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Approvals required for the establishment of a company

Purpose

This bulletin is to advise local governments of the circumstances where the Treasurer’s approval must be sought for the establishment of a company.

Background

There has been some confusion recently around the requirement for councils to seek the Treasurer’s approval prior to establishing a company. The simplification of the Local Government Act 2009 with regards to the beneficial enterprises provisions has made this position clearer. That is, councils have a specific power to establish a company for the purpose of conducting a beneficial enterprise. In these cases, the Treasurer’s approval is not required. However if a council wishes to establish a company for a purpose other than to conduct a beneficial enterprise, the Treasurer’s approval must be obtained.

Key points

Under section 60A of the Statutory Bodies Financial Arrangements Act 1982 (SBFA Act), a statutory body (which includes local governments) may, with the Treasurer’s approval, enter into a type 1 financial arrangement. The meaning of a type one financial arrangement includes (amongst other things):

  • entering into a joint venture, partnership or trust
  • forming, or participating in forming, a corporation and
  • acquiring, consolidating, dealing with, disposing of, holding or issuing bonds, debentures, inscribed stock, shares or other securities of any statutory body or corporation.

Typically, section 60A requires the Treasurer’s approval before a statutory body enters into a type 1 financial arrangement. However, the SBFA Act provides that if a statutory body has an express power under its authorising act to enter into a proposed type 1 financial arrangement, no approval by the Treasurer is required.

The beneficial enterprises provisions (BEP) of the Local Government Act 2009 and City of Brisbane Act 2010 provide an express power to local governments to:

  • form, or take part in forming, an association and
  • acquire or dispose of shares, debentures or securities of an association.

The BEP define ‘association’ as:

  • a partnership
  • a corporation limited by shares (but not listed on the stock exchange)
  • a corporation limited by guarantee (but not listed on the stock exchange) or
  • another association of persons that is not a corporation, for example, a joint venture.
  • However, the BEP expressly prohibit local governments from participating with an unlimited corporation (i.e. a corporation whose members have no limit placed on their liability).

    Therefore if the purpose of the proposed company is to conduct a beneficial enterprise the BEP provide an express power for the local government to do so, and the Treasurer’s approval is not required. (A beneficial enterprise in this instance is defined as an enterprise that the local government considers is directed to benefiting the whole or part of its local government area.)

    The Treasurer’s prior approval must be obtained in the following situations:

    • if the purpose of the proposed company is not to conduct a beneficial enterprise
    • for the establishment of a trust, even its purpose is deemed to be a beneficial enterprise
    • entering into a joint venture, if its purpose is not to conduct a beneficial enterprise and
    • for particular financial arrangements between a local government and a beneficial enterprise or controlled entity, such as the provision of loans (a type two financial arrangement under the SBFA Act).

    Whether or not the Treasurer’s approval is required to establish a company, local governments must ensure that the activity will be conducted with better economy, effectiveness, efficiency and accountability in the ‘company form’. To assist with achieving these objectives, Queensland Treasury and Trade has issued the Guidelines for the Formation, Acquisition, and Post Approval Monitoring of Companies. The department strongly recommends that local governments review this document.

    Applicable legislation

    • Local Government Act 2009
    • City of Brisbane Act 2010
    • Statutory Bodies Financial Arrangements Act 1982
    • Auditor-General Act 2009
    • Further information

    Further information

    For any further enquiries on this matter please contact the department.

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