E6 - Council-owned Companies

1. Introduction

1.1 The Council has various statutory powers to enable it to set up a company or companies, which may take various forms.

1.2 This chapter refers to Council-owned Companies (companies that the Council has established to deliver services, manage or develop assets or meet Council objectives) but applies equally to any vehicle the Council may incorporate or otherwise establish under its statutory powers. The provisions in this chapter apply to existing Council-owned Companies and any similar vehicles that the Council sets up or in which it decides to participate.

1.3 Any Council-owned Company must be managed effectively, and the Council must ensure that any Council-owned Company delivers the objectives for which it was established, including any authorised revisions to its initial objectives and business plan.

1.4 There must also be transparent and robust governance in place for any Council-owned Company so that the Council has effective and appropriate oversight of its activities.

1.5 Any new limited company arrangements will only be established if they can clearly demonstrate the capacity to delivery significant financial savings with limited financial outlay and minimal exposure to risk. Any not for profit vehicles, such as Community Interest Companies, will need to be assessed to establish whether it is the correct vehicle, given the associated costs in establishing and administering such a vehicle.

2. Considerations for setting up a Council-owned Company

2.1 Before setting up a Council-owned Company, the Council should take the following factors into consideration:

• The legal form the Council-owned Company will take;
• A realistic assessment of all potential risks;
• How the Procurement Regulations apply, including the Teckal exemption;
• How and when the Council-owned Company will be incorporated and registered;
• The provisions of the Council-owned Company’s Articles of Association;
• How, and in what circumstances, the Council will exit the Council-owned Company in the future;
• Who the directors of the Council-owned Company will be, including how the Council will be represented on the board;
• The Shareholder arrangements for the Council-owned Company;
• The reporting and monitoring arrangements for the Council-owned Company; and
• The business case and the business plan for the Council-owned Company, setting out its alignment with the Council’s objectives, and the potential financial impact of the Council-owned Company (including the amount and timing of any financial support it will require).

2.2 When setting up a Council-owned Company, the Council should review its proposals against the checklist that can be obtained from the Monitoring Officer.

2.3 Once the decision to set up a Council-owned Company has been made, the Council will need to deal with implementing the project plan. This will include practicalities such as:

• IT system;
• Setting up a new bank account;
• Payroll providers;
• Year-end accounts;
• VAT returns;
• Establishing budgets and monitoring procedures;
• Establishing procurement processes;
• Establishing clear lines of authority and accountability in all areas;
• Data storage and handling;
• Internal and external audit requirements; and
• Discussing an exit strategy.

3. Council-owned Company governance

3.1 Decisions and recommendations in relation to Council-owned Companies should be made by reference to the following principles.

3.2 The Council should ensure that its Council-owned Company procedures operate in a way that protects the commercial interests of the Council-owned Company while ensuring that that the Council can carry out its functions as an investor, as a trustee of public funds and as a Council committed to due responsibility for the exercise of its functions.

3.3 The Council should also ensure that Council-owned Companies are managed in a way that seeks to avoid and/or mitigate exposure to unnecessary financial risk or to unexpected financial outlays.

3.4 In addition:

• Any Committee should be able to make decisions based on complete and accurate consideration of Council-owned Company business plans or proposals;
• Any Committee should be able to evaluate social and financial benefits and returns in line with the business plan; and
• Any requests for additional funding should be subject to the Council’s usual authorisation requirements, as set out in Chapter G2 (Scheme of Delegations to Officers) and Chapter G6 (Scheme of Financial Management).

4. Controls and Freedoms

4.1 A Council-owned Company needs to have sufficient freedom that it can achieve its objectives. However, this needs to be balanced against the need for the Council to retain sufficient control to ensure that:

• Its investment is protected;
• Appropriate social and financial returns on investment can be achieved in line with the Council-owned Company’s business case and business plan;
• Activities of the Council-owned Company are conducted in line with the values of the Council; and
• Activities undertaken by the Company do not expose the Council to financial risk.

5. Councillors

5.1 Councillors have an important role to play in the governance of Council-owned Companies. The Council should ensure that Councillors are provided with sufficient training (at induction, and on an ongoing basis) so that they understand their role in relation to Council-owned Company governance.

5.2 Councillors should be mindful of:

• Their legal duties;
• Stewardship of assets;
• The provisions of a Council-owned Company’s governing documents;
• The external environment; and
• The structure of the Council and how Council-owned Companies fit within it.

