Conflicts of interest in a private company

A director conflict can arise when a personal interest, another role or a business opportunity competes with the company's interests. It does not always mean the proposed activity must stop, but it does require the correct legal and constitutional analysis before a decision is taken. ^[1]

Identify the interest clearly

Describe the relationship or benefit and the transaction or situation it affects. A director may be connected to a supplier, own a competing business or receive a personal opportunity through company work. Interests of close associates can also be relevant.

Do not limit the review to direct cash payments. Access to information, appointment rights or a benefit to another business may matter even where the director receives no immediate money.

Distinguish different kinds of conflict

The duties concerning conflicts, proposed transactions and benefits from third parties are not interchangeable. Identify which duty and approval mechanism applies. A declaration that would be relevant to one issue should not automatically be treated as permission for another. ^[1]

Obtain advice where a significant transaction or uncertain authorisation is involved. The timing matters: trying to document approval after completion may not achieve the same result as following the proper process beforehand.

Check the constitution and voting position

Review the articles for participation, quorum and voting restrictions. Under common model provisions, an interested director's participation can be restricted, subject to specified exceptions and procedures. The company's actual wording and applicable law need to be checked. ^[2]

If excluding interested directors leaves no quorum, do not simply count them anyway. Establish whether another valid approval route is available.

Use an evidence-based decision pack

• Identify the interest and affected decision.
• Explain the commercial reason for the proposal.
• Compare realistic alternatives and pricing where relevant.
• Record the applicable authorisation and voting process.
• Set conditions or monitoring arrangements if approved.
• Keep the declaration, decision and supporting papers together.

Review continuing conflicts

An ongoing role with another business may need periodic review as activities change. A situation approved on limited facts should not silently expand into a wider permission. Update the board when new information affects the original assessment.

For example, purchasing office services from a director's separate company may require a different review when the arrangement grows into a major long-term contract. Recording the relationship, alternatives, terms and decision process helps the board explain why the arrangement serves the company's interests.

Describe the conflict in terms the board can assess

A declaration should explain the relationship, potential benefit and decisions affected. Saying I know the supplier may be too vague if the director owns part of that supplier or receives referral payments. Give the other decision-makers enough information to identify the applicable duties and assess the commercial proposal.

Separate the existence of an interest from the merits of the transaction. A connected supplier may offer a good service, but that does not remove the need for the correct conflict process. Conversely, disclosure does not mean the board must approve the arrangement. The company still needs to consider price, alternatives, performance and its own requirements.

Check participation before the meeting begins

Review whether the interested director may receive particular information, join the discussion, count in the quorum or vote. These are related but distinct questions. The actual articles and relevant law determine the process. Obtain advice where the remaining board cannot form a valid quorum or the proposed authorisation is uncertain.

For example, two directors both have interests in a proposed property arrangement. Excluding them may leave no eligible decision-maker under the normal procedure. The answer is to identify a valid route before completion, not to omit the declarations from the minutes or assume everyone can vote because the transaction is commercially attractive.

Set boundaries for an ongoing outside role

Where a director also works with another business, define the activities and information involved. A limited approval based on one set of facts may not cover later competitive activity or new access to confidential material. Establish when the director must notify the company of changes and who reviews the continuing position.

Practical controls can include restricted access to particular papers, separate contacts for affected negotiations and clear confidentiality arrangements. These controls should support the legal analysis, not be treated as a substitute for any required authorisation. Record the scope so a later board understands what was considered and what remained outside the approval.

Preserve the company's commercial reasoning

Keep evidence of alternative quotes, valuation advice or other information relevant to the decision. Explain why the proposal served the company's needs and how the conflict was managed. If the terms later change, assess whether the original approval still covers them. A higher price or broader commitment can create a materially different decision.

Use Directors duties: a practical starting point for the wider duties context. Board governance support can help organise the declaration, participation assessment and board records, with specialist advice on the legal authorisation where needed.

A conflicts register can be a useful internal tool, but it is not a substitute for considering the specific decision at the appropriate time.