Board and non-executive roles
Can a non-executive director be a shareholder?
Yes. Nothing in the Companies Act 2006 prevents a non-executive director from owning shares in the company, and many do. The issue is independence, not legality: under the UK Corporate Governance Code, representing a significant shareholder is one of the circumstances likely to impair a non-executive director's independence, and the board must handle the resulting conflict.
The legal position
Share ownership and directorship are separate things in UK company law. A director may hold shares, and a shareholder may be appointed a director, subject to the company's articles of association.
What the Companies Act does require is that the director keeps meeting their general duties while holding those shares, including the duty to exercise independent judgement and the duties on conflicts of interest and declaring an interest in a proposed transaction, at sections 175 and 177.
The governance position
Provision 10 of the UK Corporate Governance Code 2024 lists representing a significant shareholder among the circumstances likely to impair, or appear to impair, a non-executive director's independence. Where such a circumstance applies and the board still considers the director independent, the Code says a clear explanation should be provided.
Provision 7 goes further and puts the obligation on the board: it should take action to identify and manage conflicts of interest, including those resulting from significant shareholdings, and ensure the influence of third parties does not compromise or override independent judgement.
How to handle it in practice
Declare the holding, record it in the register of interests, and set out in the letter of appointment how the director will act where their shareholding and the company's interests could diverge. Where an investor nominates the director, say so plainly rather than describing the seat as independent.
Sources and review
- Companies Act 2006, sections 175 and 177, conflicts of interest and declaration of interest in a proposed transaction.
- Financial Reporting Council, UK Corporate Governance Code 2024, published 22 January 2024. Provision 7, conflicts of interest, and Provision 10, independence.
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