When is a person a shadow director?

Even a person who is not formally appointed as a company director, the law may still be considered them to be a shadow director.

As a rule of thumb, the Corporations Act says a person will be a shadow director when “the directors of the company are accustomed to act in accordance with the person’s instructions or wishes” [Source: Corporations Act 2001 (Cth) section 9 (b)(ii)].

Examples include:

1. The person makes or participates in making decisions that affect the whole, or a substantial part, of the business of the company.

2. The person has the capacity to affect significantly the company's financial standing (other than external stakeholders).

3. The directors of the company are accustomed to acting in accordance with that person's instructions or wishes (other than professional advisors); or

4. A person who assumes the position of a director even if not legally appointed.

What are the consequences for being a shadow director?

A shadow director has the same duties and obligations that other directors have.

Should you have any questions, please do not hesitate to contact me on (03) 8691 3128.

Best wishes, Caroline Mense