5.3 Councillors should consider these issues in their various roles, including as Members of the Council, Committee Members, members of the Shareholder Sub-Committee, and as directors of a Council-owned Company board (as appropriate).

6. Officers

6.1 Officers should also be aware of Council-owned Company governance and should ensure that it is complied with effectively and that the Lawyers in Local Government’s ‘Code of Practice on Good Governance for Local Authority Statutory Officers’ and the Chartered Institute of Public Finance and Accountancy’s ‘Local Authority Owned Companies: Good Practice Guide’ are followed.

6.2 Where officers are appointed as Board members of a Council-owned Company, they should be made aware of the potential for conflicts of interest and how this can be avoided.

6.3 Before accepting any Board member appointments, Council officers should ensure that they have:

• Appropriate levels of relevant expertise and experience;
• Sufficient time capacity to undertake the role effectively;
• Sufficient knowledge and understanding of the content of the Council’s Financial Procedure Rules and this chapter (E6 - Council-owned Companies) to enable them to perform the role in line with the governance principles they contain; and
• Sufficient authority to make decisions on the Council's behalf.

6.4 No officer will be renumerated for an appointment to a company.

7. Decision Making

7.1 Decision Making Roles and responsibilities of all parties connected with a Council-owned Company need to be clearly defined, and clear decision-making processes should be put in place.

7.2 The creation of any new Council-owned Company (including a subsidiary of an existing Council-owned Company), or a significant change in the purpose of an existing Council-owned Company is a Key Decision and will require a business case.

7.3 The Council is the Shareholder (i.e., the owner) of each Council-owned Company. The Shareholder can appoint a Shareholder Representative (usually the Chief Executive of the Council or an Executive Director) to attend General Meetings of Council-owned Companies. The Shareholder Representative may vote on behalf of the Council (as Shareholder) at any meeting of the Council-owned Company board, based on a direction of the Shareholder Committee.

7.4 The Council has a Shareholder Sub-Committee that receives reports in relation to Council-owned Companies and the Shareholder Representative for any Council-owned Company will report to this Committee. It is also the primary decision-making body in relation to Council-owned Companies on behalf of the Council. Reserved matters (i.e. matters reserved for decision by the Council) are approved by the Shareholder or Shareholder Sub-Committee or referred to the Assets and Procurement Committee (as appropriate).

7.5 Reserved matters should be recorded in a Council-owned Company’s Articles of Association or Shareholder Agreement. Decisions on reserved matters follow the Council’s decision-making processes. The process for approving and recording decisions relating to reserved matters should be defined in the relevant Shareholder Agreement and should be consistent across all Council-owned Companies as far as possible. Decisions on reserved matters relating to companies in which the Council has an interest but is not the sole Shareholder, will be taken in the same manner as for wholly owned Council-owned Companies. Where the Council is not the sole Shareholder of a company, a Decision in relation to that company is subject to the consent of its other Shareholders and shall be governed in accordance with the provisions of the relevant Shareholder Agreement.

7.6 The Audit and Accounts committee will fulfil an oversight role in relation to the finances of the company in relation to the Statement of Accounts and Audit functions.

8. The Board

8.1 Each Council-owned Company will be governed by a formally constituted Board which is tasked with delivering the Shareholder’s objectives and keeping the Shareholder informed about strategic and key operational matters.

8.2 The appointment and dismissal of Council-owned Company Directors (including Non-Executive Directors) is a reserved matter for the Shareholder(s).

8.3 Directors are responsible for the management of the business of the Council-owned Company, except reserved matters.

8.4 The Council should ensure that the Directors appointed to the Board have appropriate knowledge and expertise, including specialist knowledge where required.

8.5 Directors should be provided with appropriate training before taking up their posts, and on an ongoing basis, and should be made aware of their personal risk in acting as a Director. Training should cover:

• The requirements of the Shareholder(s) and the relevant company documents and policies;
• The requirement for Directors to make an annual statement of compliance and assurance against an original list of documents (updated as required);
• The expected time commitment per annum and fees if applicable (non-executive directors);
• The code of conduct, confidentiality and data usage for Directors;
• A declaration of other interests at appointment and through the register of interests and at meetings of the Board; and
• The duties of Directors, reminding them to act in the best interests of the company.

8.6 Board meetings should be held at regular intervals to ensure that the Council-owned Company is run effectively.

8.7 To avoid excessive churn of Directors, consideration should be given to whether non-executive Directors will be remunerated and/or asked to commit to a minimum term.

