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 enable 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 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.

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).