Sooner or later every founder-director sits on both sides of a board decision. The company licenses IP you personally own. It leases an office from your family trust. It buys back a departing co-founder’s shares, approves your own salary review, or repays a loan you made in the lean months. Somebody half-remembers a governance course and says you can’t vote on this — that’s section 195.
Half right, and the half that’s wrong matters. Section 195 of the Corporations Act 2001 (Cth) — the provision that bars a conflicted director from voting or even being in the room — applies to directors of public companies only. It says so in the heading. Your startup Pty Ltd is governed by a different, looser statutory regime — which is precisely why the constraints that actually bind you are the ones founders forget to check.
The Baseline for Every Company: Disclose Under Section 191
Section 191 applies to directors of all companies, proprietary or public: a director who has a material personal interest in a matter that relates to the affairs of the company must give the other directors notice of it. The notice must set out the nature and extent of the interest and how it relates to the company’s affairs, and — unless you’re using a standing notice under section 192 — the Act requires it to be given at a directors’ meeting, as soon as practicable after you become aware of the interest, with the details recorded in the minutes (s 191(3)–(4)). An email between meetings doesn’t satisfy section 191. Failing to disclose is a criminal offence, and strict liability applies to elements of it — ASIC doesn’t have to prove you meant to hide anything.
The exceptions in section 191(2) are narrower than founders assume, but three matter in startup land:
- Interests shared with other members — your interest as a shareholder in, say, a dividend or a rights issue, held in common with the other holders, doesn’t need a notice;
- Your own remuneration as a director — carved out of the notice requirement (though not out of your duties — more below); and
- The proprietary company awareness exception — no notice is needed if the other directors are already aware of the nature and extent of the interest and how it relates to the company’s affairs. In a two-founder company where everyone knows you own the pre-incorporation IP, this technically saves you. Rely on it sparingly: “everyone knew” is exactly the sort of thing that becomes contested three years later in a shareholder dispute. A minute costs one sentence.
Two housekeeping points. A sole director of a proprietary company doesn’t need to give notice to anyone — section 191 simply doesn’t apply. And for recurring interests (your holding in the founder entity that owns the IP, your directorship of a sister company), section 192 lets you give a standing notice once, rather than re-declaring at every meeting — though the standing notice lapses when a new director joins until it’s given to them, and a new notice is needed if the nature or extent of the interest materially increases beyond what was disclosed.
Can You Vote? For a Pty Ltd, Check Three Documents, Not Section 195
For proprietary companies, the Act’s starting position is founder-friendly. Section 194 — a replaceable rule — says that if you’ve disclosed the interest under section 191 (or it’s exempt from disclosure), you may vote on the matter, the transaction may proceed, you may retain the benefit, and the company can’t avoid the transaction merely because the interest exists. Watch the timing, though: where disclosure is required, the last two protections — keeping the benefit, and the transaction being safe from avoidance — only apply if the disclosure was made before the transaction was entered into. Disclosure after the fact doesn’t retro-fit them, and those are the two protections a founder actually cares about.
But section 194 is only the default, and almost no funded startup runs on the defaults:
- Your constitution. Most startup constitutions displace the replaceable rules wholesale and substitute their own interested-director clause. Many mirror section 194; some are stricter, requiring a majority of non-interested directors to approve. Read the actual clause, not the section.
- Your shareholders’ agreement. Post-raise, this is where the real rules live. Standard Australian VC documents put related party transactions on the reserved matters schedule — meaning the deal needs investor consent regardless of how the board votes — and frequently add an express conflicted-director voting restriction that operates like a private section 195. The constitution and shareholders’ agreement can each impose their own hurdle; you need to clear both.
- The general law. Section 193 preserves it expressly: the disclosure rules in sections 191 and 192 operate in addition to, not in derogation of, the general law on conflicts and anything stricter in your constitution — complying with the statute does not excuse you from your fiduciary obligations. As a fiduciary, a director who profits from an undisclosed conflict holds the profit on trust for the company, and the company may be able to rescind the transaction — fully informed consent is the safe harbour, not silence. Layer on the statutory duties: section 181 (good faith in the company’s best interests, proper purposes) and sections 182–183 (no improper use of position or information to gain an advantage for yourself). ASIC v Adler [2002] NSWSC 171 remains the cautionary tale: channelling company money into transactions benefiting a director’s interests, without proper approvals, produced disqualification and compensation orders — the board-level paperwork would have been cold comfort even if it had existed.
