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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):

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:

The BEP define ‘association’ as:

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:

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

Further information

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

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