As Sydney's population grew the need for local government became pressing. In 1840 Governor Gipps introduced a bill to the Legislative Council to establish municipal institutions in New South Wales. On 20 July 1842 an Act (6 Vic. No 3) was passed 'to declare the town of Sydney to be a city and to incorporate the inhabitants thereof'.

Some 3,000 adult males were eligible to vote at the first municipal election. There were to be six wards with four Councillors per ward. Each had to hold property worth £1000. The election results were declared on 3 November 1842, and local merchant and contractor, John Hosking, became the first elected Mayor of Sydney. In an inauspicious beginning for the Council, however, he had to resign less than a year later when he went bankrupt in the financial depression of the early 1840s.

References:
City of Sydney website http://www.cityofsydney.nsw.gov.au/hs_chos_hoc_municipal_beginnings.asp.

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