Can Founders Have A Side Hustle? The Legal Risks To Consider

Founders tend to have no shortage of ideas.

One idea becomes a business, then another starts taking shape in the background. Perhaps it is a consulting service, a digital product or an entirely new startup. At first, it might be little more than a domain name, a few notes and the occasional late night spent working out whether it has potential.

There is generally nothing stopping a founder from running more than one business. The legal complications usually begin when the new venture crosses into the territory of the company they already have.

The side hustle might target the same customers, use company resources or grow from an opportunity the founder discovered through their existing role. It could also create uncertainty about who owns the idea, the information behind it or the work used to bring it to life.

Before adding another business to your portfolio, it is worth looking carefully at where the two ventures might overlap.

Can Founders Have A Side Hustle?

For the most part, yes. There is no general rule saying that a founder can only run one business at a time.

However, “founder” is not a formal legal position by itself. You might also be a director, shareholder, employee or consultant of the existing business, and each role can come with different responsibilities.

Simply owning shares does not usually place someone under the same statutory duties as a director. However, a Shareholders’ Agreement, Founders’ Agreement or investment agreement may still restrict what they can do outside the business.

A founder who is employed by the company may also have agreed to confidentiality, intellectual property, exclusivity or outside-interest provisions in their employment contract. Someone providing services under a consultancy agreement may have accepted similar restrictions.

Before starting another venture, go back to the documents connected with your existing role. These may include a Shareholders’ Agreement, Founders’ Agreement, employment or service agreement, Articles of Association, investment documents, confidentiality agreement or intellectual property assignment.

The documents may restrict competing activities, require you to devote a particular amount of time to the company or say that approval is needed before you accept outside work or start another business. They may also restrict you from approaching the company’s customers, recruiting its employees or using intellectual property connected with the business.

Restrictions on competing or outside activities are not automatically enforceable simply because they appear in an agreement. Whether they can be enforced will depend on their wording, scope and whether they go further than reasonably necessary to protect a legitimate business interest.

Even so, they should not be ignored. It is far better to understand the restriction before investing significant time and money in a new project than to argue about its enforceability once the venture has started gaining traction.

The fact that the project is still small or has not made any money does not necessarily avoid these issues. A pre-revenue project can still involve company time, confidential information, commercial opportunities and intellectual property.

For an existing founder, the most useful question is not whether the project has officially become a business. It is whether it could interfere with the business they already have.

Could The Side Hustle Conflict With Your Existing Company?

Competition is not always as obvious as two businesses selling the same product.

A side hustle might offer something different but target the same customers. It might rely on the same suppliers, compete for the same partnerships or solve a problem the existing company planned to address later.

There can also be a conflict where the ventures operate in different areas, but the founder has agreed to work full-time in the original business. Something that begins as a few hours on the weekend can quickly turn into customer calls, product launches and another team needing attention.

This becomes particularly important when the founder is also a company director.

Under the Companies Act 2006, directors must promote the success of the company for the benefit of its members as a whole. They must also act within their powers, exercise independent judgement, use reasonable care, skill and diligence, and avoid situations in which their personal interests conflict, or could conflict, with the company’s interests.

That does not mean a director is banned from having other commercial interests. It means those interests need to be managed carefully when loyalties could become divided.

Imagine that customers repeatedly ask your company for a particular service. The company has not developed it, but you can see there is demand. Rather than discussing the opportunity with your co-founders, you launch the service through a separate company and keep the revenue personally.

You might see it as an independent idea that the original business was not pursuing. Your co-founders or investors may see it as an opportunity discovered through the company that should have been offered to the company first.

A director’s duty to avoid conflicts can extend to exploiting property, information or an opportunity connected with their position. Importantly, a conflict may still arise even where the company could not - or did not intend to - pursue the opportunity itself.

Whether an idea can be pursued separately will depend on the circumstances. It may matter how the idea arose, whether the company had already considered it, how closely it relates to the company’s current or planned work and whether company information, relationships or resources were used.

