Who are the directors of a Cyprus company in the eyes of the law? Types of Directors. Shadow Director. Alternate director. De facto director. This article will focus on the legal concept of the board of directors in a Cyprus company, will look at the types of the directors and will discuss the importance of the functions of the office of directors.

Prior to looking into the aspects of the board of directors in the Company, one needs to understand that under the SALOMON doctrine a Cyprus company has a separate personality. This means that the company acts as a separate legal entity, it may sue and be sued in its own name, and it may have its own assets.

However, in order to exercise its management, it is somewhat clear that the company needs to engage the board of directors. In this respect the management of the company is represented by the Board of Directors, which is “controlled” by the shareholders of the Company, answerable to the company in the general meetings.

At the same time, although the Board of Directors is appointed by the shareholders, the shareholders are not generally allowed to instruct the directors as to how the latter should act or exercise their powers. There are, of course, exceptions to this rule, which are the so-called “reserved matters” that are stipulated in the Articles of the Association of the Company. The “reserved matters” or any similar provisions may indicate that there are some limits to the powers of the board (for example, a cap to a sum of the contract, or voting on the specific questions). In these circumstances the directors shall seek shareholder’s approval prior to exercise of their powers on such matters.

Although there is no clear definition in the Companies Law CAP 113 to the term “director”, it is said to include “any person occupying the position of the director by whatever name called”. From the case law we can often see that:
- the director doesn’t have to be a natural person, it may be a company;
- the courts may recognize a person as a legal director notwithstanding the fact that he/she may be a manager or council member, or governor or trustee or have any other title under the Articles;
- at the same time if the person is a high-ranking officer and has the job title that has a word “director” in it (i.e. consulting director/marketing director), and along with that title he/she does not attend Board meetings nor shares other duties with the legal directors of the company, such person may not be necessarily characterised as director in the eyes of the law.

When discussing the types of directors, we observe that in practice there are: executive directors, non-executive directors, and managing directors.

Although the law does not give a clear distinction between the executive directors and the non-executive directors, in practice the executive director is usually deemed to be actively engaged in management of the company’s affairs. The non-executive director usually is not considered as an employee of the company and has no contractual managerial duties, often acting under a contract of service, by bringing its expertise and observations. A managing director, on the other hand, usually has the responsibility to oversee the day-to-day company’s affairs. The actual authority of the managing director (often referred to as the CEO) depends on the powers vested in him by the board of directors under a resolution, or Articles of Association, or under the terms of the service agreement.

Under Common Law the shadow director is “any person in accordance with whose instructions the directors of the company are accustomed to act”. Therefore, it is the person acting “behind the scenes”, exercising their influence over the board of directors. Thus, it is important to see the extent and the scope of the reliance of the board upon the advisory of such a person, as well as checking whether such person has bank signatory rights to the corporate accounts, attends the meetings of the Board or signs any contracts or letters on behalf of the company.

In cases where one of the directors can not attend board meetings in person, he may appoint an alternate director to act in his place (always subject to approval of the Board or special provisions in the Articles of Association). An alternate director can receive notices of the meetings, attend the meetings, vote and generally exercise the functions of the person who appointed him/her. The position of the alternate director is submitted to the registrar of companies and such a person is regarded as a legal director of the company.

De facto director, in contrast to de jure director, is a concept recognized under Companies Act in England and through UK case law. Although there have been difficulties in establishing a test to determine who de facto director is, we can see that the courts tend to recognize someone as a de facto director who although is not officially appointed, has real influence on the affairs of the company and participates equally with other directors in the governance of the legal entity. The courts have established that de facto director is engaged in implementation of corporate policies, he has a liberty to exercise influence, and his role is an integral component of the life of the company.

We hope that this article could bring some clarity on the various types of directors and their role in the company. Understanding the different types of directors is essential for comprehending the dynamics of corporate governance and leadership structures. By recognizing and appreciating the distinct roles of these directors, businesses can cultivate robust governance frameworks and foster environments conducive to innovation, accountability, and long-term growth.

Marina Kharchenko
LLB, LLM, Advocate - Legal Advisor
www.pravo.com.cy
e-mail: Этот адрес электронной почты защищён от спам-ботов. У вас должен быть включен JavaScript для просмотра.