A de facto director is a company individual who assumes a director’s role without a formal appointment. Even if these individuals do not officially carry a director’s title, they still execute the associated duties and responsibilities.
Why you might have a de facto director
Informal agreements or specific organisational needs might convince a company individual to start acting as a director without an official appointment process.
For example, an individual might participate in the decision-making process regularly and have an established rapport with the board. Periodic implementation of their ideas increases the company’s trust in their expertise, leading them to assume a director’s role.
Another possibility is that someone undertakes a director’s role to address immediate concerns during an unexpected crisis. In these situations, the focus is on eliminating threats which take precedence over the formalities.
Role of a de facto director
A de facto director’s role is similar to that of an official director. Here is a brief overview:
De facto directors must exercise the fiduciary duties and responsibilities of formally appointed directors. They should act to serve the company’s purpose, avoid conflicts of interest and uphold confidentiality.
Involvement in decision-making
They are actively engaged in the decision-making process. They attend board meetings, offer expertise on key business decisions and tend to have sway over the company’s direction.
De facto directors are legally accountable if they violate their fiduciary duties, engage in misconduct or act beyond their role.
Difference from other types of director
Here is a comparison of a de facto director and other director types:
- De jure director: A de jure director is formally elected and registered with Companies House while a de facto director is not.
- Shadow director: These directors use their influence over the board to impact decision-making but only act behind the scenes. A de facto director publicly assumes the role’s duties.
- Nominee director: Nominee directors are appointed by the company shareholders to represent their interests on the board. Unlike a de facto director whose role arises organically, a nominee director’s status is recognised through contracts and formal agreements.
- Alternate director: This director is formally appointed by a serving director to assume their responsibilities. Alternate directors undertake the same duties but, unlike a de facto director, only act when the principal director is absent.
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