The warning comes after a spat at Stubbings Infant School in Hebden Bridge, Yorkshire, where the relationship between head teacher Sarah Collins and school governors broke down.
The disagreement occurred over Collins' directorship of Schools Out Ltd, which ran clubs at the school.
Calderdale Council has now ordered governors to work closely with the council in running the school and confirmed that Collins is now on long-term sick leave.
Anne Longfield, chief executive of 4Children, is not surprised the situation created friction between the governing body and head teacher.
She said: "I would strongly advise against a head teacher as an individual being personally involved with a company that provides services to the school. It presents a serious conflict of interest."
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