Disqualified Directors Acting as Shareholders

Can a disqualified director act as a shareholder?

All sorts of grounds can lead to director disqualification. Non-payment of debt to HMRC; wrongful and fraudulent trading in insolvency; failure to comply with company legislation; unfit conduct and criminal conviction are some of them.

Directors are disqualified under the Companies Act 1990. Disqualification orders can apply for up to 15 years, and are issued with a range of restrictions.

Disqualified Director Restrictions

Disqualified directors are not permitted to act as trustees; they cannot sit on the board of a charity, police authority or school; neither are they allowed to act as a registered social landlord. They cannot sit on a health board or social care body and they are banned from practising as an accountant, solicitor or barrister.

In addition, a director disqualification order will also prevent those disqualified from acting as a director of any UK registered company or any overseas company with links to the UK. It is also not allowed to form, run or market a company. Any breach of the terms of the disqualification order could lead to a custodial sentence of up to two years.

Despite all of this, disqualified directors are actually not banned from owning shares. Anyone disqualified as a director is still permitted to purchase shares in public companies and can also hold shares in UK registered private limited companies.

A Grey Area of Law

This may of course appear confusing, because as we said, disqualified directors are forbidden from forming, running or marketing a company. So how does this work?

The law states that disqualified directors cannot be directors of UK companies. They can't form a company, but they are allowed to hold shares. In other words, they can part-own a company with other non-disqualified directors, providing those non-disqualified directors are responsible for marketing and running it.

It is a bit of a grey area of law, but for the present time the answer to our original question is yes, a disqualified director can be a shareholder.

If you have been disqualified as a director and are unclear on your rights, the best thing to do to ensure you do not breach the terms of your disqualification order is to take professional advice.

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