Creating a conflict of interest policy for your UK startup: a practical guide

Why a conflict of interest policy matters, even when the team is tiny

When you are a two- or three-person startup, you probably know every detail of each other’s outside projects. That closeness can make a formal conflict of interest policy feel unnecessary. But as soon as you take on outside investment, bring in non-executive directors, or start issuing equity to early team members, things shift. You need a clear record of how you handle situations where someone’s personal interest might tug against the company’s.

A written policy does a few practical things: it sets out what you expect, creates a habit of early disclosure, and gives you a paper trail if a decision ever gets challenged. Investors and acquirers will look for it during due diligence, alongside your anti-bribery policy and articles of association. It also helps founders themselves, because it separates the “we all trust each other” feeling from a process that makes that trust visible on paper.

What a conflict of interest looks like in a small startup

A conflict is not always sinister. It can be as ordinary as a director who also advises another company in a related space, or a founder who wants the startup to sign a contract with a relative’s consultancy. Common examples include:

• a director or employee with a financial interest in a supplier, customer or competitor
• a personal relationship with someone who would benefit from a company decision
• using company time, contacts or assets for a side project not owned by the business
• taking up a non-executive role elsewhere that could consume attention or lead to overlapping IP
• a co-founder who receives a share of revenue from a partnership and has a hand in approving the terms

The aim is not to ban every outside activity. It is to make sure decisions that involve a personal interest are surfaced, discussed, and documented before the company commits.

What to include in your policy

A policy for an early-stage startup does not need to run to ten pages. Keep it plain and actionable. The core sections:

1. A plain-English definition

Explain that a conflict arises when someone’s personal, family or outside business interest could influence, or appear to influence, their judgment on a company matter.

2. Who it applies to

Cover directors, employees, permanent contractors and anyone with authority to make or influence decisions. You can keep the scope wider than just senior people, because in a small team even junior colleagues might have purchasing power.

3. Examples that feel real

Give everyday examples that match your startup’s size. Avoid purely legal boilerplate. People are more likely to disclose if they see their own situation in the examples.

4. A duty to disclose

State that anyone covered by the policy must promptly declare a conflict, or a potential conflict, to a designated person. That might be a co-founder, the board, or a manager. The disclosure should be in writing, even if it is just an email. You can provide a simple form, but the key is getting it documented.

5. How you handle disclosures

Explain what happens next. Usually, the person with the conflict will not participate in the relevant decision. The board or the other founders will consider the matter, decide whether to approve the activity (with or without conditions), and minute the outcome. Transparent minutes are your best defence later.

6. A register of interests

Create a central record where you log declared interests and any decisions taken. This can be a simple spreadsheet stored in your document hub. At the start of each board meeting, invite directors to confirm their register entries are up to date or declare anything new. This turns the policy into a recurring routine, not a one-off exercise.

7. Consequences of non-disclosure

Make clear that failing to disclose a conflict, especially if it harms the company, is a serious matter that could lead to disciplinary action or removal from office. The tone should be factual, not threatening.

When and how to adopt the policy

You do not need to hold a full board meeting to adopt it, though a board minute works well. Many startups approve a conflict of interest policy through a written resolution signed by all directors, then circulate it to employees as part of onboarding. If you already have a staff handbook or a document hub, add the policy there and reference it in your directors’ service agreements and employment contracts.

The earlier you adopt it, the easier the conversations become. A founder who later takes a board seat at another startup will find it much simpler to have the disclosure chat if the process was already in place before the opportunity arose.

Keeping it alive in a team of fewer than ten people

Small teams sometimes worry that a formal policy will feel heavy. You can avoid that by:

• talking through a couple of realistic examples in a team lunch session
• having the designated person ask a quick check-in question at monthly management meetings: “Any new interests to note?”
• reviewing the register of interests at the same time as your monthly compliance review

The aim is to normalise disclosure. When someone says “I should note that my sister works at a potential supplier,” it should feel like good housekeeping, not an admission of guilt.

What to watch out for

• Conflicts that overlap with existing agreements. Check your shareholders’ agreement and employment contracts for existing clauses on outside interests. The policy should complement those, not contradict them.
• Unwritten understandings. A verbal “don’t worry about it” doesn’t protect the company. Write down the disclosure and the decision.
• Overly rigid rules. If you ban any outside work entirely, you might inadvertently trip up a developer who contributes to an open-source project on weekends. Use judgment.

Remember: every startup’s situation is different. If you have a particularly layered relationship with another business, or a director who already faces potential conflicts, it is wise to consult a solicitor to make sure the policy fits your circumstances. This guide is not legal advice.

A clear conflict of interest policy is not about distrust. It is about protecting the decisions your startup makes, the people who make them, and the trust others place in your governance.