There are many different types of director appointed by or acting on behalf of a company. This article explores the various types of directorship roles out there and lets you know how to tell the difference between them.
Different types of director: Statutory directors
According to the Companies Act 2006, a statutory director includes any person occupying the position of director, even if they are not called a director in job title. Statutory directors are persons that have been formally appointed by a company or that are acting as directors by law or in accordance with a company’s articles of association (these are the company’s constitutional rules that govern how a company will be structured, operate and run).
The Companies Act 2006 sets out some general duties that these directors owe to their company:
- To act within the powers given to a director;
- To promote the success of their company;
- To exercise independent judgment in their decision-making;
- To exercise reasonable care, skill and diligence;
- To avoid conflicts of interest when acting or making decisions as a director;
- Thee duty not to accept benefits from third parties; and
- To declare any interest they have in a proposed transaction or arrangement that the company is aware of or considering.
How do you know if someone is a statutory director?
The Companies Act 2006 requires companies to keep registers of certain details about the people that are currently appointed as their directors. These details are kept by the company and are available to be inspected by the public. The type of details that are kept will differ depending on whether the director is a natural person or a company or other legal entity and the information that can be inspected will depend on how much a company has agreed to allow to be made available to the public.
When a company is first incorporated it is legally required to provide details of its first directors to Companies House. After that, every time the role of or the details of a director changes (for example, the role begins or ceases or the director’s residential address details change), the company has to notify Companies House again within 14 days of the change. In the UK, usually these changes can be found using publicly available searches at Companies House.
De jure directors
One of the main different types of director is a de jure director. A de jure director is a person that is legally entitled to be a director as a result of their formal and legal appointment as a director by law or in accordance with the articles of association of the company. A statutory director is therefore a de jure director. A de jure director is also likely to be registered with the registrar of companies at Companies House.
A director can be validly appointed to a company in a variety of ways:
- If they have been appointed by the members of the company.
- If they are appointed by the board of directors.
- In some circumstances, if they have been appointed by court order.
As long as the person at least 16 years old when the appointment takes effect and they have consented to act as a director of the company, they can be a director.
De facto directors
In contrast to a de jure director, a de facto director has not been properly or legally appointed as a director but undertakes the acts as of a director, including things like:
- Signing documents that bind the company.
- Holding themselves out as a director to other external parties.
- Making decisions on behalf of the company.
Whether someone is acting as a de facto director will depend on the objective facts of the situation and the actions that the de facto director takes, but they have to be acting in a general way that can be identified as the conduct of a director rather than just management or senior staff of the company with a ‘director’ job title (such as ‘director of communications’). During their time as a de facto director, the person will owe the company in question those same general duties as a statutory director.
Different types of director: Executive and non-executive directors
An executive director is a person that has been formally and validly appointed director to the company (a de jure director) and who is usually on the executive committee of the company (for example, the Chief Executive Officer). They are usually involved with the day to day management as well as the strategic decisions of the company.
An executive director is often an employee of the company as well and, in addition to their duties as a director, they will also have duties as an employee of the company under their employment contract and employment law. An executive director will owe the general duties set out in the Companies Act 2006 to the company to which it is appointed.
A non-executive director therefore is a de jure director who does not hold an executive position in the company and will not usually deal with the daily operations of the company – they may be more focused on the strategy and direction of the company. A non-executive director will also owe the general duties set out in the Companies Act 2006 to the company to which it is appointed.
A shadow director of a company is a person whose directions or instructions are usually followed by the directors of that company. Having said that, just because the directors act on advice given by a professional adviser or by someone entitled to give instructions by law or government does not make such a person automatically a shadow director. It depends on the degree of influence and discretion of that person on a company’s operations and conduct. When considering whether a director is a shadow director, the total acts of the director should be considered, rather than focusing on a one-off act. The outcome ultimately will depend on the facts and circumstances of each individual case.
There is arguably an overlap between the roles of a de facto director and a shadow director – if a person was not validly, formally or legally appointed and yet still exercised real influence over a company, they could arguably be both a de facto director and a shadow director.
A shadow director will generally be bound by statutory duties of a director rather than the general duties set out in law, which includes duties to declare any interest they have in a proposed transaction or arrangement that the company is aware of or considering.
Different types of director: Nominee directors
A nominee director is a de jure director that has been appointed to represent a particular party, interest or stakeholder other than the company. For example, in some joint ventures where the parties incorporate a private company limited by shares, those shareholders of the joint venture company will each appoint directors that will represent them on the board. Appointing nominee directors is a useful way for the joint venture shareholders to effectively monitor the strategic direction of the joint venture.
A nominee director will also owe the general duties of a director to the company to which it is appointed. The Companies Act 2006 says that the nominee director will not be breaching their duty to act independently if they are acting in accordance with the company’s constitutional documents. This duty has a limit and the director cannot be put upon or coerced into acting in a certain way that puts the interest of the stakeholder above that of the company.
A Managing Director may be an executive director or may be a non-statutory director that has been appointed to manage and run the company, and to follow the strategy of the company set by the board of directors and the members of the company.
Another different type of director is an alternate director. An alternate director is a person that has been appointed under the authorisation of the articles of association of a company to act as director in place of a currently appointed statutory director. This can be for practical reasons such as to make sure that there are enough directors to hold a board meeting and make decisions. If a company wants to allow its directors to be able to appoint alternate directors, it should make sure that its articles contain provisions on how to do this. In practice, alternate directors are often approved by the board of directors of the company prior to them being appointed.