Are You a De Facto Director? Uncovering the Hidden Risks

Many entrepreneurs, partners, or even consultants make decisions on behalf of a company without being formally appointed as directors in the articles of association or before the commercial registry. This informal performance, often seen as natural in the daily life of business entities, can create serious legal risks, including personal liability for the company’s debts and unlawful acts.

In this article, we clarify what characterizes a so-called de facto director, the legal implications of this role, and the key precautions that should be taken to avoid unpleasant surprises in tax enforcement, labor claims, or lawsuits seeking the piercing of the corporate veil.

1. What Is a De Facto Director?

A de facto director is someone who, although not formally appointed as a company director, performs, on a continuous or significant basis, acts typical of corporate management. This may be a partner, a third party, a family member, or even an employee who makes strategic decisions, authorizes payments, signs contracts, or represents the company before third parties.

This role differs from that of a de jure director, who is the person expressly designated in the company’s articles of association or bylaws, vested with specific powers and responsibilities duly registered with the competent authorities (Commercial Registry, Federal Revenue, etc.).

2. What Are the Risks for a De Facto Director?

Acting as a de facto director may give rise to direct personal and financial liability, particularly in the following contexts:

·         Tax enforcement: the de facto director may be held liable for the company’s tax debts, under Article 135, III, of the Brazilian National Tax Code, which provides for personal liability of those who act with abuse of authority, in violation of the law, or of the articles of association.

·         Labor claims: labor courts admit personal liability of the de facto director, especially when labor laws are violated, such as lack of employee registration, non-payment of severance entitlements, or misuse of job roles.

·         Piercing the corporate veil: a de facto director may be included as a defendant in actions seeking to redirect enforcement to the personal assets of those who engaged in acts of abuse of legal personality, deviation of purpose, or asset commingling.

·         Liability for unlawful acts: contracts signed or decisions made by the de facto director on behalf of the company may be challenged in court, and may also result in civil and even criminal liability, depending on the case.

3. What Does Case Law Say About the Issue?

Brazilian courts have frequently recognized the existence of de facto directors, based on documentary and testimonial evidence showing the actual exercise of management duties, even in the absence of formal registration.

Relevant rulings include:

·         “Liability for tax debts may be extended to the de facto director, provided that acts of management in violation of the law or company bylaws are proven.” (STJ – AgRg in REsp 1.150.464/SP)

·         “Both the de jure and the de facto director are jointly liable when it is established that both participated in conducting the company’s business, with decision-making powers.” (TRT-2 – RO 1000121-74.2020.5.02.0010)

4. How to Know if You Are Acting as a De Facto Director

You may be considered a de facto director if you:

·         Authorize or make significant company payments;

·         Represent the company in meetings with suppliers, banks, or government agencies;

·         Participate in strategic decision-making;

·         Decide on hiring and dismissing employees;

·         Sign contracts, agreements, or corporate documents, even informally;

·         Establish internal policies, business operations, or management acts.

Even if these actions are performed in good faith or with the tacit approval of other partners, liability may arise if damages, irregularities, or legal omissions occur.

5. How to Protect Yourself: Practical Guidelines

To avoid being characterized as a de facto director and the corresponding risks, it is advisable to:

·         Avoid performing management functions without formal appointment in the articles of association or recorded minutes;

·         If actively involved in management, request inclusion as a de jure director, with clearly defined powers and duties;

·         Maintain supporting documentation for every significant decision, with approval from formally appointed directors;

·         Limit involvement to that of an investor or advisor if not engaged in the company’s day-to-day operations;

·         Formalize consultancy or advisory agreements without assuming direct decision-making authority.

6. Final Considerations

Acting as a de facto director may seem harmless at first glance but represents one of the greatest legal vulnerabilities for entrepreneurs and partners. In times of crisis, litigation, or enforcement, lack of formality can prove costly — including personal asset seizure, debt redirection, or judicial freezes.

Prevention and clear documentation are the best tools to safeguard rights and limit liabilities. Ongoing legal counsel is also essential to structure company management safely, particularly in economic groups, holding structures, or family-owned businesses.