Researcher with Startup Company - Conflicts of Interest? Looking for your advice on best practices on how to avoid conflicts of research. 

The facts: 


Researcher is a director of a research institute on campus.
Researcher has a start-up company involved in same research as his    university research. 
Researcher uses this company as a way to get Small Business Innovation Research/Small Business Technology Transfer (SBIR/STTR) grants to fund    his lab under subcontracts. 
Researcher has company located on campus in university sponsored    incubator.
Researcher employs a post-doc and shares this post doc with his    company – funding of post-doc is 50/50 between the company and his research center.
Researcher's lab members go between his lab and the company lab space freely. 
Researcher is interested in submitting closely related grants through his research center and through his company as SBIR/STTR.


What are best practices or rules to put in place to minimize conflicts of interest in such a scenario?
First of all, you should know that this sort of setup—a researcher has a side business very closely related to his research—is quite common. It does sound like there are a few unusual details in your story, but the overall picture is standard fare for most universities.

The only direct answer that I can think of is to work very closely with both your advisor and whatever department your university has set up to handle this sort of thing. I went to Pitt, which has an entire department set up to assist with questions like yours. My advisor had a very good working relationship with the university, and I found these people very helpful. You should be able to find this within your university (if it exists) by talking to your department chair. On a very similar vein, Pitt, had a distinct Conflict of Interest department set up for these types of matters as well. They can answer questions.

NOTE: talk to your advisor before doing anything!!! The chance that the university is unaware of this is pretty slim, particularly if he has an SBIR grant. He has probably worked out all the necessary details a long time ago. If you go around raising alarms where none should be raised, you'll end up seriously annoying your advisor and looking like an idiot. You don't want to do that.