Labour's Mark Macmillan, who leads the administration in Renfrewshire, was found to have breached the Councillors' Code of Conduct by the Standards Commission for Scotland.
However, his four-week ban from sitting on Renfrewshire's economy and jobs policy board will see him miss just one meeting.
Although he is understood to be the first council leader to have been found to have breached the code, his job as head of the administration will not be affected by the sanction.
Mr Macmillan, a prominent Labour member on the umbrella body for Scotland's 32 councils, was on a board that allocated the funds so KibbleWorks could clean up "eyesore" sites in Paisley.
However, Mr Macmillan did not declare his employment with Kibble's parent organisation and the SNP opposition made a formal complaint.
A hearing was held into the matter yesterday, after which the panel chairman said: "The councillor not only failed to declare a financial interest and participated in a vote on the motion but also spoke to and seconded the proposal in its favour. The public has a right to expect due diligence from its councillors."
Mr Macmillan said he had made an "honest mistake" and that the Standards Commission recognised his "action was not wilful, nor deliberate".
He said: "The Commissioner for Standards in Public Life has made it clear that the breach had been an oversight and was not intentional.
"I would point out that it was me who raised the issue of my participation in the discussion at committee with senior council officials minutes after that meeting ended. I then publicly apologised for the error at the next council meeting and throughout this investigation I have co-operated fully."
An SNP spokesman said: "Cllr Macmillan's actions were clearly out of line, and the Standards Commission was right to take action against him."