Serving as a nominee director may appear straightforward, after all, you are appointed to represent the interests of a particular shareholder, investor, fund, creditor, strategic partner, or family group.
However, in law, a nominee director is not merely an agent of the appointing party. Once appointed, you become a director of the company, with all accompanying fiduciary duties, personal liabilities, regulatory scrutiny, and governance expectations.

In Kenya, the Companies Act does not create a separate category of nominee directors. You are held to the same legal standards as any other director, and failure to understand this can expose you to significant legal and personal risk.

Before agreeing to such an appointment, here are five critical things to note.

1. Your Legal Duties Are Owed to the Company, Not the Appointing Party

The first and most fundamental principle is that a nominee director’s primary legal obligation is to the company as a whole, not to the shareholder or investor who nominated them.

Under company law (including the Companies Act, 2015 in Kenya), every director owes statutory and fiduciary duties, including:

• Acting in good faith
• Exercising reasonable care, skill and diligence
• Avoiding conflicts of interest
• Acting with the powers given
• Exercising independent judgment

This means that although a shareholder can nominate you, they cannot dictate your decisions, especially where their instructions conflict with the company’s best interests.
If an investor pushes for a decision that harms the company, you must consider your actions in relation to the instruction, even if it creates tension with the appointing party.

Many nominee directors encounter legal trouble because they assume they only owe accountability to the nominating party. In reality, your loyalty is to the company itself, and breaching that duty can lead to personal liability, regulatory sanctions, or even disqualification.

2. You Can Be Personally Liable for Board Decisions

Accepting a nominee directorship exposes you to the same civil, regulatory, and criminal liabilities as any other director.

You may be personally liable for:

• Breach of fiduciary duties
• Wrongful or fraudulent trading
• Approving unlawful distributions
• Negligence in decision-making
• Participating in conflicted or related-party transactions
• Non-compliance with tax, employment, data protection, or AML/CFT laws
• Sector-specific violations in regulated industries such as banking, insurance, capital markets, payments, gaming, crypto, or telecoms

 

In Kenya, enforcement agencies such as the Registrar of Companies, CMA, FRC, KRA, CAK, and sector regulators can investigate or sanction directors.

If a company collapses, mishandles investor funds, breaches tax laws, or fails in compliance, nominee directors are often among the first individuals required to account for their actions (or inaction).

Before accepting the role, ensure you understand the full scope of regulatory exposure in the relevant industry and jurisdiction.

3. You Must Manage Confidentiality and Information Sharing Carefully

One of the most complex aspects of nominee directorships is information flow.

Nominee directors often assume they can freely update the appointing shareholder on everything happening in the company. But this is a dangerous misconception.

While you may brief the investor, you must not:

disclose confidential information that could harm the company;
share price-sensitive information without proper clearance;
release privileged or board-protected documents;
provide insider information in breach of capital markets laws;
violate NDAs, shareholder agreements, board charters, or statutory confidentiality obligations.

Improper disclosure can result in personal liability, professional sanctions, or criminal exposure.

A prudent nominee director always maintains clear boundaries on what can be shared, how it can be shared, and when.

4. You Need a Clear Appointment Instrument and Protection Mechanisms

A nominee directorship should never be accepted informally or based on verbal assurances.
Proper documentation protects both you and the appointing shareholder.

Key documents include:

✓ Nominee Director Appointment Letter or Agreement

Clarifies your role, mandate, expectations, reporting lines, and independence obligations.

✓ Shareholders’ Agreement

Sets out nomination rights, voting arrangements, conflict management procedures, and removal mechanisms.(Access here)

✓ Indemnity Deed

Provides financial protection against liabilities incurred while acting as a director (except for fraud, gross negligence, or willful misconduct).

✓ Directors & Officers (D&O) Liability Insurance

Covers legal defense costs, claims, regulatory investigations, and liabilities arising from board service.

The engagement should also address:

how conflicting instructions will be handled;
situations requiring recusal;
your right to independent legal advice;
limits to your reporting obligations;
procedures for resigning in case of ethical or legal conflict.

Professional nominee directors rarely act without these safeguards and neither should you.

5. You Must Understand the Business, the Industry, and the Risks

A nominee directorship is not a passive or ceremonial role. You are legally expected to be informed, active, diligent and competent.

Before accepting the role, carry out thorough due diligence on:

• the company’s structure and governance
• financial health and solvency
• existing debts, disputes, or regulatory investigations
• compliance levels (tax, AML/CFT, licensing, labour, data protection, etc.)
• the industry’s regulatory landscape
• the competence of the board and management
• internal controls and risk frameworks
• conflicts of interest within the ownership structure

Director liability laws increasingly punish ignorance. Courts assume that all directors, not only executive directors, have a duty to understand the business and ask tough questions.

A nominee director who joins a poorly run or non-compliant company may inherit significant personal exposure.

Conclusion

Acting as a nominee director can be professionally rewarding, offering insight into governance, strategy, and investment oversight. But it is also a role that carries significant legal responsibility and real personal risk.

A well-prepared nominee director strengthens both the company and the appointing shareholder.
An uninformed or passive nominee director, however, can become a serious liability, with personal consequences.