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).
Contact us for professional advice when planning a trading structure.
Trading company registration
In practice, registration procedures for trading companies are dependent on the particular jurisdiction you choose, but there are a number of general steps involved in incorporating a trading company that apply in any country.
First, you need to register a company. As a trading company is mainly distinguished by the nature of its business, not by its legal form, registering a company is the first step, as in any business. This includes all the necessary incorporation procedures such as registering for tax, registering for social security, etc.
Next, a newly registered company must check the import/export policy of the jurisdiction, especially if it is planning to import and/or export products from/to foreign markets. In some jurisdictions, this is a simple procedure — e.g. in the EU, all goods imported from other EU member states are considered to be free circulation goods, and are not subject to customs procedures or extensive documentation requirements. In other countries it may be more difficult, e.g. a trading company in India must register for an Importer Exporter Code with the relevant authorities.
Furthermore, a trading company must acquire the relevant trade licenses, if the jurisdiction in question has placed limits on the goods it intends to sell. For example, in most countries there are certain restrictions on the sale of alcohol and tobacco products. It is especially important to check restrictions for foreign-owned companies, as they may require a separate set of licences to trade in a certain jurisdiction or their activities may be limited in other ways.
To find out what the requirements of your chosen jurisdiction are and if there are any limitations imposed on trading companies, please contact Confidus Solutions.
Popular jurisdictions for intermediary or B2B trade
Given the considerations outlined above, for international (intermediary) trade our clients tend to choose jurisdictions with more flexible legislation. In this respect, and taking contemporary business requirements into account, the most popular jurisdictions for international trade are:Hong Kong: Hong Kong offers a completely tax-free regime for revenues generated outside of the jurisdiction. Clients also value the fact that Hong Kong has a much more respectable reputation than classic tax havens tend to have. Scotland: A Scottish Limited Partnership is composed of two offshore partners, offering a tax-transparent structure. Located within Europe, there are no limitations and your company’s financial statement need not be passed to the government. Latvia: If you need a VAT-registered company in the EU, Latvia offers favourable conditions for cross-border trading, one of the lowest corporate income tax rates and flexible banking.
Clearly, a B2B company has more leeway to choose the most suitable jurisdiction for company registration. On the other hand, a B2C company is active in a local market and will establish its main office in the country where its end consumers live.
Top three famous trading companies
As of 2016, the world’s top three trading companies by trade revenue are:
- The Vitol Group
- Glencore International
- Cargill, Inc.
The Vitol Group is an energy and commodity trading company with trade revenues of 270 billion USD. Its primary business is oil and oil products, as well as other energy-related goods. The Vitol Group’s headquarters are located in Geneva (Switzerland), but the company’s infrastructure network is spread across more than 11 countries.
Glencore International is a mining and commodity trading company with trade revenues of 170 billion USD. It trades mainly in oil and oil products, as well as other energy-related goods, and has head offices in Baar (Switzerland), London (the UK, for oil and gas products) and Rotterdam (the Netherlands, for agricultural products).
Cargill, Inc. is an agricultural product, energy, mineral and commodity trading company with trade revenues of 120 billion USD. It deals primarily in oil and oil products, as well as other energy-related goods. Headquartered in Minnetonka (USA), the company’s trading network extends to 70 countries in six regions of the world.