Can a board member take a referral reward without a conflict of interest?
A board member can earn a referral reward only if the conflict is handled first: disclose the reward to the board before the company engages, step out of the decision, let disinterested directors approve or refuse under the conflict policy, and clear any sponsor or fund rules. If that cannot be done cleanly, make the introduction and decline the reward.
The short answer: disclose, step back, then decide on the reward
A director can take a referral reward connected to their own company only after the board knows about it and has had a real chance to say no. The reward ties the director's personal income to a company decision: whether to license data through SourceX, how much to license and on what terms. That is a conflict of interest in the ordinary governance sense, even though the money comes from SourceX rather than from the company.
US corporate law generally expects directors to put the company's interests ahead of their own, which is the duty of loyalty. State corporation statutes commonly protect a transaction in which a director has a personal interest when that interest is disclosed and the transaction is approved by disinterested directors or shareholders, or is fair to the company. The exact steps depend on the state of incorporation, the charter and bylaws, any shareholder agreement and the company's own conflict-of-interest policy, so the company's counsel should confirm them.
Why the conflict exists when the company pays nothing extra
The SourceX reward is a share of SourceX's fee and is never deducted from what the company receives. The director's interest is still real:
- The reward exists only if the company signs a license, so the director gains if the board says yes.
- It grows with the fees SourceX collects, up to the cap, so the director gains if the deal is larger.
- It is paid after the buyer pays, so the director gains if the deal closes quickly.
Partners earn 25% of the eligible platform fees SourceX actually collects from the referred company's licensing deals, capped at $100,000 per referred company; rewards become payable only after the buyer pays and SourceX receives its fee, and no reward is guaranteed. A board can approve an interest like that. It cannot approve one it has not been told about.
How it plays out in common board seats
| Seat | What to check | Typical outcome to confirm with counsel |
|---|---|---|
| Sponsor-appointed director at a PE-backed company | Fund LPA and side letters on fee offsets, the sponsor's policy on director compensation, LP reporting | Fund documents may require the reward to be offset, reported to investors or declined |
| Independent director | Company conflict policy, annual D&O questionnaire, related-party review by the audit committee | Written disclosure, recusal, approval by the disinterested directors |
| Advisory board member | Advisory agreement, confidentiality terms, any clause on payments from vendors | Often governed by the contract rather than fiduciary duty; disclose in writing to the CEO and board anyway |
| Director who holds FINRA registrations | The broker-dealer's outside activities rules | Tell compliance before agreeing; FINRA Rule 3290, approved in September 2026, will replace Rules 3270 and 3280 once its effective date is announced (FINRA update) |
| Director whose firm advises on a pending sale | Engagement letter, deal team, buyer diligence | Coordinate with the deal team; declining the reward is usually simpler |
| Director who is also the company's outside CPA or lawyer | Professional rules on commissions and fee sharing | See can a CPA accept a referral fee or can a lawyer accept a referral fee from a non-lawyer business |
A safe path for sponsor-appointed directors
- Raise it inside the sponsor first. Tell the deal partner and the firm's general counsel or chief compliance officer before mentioning SourceX to the portfolio CEO.
- Read the fund documents. Check whether the LPA treats director or transaction-related fees as offsets against management fees, and whether the sponsor lets individuals keep them.
- Disclose in writing to the portfolio company board: who pays, the formula, the trigger and the cap.
- Step out of the decision. Recuse from board discussion and any vote on engaging SourceX or approving license terms.
- Record the approval in minutes, or in a written consent signed by the disinterested directors.
- Only then register as a partner and make the introduction, passing on basic fit facts rather than company records.
- Revisit the disclosure if the company starts a sale process, raises capital, or your role on the board changes.
On the company side, nothing becomes binding until the company agrees price and terms and signs. SourceX checks headcount (50+ full-time employees at peak, contractors excluded), operating history, the breadth of records and the company's rights to them; the company builds its data inventory; buyers review; and records are delivered only under an executed agreement, with redaction rules agreed in advance. Before raising it at all, the company fit checker gives a quick, non-binding read.
What to say to the board
Questions to ask the company's counsel
- Which statute, and which provisions of our charter, bylaws or shareholder agreement, govern director conflicts?
- Who counts as disinterested for this approval, given that the sponsor appoints several directors?
- Does our policy send this to the audit committee as a related-party arrangement?
- Should the minutes record the reward formula, or only that an interest was disclosed?
- Does the approval need refreshing if the license scope or price changes?
When to make the introduction without the reward
- The company is in a sale or financing process where buyers or investors will scrutinize director interests.
- The board is too small to approve anything without you.
- The fund documents would send the reward straight to a management fee offset, and you would rather keep the record clean.
- The company's conflict policy bars directors from taking compensation from counterparties.
In each case the company's economics are the same either way, because the reward never comes out of its proceeds. The CEO can apply directly at sourcex.si/apply.
A note on tax reporting
If you accept a reward personally as a US taxpayer, it may be reported to you on Form 1099-NEC; the IRS instructions for Forms 1099-MISC and 1099-NEC explain when. Reporting thresholds have changed recently, so confirm the current position with your tax adviser.
This is general information, not legal, tax or financial advice. Confirm with your own counsel, tax adviser or professional body before acting.
Next step
See who earns from SourceX referrals and the program terms. When the board has approved, or you have decided to proceed without the reward, register as a partner and make the introduction.
- Step 1Share your linkSend your personal link to a company you know.
- Step 2Company appliesThe company applies itself at /apply.
- Step 3Buyer selects and paysThe buyer selects and pays for the data and SourceX receives its fee.
- Step 4You get your rewardYour share of SourceX fees becomes payable.
Common questions
Is an advisory board member held to the same conflict standard as a director?
Usually not in the legal sense. Advisory board members typically have no vote and no statutory authority, so their obligations come mainly from the advisory agreement, including confidentiality and any conflict clauses. The governance logic is the same, though: the CEO and board should hear about the reward before the company decides, in writing, and the adviser should stay out of the decision.
Does the board need to hear about the reward if the company never signs a license?
Yes. Disclose before the company engages, not after a deal closes. The point of disclosure is to let the board weigh your interest while it decides whether to explore licensing at all. If the company never signs, no reward is paid and the disclosure simply stays in the minutes, showing the board decided with full information.
Can a deal-team member who is not on the portfolio company's board earn the reward?
That depends mainly on the sponsor's policies and the fund documents rather than on director duties to the company. Your firm's compliance manual may require investment professionals to clear any outside compensation linked to portfolio companies. Treat it the same way: tell compliance first, check the LPA, and make sure the portfolio company knows about the interest before it engages.
Should the reward be paid to the fund or the management company instead of me?
That is a question for the fund documents and the program terms together. Some LPAs require fees that investment professionals earn in connection with portfolio companies to be shared with or offset for investors. Read the relevant sections with fund counsel, and check the published terms on who can be the registered partner, before you register.
Does a data license itself need board approval?
That depends on the company's governing documents, its delegation of authority and the size of the deal. An exclusive license of the company's records for AI training over an agreed term is the kind of contract many boards want to review. Nothing is binding until the company agrees price and terms and signs, so the board has time to decide.
Related pages
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By SourceX Partnerships Team · Published 2026-10-09 · Updated 2026-10-09
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