When planning to establish a trading company there are several factors to be taken into consideration, such as taxes applied by the jurisdiction of domicile, the jurisdiction of your company’s bank, bookkeeping requirements and possible locations for warehouses and storage facilities
A trading company is a business that specialises in buying and selling products, acting as a mediator between manufacturers and customers and organising the delivery or introduction of the products to a specific market.
As the entities that ultimately deliver the goods to the customer, trading companies also set up shops and storage facilities to avoid becoming dependent on a manufacturer's ability to supply products on demand. Another distinctive feature of trading companies is that they usually act as points of sale for a number of manufacturers; that is, one outlet sells the goods produced by a number of companies. Although this is not a requirement, in practice a shop selling the products of only one manufacturer is very likely to be an outlet of that manufacturer and not a trading company. Moreover, trading companies may arrange all the necessary procedures for the delivery of goods, including procedures for international trade.
Depending on the particular business, a trading company may act as either a retail seller, a wholesale store or a combination of both. A retail trading company sells products to the final customer and usually in comparatively small quantities. A wholesale trading company is aimed towards other businesses (including other trading companies) and usually sells products in large quantities for further distribution, e.g. in retail stores.
Functions of a trading company
The functions of a trading company depend on the particular business sector it operates in, but generally include the following:
- Purchasing goods from manufacturers
- Selling goods to companies and consumers
- Storing goods for sale
- Allocating goods in a retail chain
- Setting up storage facilities and points of sale
- Managing international trade operations
- Making logistical arrangements for the delivery of goods
In general, the main function of a trading company is obtaining goods from manufacturers and delivering them to customers. In this regard, a trading company may undertake any tasks necessary to achieve that end. They may also be involved in negotiating and making use of land grants that allow a business to own, manage and develop a piece of real estate property, including land and buildings. Obviously, this is an additional possibility for a trading company as a legal entity, and not a major business function or task.
Types of trading companies
There are two primary types of trading companies:
- B2B (Business-to-Business) Trading Company
- B2C (Business-to-Consumer) Trading Company
B2B (Business-to-Business) Trading Company
The most extensive use of trading companies is as intermediary trading companies or B2B companies. These businesses usually 1) specialise in a certain range of products or services, which they purchase from suppliers or merchants; 2) broker the products or services (i.e. add value and commission to the transaction); and 3) coordinate the logistics of delivering these products/services to the purchasing company (i.e. arranging the delivery and providing their own or affiliated transportation services).
B2C (Business-to-Consumer) Trading Company
B2C refers to selling products or services to the end client, and so the final destination of the trading company’s goods is usually a shop.
Confidus can help you with either approach. Please don’t hesitate to contact us — and make a note of the hints below for establishing a trading company.
Planning a trading structure
When planning a B2B trading company, you should consider the following:
- Taxation: The corporate income tax of your chosen jurisdiction will play a huge role in how you structure your business. You also need to think about withholding tax, payroll requirements, VAT registration (if located in the EU) and other tax issues.
- Banks: A fast, easily reachable, convenient and trustworthy bank is essential for any trading company. Bank fees, commissions and, especially, the speed of transactions can be crucial for a trading business. We therefore recommend that you ask for our professional advice when choosing a bank for your company.
- Legal and accounting requirements: While a prestigious company location may be important for your trading business, some of the most reputable jurisdictions impose excessive requirements on business owners. Contact Confidus to make sure you are aware of all legal and financial obligations before registering your company.
When planning a B2C Trading Company:
If you intend to sell your products or services locally, you will need to establish strong relationships with local advisors, real estate agents, accountants and other service providers within the jurisdiction where your company will trade. Confidus will help you with all the local arrangements, including:
- Finding a location for your office, store or warehouse
- Finding personnel and arranging recruitment
- Finding a local accountant
When it comes to import/export operations, Confidus can also help with customs, warehouse arrangements and document preparation (sales and purchase agreements, CMRs, export declarations, etc).
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