Shadow Director of a Company under the Companies Act 2013

Who is a Shadow Director?

A ‘Shadow Director’ is not actually a person who is appointed or designated as a 'Director' of the company as per the company law.

He is the kind of person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act.

A person who gives advice to the Board in a professional capacity is not considered as a shadow director.

A shadow director may be construed as the real decision maker of the company.

Example

Mr. ABC is neither a director nor an employee nor having any contractual association with XYZ Limited.

The Board of Directors of XYZ Limited, while taking any major decisions of the company, always consult with Mr. ABC and then only go ahead with their proposals.

In this case, Mr. ABC will be considered as a shadow director of XYZ Limited.

Companies Act

There is no specific definition of 'shadow director' under the Companies Act, 2013.

However, under section 2(60)(v) there is a mention about a similar kind of person who is considered as an 'officer who is in default'.

Hence, a shadow director becomes an officer who is in default as well.

Liability of Shadow Directors

Any officer of a company, who is falling under the category of an "officer who is in default" as per list given in Section 2(60), is liable to any penalty or punishment by way of imprisonment, fine or otherwise for any default under the Companies Act for which an "officer who is in default" is also to be held liable.

As a shadow director is considered as an officer is in default, he shall be held liable for defaults made by the company wherever applicable under the Companies Act, if proved in due course of law.