Who Decides When Interests Collide? A Conflict Register for the Owner-Managed Board

In an owner-managed company, conflicts of interest are rarely dramatic. They usually arrive as a sensible-sounding arrangement: the company leases premises from a director, buys services from a family member, or shares staff with another business owned by the same people. The risk is not that every such arrangement is improper. The risk is that nobody records how it was approved.

Directors' duties under the Companies Act 2006, including the duty to avoid conflicts under section 175, apply to small companies as much as large ones. The articles of association and any shareholder agreement may add further rules. This article is a practical protocol, not legal advice; where a transaction is material, take advice on the specific facts.

Why a register matters more than a policy

A policy that lives in a folder proves little. A register that is reviewed, minuted and applied to decisions is governance evidence. For an SME without a company secretary, the register is the memory of the board. It shows that directors identified interests, disclosed them and handled the decision in a consistent way.

The register should be simple enough to maintain. A spreadsheet with controlled access is usually better than an elaborate system nobody updates. The chair or a nominated director should own it, with the finance lead or external accountant providing a sense-check at year end.

What to record, and what not to

Record the facts needed to manage the conflict, not unnecessary personal detail. A useful entry includes:

• the director or connected person;
• the nature of the interest, such as a directorship, shareholding, property interest, family relationship or external business;
• the related party or entity involved;
• the date the interest was identified and the date it was declared;
• the board or shareholder decisions affected;
• how the conflict was managed, for example recusal, independent advice or shareholder approval;
• the review date and status.

Avoid turning the register into a diary of private financial affairs. The test is relevance to the company's decisions. A director's unrelated personal investment is not usually the point; a director's ownership of the company's landlord is.

Declaration routines that survive a busy year

A single annual declaration is better than nothing, but it is not enough. Build declarations into the rhythm of the board.

At the start of each board meeting, make a standing agenda item: declarations of interest in relation to any item on the agenda. The chair should ask specifically, not rely on general silence. If a director becomes aware of an interest during the meeting, they should declare it at once and the board should decide how to handle the item.

New directors should complete a declaration at appointment. Existing directors should refresh their declaration annually, ideally before the accounts are approved. Any material change, such as acquiring a property that the company may lease, should trigger an ad hoc declaration.

For SMEs, a short written declaration form works well. It can list directorships, shareholdings above a sensible threshold, family relationships relevant to suppliers or customers, property interests and any other business interests that could conflict. The chair should review the responses and update the register.

Related-party decisions: the rules before the meeting

When a conflict is declared, the board needs a decision rule before discussion begins. Otherwise the conversation drifts into negotiation with an interested director in the room.

First, identify whether the interest is direct or indirect. A director who owns the landlord is directly interested in a lease decision. A director whose spouse owns a supplier may be indirectly interested.

Second, decide whether the director should withdraw from discussion and voting. In many small companies, recusal from voting is expected for material related-party transactions. Whether they should also leave the room depends on the articles, the shareholder agreement and the sensitivity of the matter. Leaving the room is often cleaner for material transactions, but it can create a quorum problem.

Third, protect the quorum. If recusal would leave too few directors to decide, the board may need to adjourn, seek shareholder approval, obtain independent advice or follow a reserved matter procedure in the shareholder agreement. Do not invent a workaround in the meeting.

Fourth, consider shareholder approval where the articles, shareholder agreement or the nature of the transaction require it. A director who is also a shareholder may have voting rights in general meeting that are separate from board voting rights; check the documents rather than assuming.

Minute wording that protects the board

Minutes do not need to be elaborate, but they should show the sequence: declaration, management, decision. A practical pattern is:

The director declared an interest in item 7, being the proposed lease of premises from a company in which the director holds a controlling shareholding. The director withdrew from discussion and voting. The remaining directors considered the valuation advice and resolved to approve the lease on the terms set out in the papers, subject to shareholder approval.

For a less material matter, the minute might record that the director declared an interest, remained for discussion but did not vote, and that the board noted the management step agreed. The key is consistency. If the company says interested directors do not vote on related-party transactions, the minutes should show that happened.

Where the board obtains independent advice, record who advised, what was reviewed and what the board concluded. Where shareholder approval is sought, cross-refer to the resolution and keep it with the board papers.

The annual review

Once a year, reconcile the register against the minutes, the related-party disclosures in the accounts and any new shareholder agreements or articles. Ask three questions: are the entries current, are the management steps evidenced, and are there transactions involving directors or connected persons that were not captured?

The review is also the moment to check whether the register is being used. A register with no updates for two years may be accurate, or it may be ignored. The chair should be able to explain the difference.

For an owner-managed board, the aim is not to bureaucratise every family arrangement. It is to make sure that when interests collide, the company can show who knew, who decided and why. That record is useful in an audit, a shareholder dispute or a sale process. More often, it is useful simply because it keeps the board honest.