A person is classed as a shadow director when the company is “accustomed to act in the accordance with the person’s instructions or wishes”.
However, where or when a person conveys their instructions or wishes and then the Board makes a decision within independent consideration on its own basis, it would not be an example of acting in accordance of ‘another person’s’ instructions.
For a party to be considered a shadow director:
- There must be a pattern of compliance over time to the instructions and wishes from that person.
- Their direct instruction must be direct cause for the relevant decision to be made.
- They do not need to control all of the directors, only the majority of them.
- Their instructions must directly correlate to the company’s corporate activity.
Making corporate decisions and giving advice for another company should only be undertaken if you are certain it would fall outside the classification of a De Facto or Shadow Director, or you could be at risk of incurring personal liability as a Director.
In the current corporate environment, diligent care must be taken to ensure that you are protected against unforeseen events. You can take steps to protect not just yourself, but your business and your assets through strategically structuring your company.
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