James Gillard from Insurance Made Easy thinks it’s okay to be a shadow director or a formal director of a client’s company - so long as you are insured.
A business or NFP needs to have directors and officers insurance; this would protect them for their actions as office holders. Sometimes this may be called management liability insurance. This should cover shadow directors but you must check, as not all policies are the same.
If you are going to be a director (or shadow director), check the insurance - there is no difference for NFP and commercial business, both types of entity should have directors and officers insurance.
A shadow director may be making management decisions but is not necessarily listed as a formal office holder. A shadow director can act as a director and take on responsibilities without being appointed as a formal director. This can happen by default over a period of time, or can be more organised; for example, when a client goes overseas, often the bookkeeper is the best person to take on director responsibilities temporarily. This type of role can be seen as a shadow director, and may still liable for breaches of laws. Make sure all decisions made as a “shadow director”, whether you are called by that term or not, are noted in writing. For example, if you are engaged to look after a client’ s business while they are overseas, make sure to keep notes about any important decisions made about topics such as if staff are hired or fired, any out-of-the-ordinary payments made to creditors, material decisions about stock purchase or sale, or staff issues that arise.
The bookkeeper needs to disclose the role to all other office holders and interested parties in case of a potential conflict of interest.
Your own professional Indemnity insurance does not cover actions taken as a shadow director, so you must talk to the business insurer to make sure you are covered