A trading company is a company that specializes in buying and selling products, acts as an intermediary between manufacturers and customers and organizes the delivery or launch of the products in a specific market.
As the entities that ultimately deliver the goods to the customer, retail companies also set up shops and warehouses in order not to become dependent on a manufacturer’s ability to deliver products on demand. Another peculiarity of trading companies is that they usually act as a point of sale for a number of manufacturers; that is, a point of sale sells goods made by several companies. Although not required, in practice a store that sells only one manufacturer’s products is very likely a point of sale from that manufacturer and not a trading company. In addition, trading companies can initiate all necessary procedures for the delivery of goods, including procedures for international trade.
Depending on the business, a trading company can act as either a retail seller, a wholesale business, or a combination of both. A retail company sells products to end customers, mostly in comparatively small quantities. A wholesale company is aimed at other companies (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 line of business in which it operates, but generally include the following:
Purchase of goods from manufacturers
Sale of goods to businesses and consumers
Store goods for sale
Allocation of goods in a retail chain
Establishment of storage facilities and sales outlets
Management of international trade
Make logistical arrangements for the delivery of goods
In general, the main function of a trading company is to source goods from manufacturers and deliver them to customers. In this context, a trading company can take on all the tasks required for this purpose. You may also be involved in the negotiation and use of land grants, which allow a company to own, manage, and develop a property, including land and buildings. Of course, this is an additional option for a trading company as a legal entity and not an essential business function or duty.
Types of trading company
There are two main 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.
Planning a trading structure
When planning a B2B trading venture, consider the following:
Taxation: The corporate income tax of the jurisdiction you choose plays a huge role in structuring your business. You will also need to think about withholding tax, payroll requirements, VAT registration (if EU based) and other tax issues.
Banks: A fast, easily accessible, convenient, and trustworthy bank is essential for any commercial enterprise. Bank fees, commissions, and most importantly, the speed of transactions can be critical to a trading business. We therefore recommend that you take advantage of our professional advice when choosing a bank for your company.
Legal and Accounting Requirements: While a reputable business location can be important to your commercial business, some of the most prestigious jurisdictions place undue demands on business owners. Contact Confidus to make sure you are aware of all legal and financial obligations before registering your business.
When planning a B2C retail business:
If you plan to sell your product or service locally, you need to develop close relationships with local consultants, real estate agents, accountants and other service providers in the jurisdiction in which your business operates. Confidus will help you with all local arrangements including:
Find a location for your office, shop, or warehouse
Personnel search and placement of recruiting
Find a local accountant
In the case of import / export processes, Confidus can also help with customs, warehouse arrangements and document preparation (sales and purchase contracts, CMRs, export declarations, etc.).