A useful test is to imagine explaining the side hustle at the next board meeting. If you would feel uncomfortable describing where the idea came from, who it targets or how it was developed, the potential conflict probably needs to be addressed before you move any further.

Keep The Businesses Separate - Even If They Work Together

When you help build a company from the ground up, it can be easy to think of its resources as your own.

You may have selected the software, hired the team and personally brought in the first customers. Legally, however, a limited company is separate from the people who own and manage it. Its money and assets belong to the company rather than automatically belonging to its founders or shareholders.

That distinction matters when starting something on the side.

Perhaps a company designer makes a quick logo for the new project. A developer spends a quiet afternoon helping with the prototype. The founder uses an existing software subscription, emails a few contacts from the company database or pays for an expense through the company account with the intention of sorting it out later.

Each decision may seem minor. Taken together, they can make it difficult to work out where one business ends and the other begins.

The side venture should generally have its own accounts, contracts, systems, files, records and branding. Work on the new project should also be separated from the existing company’s working hours and team responsibilities.

This does not mean that the businesses can never help one another.

The side venture may complement the original company. The two businesses might refer customers to each other, share technology or collaborate on a new product. The original company might even want to invest in the new venture.

There is nothing inherently wrong with that arrangement, but it should be treated as a genuine commercial relationship rather than an informal exchange between businesses that happen to share a founder.

Suppose the existing company’s employees will provide product development and administrative support to the side venture. The parties should decide how that work will be charged, who will supervise it and who will own anything the team creates.

If the existing company is providing funding, it should be clear whether the money is a loan, an investment or payment for services. If customers will be referred between the businesses, the arrangement should explain how referral fees, customer relationships and personal information will be handled.

Where one business uses technology, content or branding owned by the other, an intellectual property licence may be appropriate. Depending on the relationship, the businesses might also need a Services Agreement, Referral Agreement or investment documents.

These arrangements can feel unnecessarily formal when the same founder is involved on both sides. In reality, that overlap is exactly why documentation matters. It helps show that the arrangement was properly considered and prevents one business from carrying the costs while the other receives most of the value.

Be Clear About Intellectual Property And Confidential Information

Intellectual property is often where a casual side project becomes a serious disagreement.

A founder may begin writing software, developing a product or creating a new brand after hours and assume the work belongs to them. The answer may be less straightforward where the work relates closely to the existing company, was created under an agreement containing a broad IP assignment or involved company employees and contractors.

Ownership will depend on the type of intellectual property, how it was created and the terms of the relevant agreements.

For copyright works, the creator is usually the first owner. However, where an employee creates copyright work in the course of their employment, the employer will normally be the first owner unless the parties have agreed otherwise.

A freelancer or independent contractor will generally retain copyright in commissioned work unless ownership is transferred under a written agreement.

This can produce some awkward outcomes.

If an employee from the original company helps develop the new product, their work may belong to their employer rather than the founder or side venture. If a freelancer is hired without suitable IP terms, the freelancer may continue to own copyright in the website content, artwork or software code the new business relies on.

Problems can also arise where the side hustle builds on technology, templates, designs, content or processes already owned by the existing company. Even where the founder originally created those materials, they may have transferred ownership to the company under an employment, consultancy or IP assignment agreement.

Written agreements should identify what each business already owns, who will own anything newly created and whether either business has permission to use the other’s intellectual property.

Confidential information needs similar care.

Founders often know almost everything about their companies. They may have personally developed the pricing model, built customer relationships and negotiated supplier terms. That does not necessarily mean they are free to take that information into another venture.

Customer lists, supplier arrangements, product plans, internal systems, financial information and market research may all be confidential. Using them for a side hustle could breach contractual confidentiality obligations and, where the founder is a director, the duties attached to their position.

A director’s obligations relating to company property, information and opportunities may also continue after they leave office. Stepping away from the board does not necessarily make information or opportunities obtained as a director available for personal use.

Customer data adds another layer of risk.