9. Conflicts of interest

9.1 Council-owned Company’s conflicts of interest policy should:

• Provide a definition of conflicts of interest;
• State the company’s commitment to addressing the issue of conflicts of interest;
• Define the nature of conflict of interest risk in the company and set out clearly the actions or behaviours that individuals are expected to follow, or avoid;
• Set out staff and Directors’ obligations in relation to the conflicts of interest policy;
• Set out guidance for identifying conflicts of interest that may arise and arrangements for reporting them;
• Set out a process for managing conflicts of interest, including responsibilities for decision-making and the decision-making criteria;
• Establish a mechanism for recording interests that can commonly give rise to a conflict; and
• Set out the consequences of non-compliance with the policy, e.g., disciplinary action.

10. Client-side management

10.1 Where a Council-owned Company delivers services to the Council, the shareholder relationship will be insufficient to oversee the day-to-day activities of the Council-owned Company and there should be client-side arrangements in place to manage that relationship.

10.2 This should include mechanisms for:

• Monitoring of contract(s) between the Council and the Council-owned Company;
• Service level agreements setting out the services to be delivered, applicable KPIs, other performance measures, and performance management arrangements; and
• Memoranda of understanding between the Council and the Council-owned Company setting out the respective responsibilities and obligations of each party.

11. Access to Information

11.1 Decisions on reserved matters are Decisions and are covered by Chapter B3 (Access to Information Procedure Rules) of this constitution.

11.2 Documentation relating to a Council-owned Company (see below), and details of the individuals who sit on the Board of Directors and the company’s Shareholders are accessible by Councillors and members of the public, unless it contains exempt or confidential information.

11.3 Documentation for each Council-owned Company must maintain a strong controls framework with adequate financial records which meet appropriate company standards.

11.4 Each Council-owned Company should have the following documents:

• Business Case assessing the risks and benefits involved in the creation of the Council-owned Company;
• Articles of Association setting out the Council-owned Company’s constitution;
• Shareholder Agreement setting out the rights of the Shareholder(s) and how those rights can be exercised;
• Funding Agreement setting out what financial assistance is to be provided by the Council to the Council-owned Company and on what terms;
• Business Plan which should be forward looking and should set out what the Council-owned Company will do, and the objectives of the business and how they are to be achieved; and
• Shareholder Annual Report which should look back to provide a review of progress against the one year business plan.

12. Reporting

12.1 Each Council-owned Company must provide, as a minimum, the following reports to the Council:

• General Meeting agenda and summary or meeting discussions and decisions;
• Monthly performance reports;
• Monthly management accounts; and
• Year-end financial statements.

12.2 The Council has a responsibility to maintain a watching brief over a Council-owned Company’s activities to ensure that they are in line with the Business Plan and the company’s objectives. A schedule of reporting will be agreed with each company and the body exercising the shareholder function.

12.3 The Council’s Section 151 Officer should liaise with limited company external auditors to ensure that:

• Year-end accounts are produced in line with the Council’s statutory reporting requirements and the timetables produced by Council to support year-end close;
• Year-end accounts are produced in a format which is consistent with the Council’s own financial reporting framework, for the purposes of consolidation and review; and
• Transactions and balances between the Company and the Council are clearly identified.

13. Changing the nature of a Council-owned Company

13.1 The Board of a Council-owned Company must gain the approval of the Council before pursuing any an opportunity to diversify or grow in a way that changes its scope and is not in accordance with its mandate.

13.2 Such changes could include:

• Change of use / scope;
• Change in investment / returns / yield;
• Change to company constitution;
• Change to risk profile;
• Change of ownership or share of ownership;
• Sale or divestment; and/or
• Wind-up.

13.3 Such opportunities should be considered on their own merit and will require a business case. The Board should consider any impact on existing governance arrangements and set this out for the Council following a process set by the Council. The Council-owned Company’s purpose must remain aligned with the Council’s overall strategy. Where this is not the case, the company may require a constitutional change to realign objectives and, where this is not possible, consideration must be made as to its future.

14. Reviewing Council-owned Company arrangements

14.1 Council-owned Company arrangements should be kept under regular review by the Council to ensure that they are operating effectively and remain fit for purpose.

14.2 The Shareholder Sub-Committee should report to Full Council quarterly on the activities being carried out by Council-owned Companies and how these activities are meeting the Council’s objectives.

[Chapter E6 (Council-owned Companies) was last amended on 21 October 2025]

A PDF version of this chapter is available to view or download on the CMIS section of the Council’s website, along with a PDF version of the full constitution.