followed. The person can be an individual or a company.

Section 251(2) sets out three exclusions. A person is not a shadow director by reason only that the directors act:

  1. on advice given by that person in a professional capacity;
  2. in accordance with instructions, guidance or advice given in the exercise of a function conferred by or under an enactment; or
  3. on guidance or advice given by a Minister of the Crown.

Section 251(3) adds a limited protection for groups. A parent company is not treated as a shadow director of its subsidiary, merely because the subsidiary’s board follows its instructions, for the purposes of the general duties (Chapter 2 of Part 10), transactions requiring members’ approval (Chapter 4) and contracts with a sole member who is also a director (Chapter 6). That carve out does not appear in the definition of shadow director in section 251 of the Insolvency Act 1986, which keeps only the professional advice, statutory function and ministerial exclusions.

How is a de facto director different from a shadow director?

A de facto director acts in the open: signing contracts as “director”, negotiating with the bank, hiring staff or sitting in board meetings as if appointed. A shadow director usually avoids those outward signs and works through the appointed board. One person can fit both descriptions at different times, and HMRC’s manual treats both as within the reach of a personal liability notice.

The Companies Act also deals with people who could not lawfully be appointed. Section 157(5) (under 16s), section 156A(4) (directors who are not natural persons, once that section is fully in force) and section 159A(4) (disqualified people) each say that the invalidity of the appointment does not affect any liability of a person who purports to act as a director or acts as a shadow director. Separately, section 161 provides that the acts of a person acting as a director are valid even if it is later discovered that the appointment was defective or the person was disqualified, which protects third parties who dealt with the company.

Which directors’ duties apply to a shadow director?

Section 170(5) of the Companies Act 2006 says the general duties in sections 171 to 177 apply to a shadow director “where and to the extent that they are capable of so applying”. That brings in the duties to act within powers, promote the success of the company, exercise independent judgment, use reasonable care and skill, avoid conflicts and declare interests, so far as they fit the shadow director’s role. See directors’ duties under the Companies Act.

Section 223 goes further for transactions that need shareholder approval. For service contracts over two years (sections 188 and 189), substantial property transactions (sections 190 to 196), loans and similar arrangements (sections 197 to 214) and payments for loss of office (sections 215 to 222), a shadow director is treated as a director. So a loan from the company to a shadow director can need member approval in the same way as a loan to an appointed director; see loans to directors and member approval and substantial property transactions.

What personal liabilities can follow?

Liability Provision Reach beyond appointed directors
Wrongful trading contribution Insolvency Act 1986, s214 Section 214(7): “director” includes a shadow director
Misfeasance and breach of duty in a winding up Insolvency Act 1986, s212 Covers officers and anyone concerned or taking part in the management of the company
Disqualification for unfitness CDDA 1986, s6 Section 6(3C): “director” includes a shadow director
Disqualifying a person who instructs an unfit director CDDA 1986, s8ZA Minimum 2 years, maximum 15 years
Reuse of an insolvent company’s name Insolvency Act 1986, s216 Applies to a director or shadow director in the 12 months before liquidation, for 5 years
Share of a company’s penalty for a deliberate inaccuracy Finance Act 2007, Sch 24 para 19 “Officer” includes a shadow director
Unpaid National Insurance through fraud or neglect Social Security Administration Act 1992, s121C HMRC’s NIM12203 says this extends to shadow and de facto directors

For wrongful trading in more detail, see wrongful trading and director liability. The definition also reaches tax on benefits: section 67 of the Income Tax (Earnings and Pensions) Act 2003 includes in “director”, for the benefits code, any person in accordance with whose directions or instructions the directors are accustomed to act, other than a professional adviser. See benefits in kind and P11D.

What about the appointed directors who follow instructions?

The people on the register do not escape by pointing at the person behind them. The Insolvency Service’s guidance says doing nothing or lack of knowledge is not an excuse, and that acting as a director for someone else always carries risk, including prosecution if that person is not allowed to be a director.

Section 15(1)(b) of the CDDA makes a person involved in management personally responsible for the company’s debts if they act, or are willing to act, on instructions from someone they know to be disqualified or an undischarged bankrupt. Under section 15(2) that liability is joint and several with the company. For the person giving the instructions, being concerned in management while disqualified or bankrupt is itself an offence (sections 11 and 13). See director disqualification.

What does this look like in practice?

Illustration only. Priya founds a trading company and is its only director. After a dispute with the bank she resigns and her brother Dev is appointed in her place, but Priya keeps 60% of the shares. She carries on agreeing prices with suppliers, decides which bills are paid and tells Dev what to sign. Dev does what she says. Two years later the company enters insolvent liquidation.

  • The liquidator can argue that Priya was a de facto director, because she openly did the job, or a shadow director, because Dev was accustomed to act on her instructions. Either way she is within section 214 and the disqualification regime.
  • Dev cannot rely on having been passive. He is an appointed director with the full set of duties.
  • If Priya forms a new company with a similar name within 5 years of the liquidation, section 216 can apply to her even though she had resigned as a director.

How can investors, lenders and advisers avoid being treated as directors?

  • Advisers: keep to advice given in a professional capacity. The exclusion protects advice, not taking over decisions or giving instructions the board routinely follows.
  • Investors and lenders: rely on rights in the shareholder or loan agreement and votes at general meetings, and let the board take and minute its own decisions.
  • Parent companies: remember that section 251(3) covers only certain Companies Act chapters. It does not switch off wrongful trading or disqualification exposure.
  • Family members and former directors: stepping off the register while still running the business is the classic route into de facto or shadow director status.

A common mistake is assuming that because someone is not on the Companies House register, the company’s insolvency or tax problems cannot reach them. Another is treating a resigned director’s continued involvement as harmless; see resigning as a company director.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.