Moving a customer database from the existing company to a separately owned venture involves sharing personal data between two different organisations. Both businesses need to consider whether there is a lawful basis for the disclosure and further use, whether the new use is compatible with the purpose for which the information was collected and what privacy information must be given to the people concerned.

The relevant framework includes the UK GDPR, the Data Protection Act 2018 and the Privacy and Electronic Communications Regulations, commonly known as PECR, as amended by the Data (Use and Access) Act 2025.

Marketing emails and text messages to individuals generally require consent unless the limited existing-customer exception, known as the soft opt-in, applies.

The soft opt-in usually relates to an organisation marketing its own similar products or services to its existing customers. A separately owned side venture should not assume that it can rely on consent or customer relationships obtained by the original company.

The rules differ in some business-to-business situations. For example, prior consent is not generally required to send marketing emails to corporate subscribers, although data protection obligations may still apply where an identifiable employee’s details are used. Sole traders and some partnerships are treated more like individuals under PECR.

In every case, objections and opt-outs must be respected.

Starting with a fresh customer database may take more work, but it is usually much cleaner than quietly copying the old one across.

Should You Tell Your Co-Founders Or Investors?

Not every weekend project needs a formal board presentation.

However, where the venture could compete with the company, use its resources or benefit from an opportunity discovered through it, disclosure may be legally necessary. It is also often the simplest way to avoid a disagreement later.

Where a side venture creates, or could create, a conflict of interest, the founder should disclose it to the board and follow the process set out in the company’s Articles of Association and any relevant shareholder or investment agreements.

Depending on the company and its Articles, the conflict may be capable of being authorised by the other directors or may require shareholder approval.

The interested director should not assume they can approve the arrangement themselves, take part in the decision or count towards the required quorum. The exact process will depend on the company’s Articles and the type of conflict involved.

A separate issue can arise if the side venture enters into a contract or other arrangement with the existing company. For example, the original company might lend money to the new venture, buy services from it or license technology to it.

In that situation, the director may have an additional duty to declare the nature and extent of their interest in the proposed transaction or arrangement.

Even where formal approval is not clearly required, having the conversation early can help everyone agree on where the boundaries sit.

For example, the original company may be comfortable with the new venture provided it does not target particular customers, use company employees or interfere with the founder’s agreed working commitments. The parties might also confirm that the company will not claim ownership of the project as long as no company IP, confidential information or commercial opportunities are used.

The outcome should be properly recorded. Depending on the company and the decision being made, this might involve board minutes, a written resolution, a consent letter or an amendment to an existing agreement.

A vague conversation in which someone said the project “sounded interesting” may not be enough if the new venture later becomes valuable.

Clear written approval can explain what was disclosed, who approved it and what conditions apply. It can also give the founder more confidence to develop the venture without wondering whether a dispute is waiting around the corner.

Getting The Boundaries Right

Founders do not need to stop having ideas just because one of them has already become a business.

A side hustle can be a useful way to explore a different market, diversify income or test an idea that does not fit within the existing company. The problems usually arise when the founder treats the company and their personal venture as though they are interchangeable.

Before launching, review the agreements connected with your existing role and consider whether the new venture could compete with the company or use an opportunity discovered through it.

Think carefully about where the project’s money, people, information and intellectual property are coming from. If there is a genuine conflict, raise it with the appropriate co-founders, directors or investors and document the outcome properly.

Where the businesses will share resources or work together, put a clear commercial arrangement in place.

Founders are free to keep building, but a new idea is not automatically separate simply because it is developed after hours. Clear boundaries at the beginning are far easier than trying to untangle two businesses after the side hustle has taken off.

A legal expert can review your Shareholders’ Agreement, Founders’ Agreement, employment arrangements and Articles of Association and help document any consent, IP licence or services arrangement the businesses may need.

If you would like help reviewing your company documents or advice on starting a side hustle as a founder, you can reach us at 08081347754 or team@sprintlaw.co.uk for a free, no-obligations chat.