So the honest answer to “can I vote on my own related party deal in a Pty Ltd?” is usually: yes, if you’ve disclosed on time and the constitution and shareholders’ agreement don’t say otherwise — but whether you should is a different question. Where the numbers are material — a founder share buyback, an IP purchase, anything above rounding-error size — best practice is to disclose, table any independent evidence of value you have, let the non-conflicted directors carry the vote, and record all of it. Not because section 195 requires it, but because the alternative failure mode isn’t a statutory penalty: it’s a minority shareholder pointing at a self-approved deal in an oppression claim under section 232, or a Series A due diligence team repricing your governance hygiene in real time.
And if the deal is a loan or payment flowing from the company to a founder or founder entity, remember the tax overlay runs in parallel: Division 7A doesn’t care what the board minutes say.
What Changes When You Go Public
Convert to a public company — ahead of an IPO, or because your register is heading past 50 non-employee shareholders (employee shareholders and crowd-sourced funding investors don’t count toward the limit) — and two much harder regimes switch on at once.
Section 195: out of the room, not just off the ballot. A public company director with a material personal interest in a matter being considered at a directors’ meeting must not vote on it or be present while it’s considered. Contravening it is a strict liability offence. The section 191(2) carve-outs flow through, though: section 195 only restricts a director whose interest needs to be disclosed under section 191, so an interest that’s exempt from disclosure — your remuneration as a director, an interest held in common with the other members — doesn’t trigger the ban (whether the pay itself passes muster is Chapter 2E’s job, below, and abstaining on your own package remains good governance even where the Act allows you in the room). Beyond that, the escape hatches are procedural: the non-conflicted directors can pass a resolution identifying the director, the nature and extent of the interest, and stating they’re satisfied it shouldn’t disqualify the director (s 195(2)); ASIC can make a declaration under section 196 (s 195(3)); and if so many directors are conflicted that the board can’t form a quorum, the matter can be escalated to a general meeting (s 195(4)). On the small boards startups take into a conversion — two founders and one independent — quorum failure is not a hypothetical, which is one more reason board composition work belongs on the conversion checklist.
Chapter 2E: member approval for related party benefits. Section 208 — the operative rule of Chapter 2E (ss 207–230) — requires a public company (or an entity it controls) to obtain shareholder approval before giving a financial benefit to a related party — a class that includes directors, their spouses, parents and children, and entities controlled by any of them. “Financial benefit” is read broadly and informal or indirect benefits count. The exceptions do the heavy lifting: benefits on arm’s length terms (s 210), reasonable remuneration (s 211), and a handful of others. Breach doesn’t invalidate the transaction, but it’s a civil penalty matter for anyone involved — Chapter 2E was the other limb of Adler. The practical effect: deals a Pty Ltd board could approve over a video call on a Tuesday need a notice of meeting, an explanatory statement and a shareholder vote once you’re public, unless you can genuinely stand behind an arm’s length analysis.
The Founder’s Protocol
For any transaction where you’re on both sides, run the same five steps regardless of company type: declare early (before the deal is signed, in writing, minuted — or by standing notice); check the constitution and shareholders’ agreement for voting restrictions and reserved matters; let the non-conflicted approve wherever the board makeup allows it; evidence the value — a comparable licence rate, a market rent appraisal, a share valuation — so the deal can be defended as arm’s length later; and paper it like the counterparty was a stranger. Conflicts aren’t the breach. Unmanaged ones are.
This article is general information only, not legal advice — how a conflicted transaction should be approved turns on your constitution, your shareholders’ agreement and who else sits on your board. Viridian Lawyers advises Australian startups, founders and investors on governance, related party transactions and capital raising. If you’re about to sign a deal with yourself on the other side of it, get in touch before the board meeting, not after.
