Naveeda Ikram faced claims that she lobbied council officials to win contracts for a company run by a friend.
She was said to have "a financial interest" in the success off Nexus Assist Ltd, which helped young people leaving care in Bradford.
And prosecutors alleged that she gave "financial support" to the company's boss, Ali Arshad, even guaranteeing his tenancy on a property in North Park Road.
She was accused of "lobbying for paid work" on behalf of Nexus and "promoting" the company to officials without declaring a financial interest.
Ms Ikram, who was a councillor from 2004 and Lord Mayor in 2011/12, denied any wrong-doing.
She had never sought contracts for Nexus, had no financial interest in the company and "did not abuse the public's trust in her."
The case against her was last year thrown out at Leeds Crown Court by Judge Geoffrey Marson QC, who said she had "no case to answer".
Prosecutors refused to throw in the towel, however, and challenged the judge's decision at the Court of Appeal in London.
Clearing her today, Lord Justice Treacy said there was "no sustainable evidence" that she had sought council contracts on behalf of Nexus.
And Judge Marson had been justified in describing the evidence against Ms Ikram as "wholly insufficient".
"The evidence had simply not reached the sort of level which would constitute a financial interest which should have been declared," he added.
Lord Justice Treacy said there had been "insufficiently rigorous analysis" by prosecutors of what the evidence was actually capable of proving.
Judge Marson's decision to terminate Ms Ikram's prosecution was confirmed.