Dummy Director
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Definition of 'Dummy Director'A person on a company's board of directors who votes and acts on the wishes of a non-board member. Dummy directors are most commonly used when a private company is in the process of going public, and it needs to establish a board of directors with a minimum number of seats to meet regulatory requirements. These temporary directors perform very limited duties. Once suitable directors can be found, the dummy directors resign and the company's shareholders elect real directors.Also known as an accommodation director or nominal director. |
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Investopedia explains 'Dummy Director'A corporation's directors are legally bound by the prudent person rule, which requires them to each use the same standard of care in their decisions that a rational person in similar circumstances and with a similar background would use. If directors fail to exercise this level of care, they could be found liable for recklessness or gross negligence. For this reason, except in the short-term case of forming a corporation, it is unlikely that someone would be willing to sit on a board as a dummy director in order to execute the wishes of a non-board member. |
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