Types of Business Customers

1. Types of Business Customers Sole Proprietorship A sole proprietorship is a business organization where an individual carries on business. A sole proprietor is responsible for all activities of the business and the debts incurred. The firms are generally small because the owners usually have limited capital. The individual who owns a sole proprietorship will be responsible for business debts up to the full extent of his personal assets.

2. Types of Business Customers Sole Proprietorship There are several advantages of a sole proprietorship. There are not as many legal formalities in a sole proprietorship as in partnerships or companies. A sole proprietor has full control over the business. There are no legal restrictions on the sale of the business.

3. Types of Business Customers Sole Proprietorship The disadvantages of a sole proprietorship are as follows. Firstly, illness and death of the sole proprietor ends the business. Secondly, the sole proprietor is personally liable for the business debts.

4. Types of Business Customers Sole Proprietorship Opening bank accounts for a sole proprietorship follows the same procedures as for an individual. If a sole proprietorship is using a trading name, the bank will verify the Business Registration Certificate before accepting for the accounts any cheques payable to the firm. If the bank is lending to a sole proprietorship, the bankers will examine the year-end financial statements to see how profitable the business has been and to assess the risks of the loan.

5. Types of Business Customers Partnership A partnership involves two or more persons carrying on a business with the following characteristics. Partners engage in the business with the intention to make a profit and partners are entitled to share the profits and losses of the business. Partnerships are also formed by professional people such as doctors, dentists, accountants, solicitors, etc.

6. Types of Business Customers Partnership Partners pool their money, abilities and skills in a business and share profits or losses in predetermined proportions. Partners are fully liable for debts of the partnership to the full extent of their personal assets in addition to their capital.

7. Types of Business Customers Partnership A partnership dissolves by ending the partnership agreement, death, illness, bankruptcy and illegal acts of one or more partners, or by court order. A partnership cannot have more than 20 partners except the professional partnerships. Particular characteristics of a partnership can be stated in the partnership agreement, such as the method of sharing profits and losses, and the termination of the partnership.

8. Types of Business Customers Partnership The advantages of a partnership are the sharing of responsibilities and risks for running the business, the profits and the losses. The disadvantages are the termination of partnership at the death or bankruptcy of a partner. The relationship between partners can be problematic with respect to balancing risk and profits between partners.

9. Types of Business Customers Partnership Opening bank accounts for a partnership, besides the partnership agreement, the banker will also examine the Business Registration Certificate. A mandate is to be signed by all the partners giving the bank instructions as to who will sign cheques, standing order and direct debit authorities on the accounts, and to establish the joint and several liability of each partner for the loans lent to the partnership.

10. Types of Business Customers Partnership When any one partner leaves the partnership or dies, the partnership will automatically dissolve. The accounts must be closed and new accounts will be opened in the name of the continuing partnership.

11. Types of Business Customers Limited Company A company is a separate entity from the shareholders, i.e. the people who own it. So a company has the full legal capacity to enter into contracts, own property, to sue and be sued. There are two kinds of limited company: private and public. The advantage of limited company over sole proprietorship and partnership is that of limited liability, which means that the owners – the shareholders – are liable only for the amount of their share capital, in other words, their personal assets cannot be taken to pay the debts of the company.

12. Types of Business Customers Limited Company The number of shareholders for a private company must be between 2 and 50. The transfer of shares is restricted, with the priority goes to the existing shareholders. The shares of a public limited company can be traded on the stock exchange and the share prices are quoted in the stock market. A private limited company can apply to the Hong Kong Stock Exchange for “going public” and if the application is approved, the company can place advertisement in newspapers inviting the public to subscribe its shares.

13. Types of Business Customers Limited Company The advantage of a company is the limited liability of shareholders but the disadvantages are the legal formalities and the disclosure of a substantial amount of information. All limited companies in Hong Kong are controlled specifically by the Companies Ordinance. In addition to the Business Registration Certificate, a limited company is required to apply for a Certificate of Incorporation from the Companies Registry.

14. Types of Business Customers Limited Company The limited company must submit its Memorandum and Articles of Association for approval by the Companies Registry. Memorandum and Articles of Association are the constitutional documents of the company which form a contract between the company and its shareholders and directors.

15. Types of Business Customers Limited Company The Memorandum of Association states the name of the company, the registered domicile, the objects (authorized activities to carry on), the initial share capital and a declaration of the limited liability of the shareholders. The Articles of Association establish the rules that govern the administration of the company.

16. Types of Business Customers Limited Company A company must have at least two directors and they manage the affairs and business of the company. Directors owe a duty of care to the company in tort and a fiduciary duty to the company. A limited company’s financial statements must be audited by a certified public accountant. All public limited companies must disclose their financial statements to the public.

17. Procedures for opening accounts for a limited company • Obtain and verify a certified true copy of the Certificate of Incorporation • Obtain and verify a certified true copy of the Business Registration Certificate • Obtain a certified true copy of the Memorandum and Articles of Association • Obtain a resolution of the Board of Directors to open the bank accounts • Obtain a list of the company’s directors • Examine the directors’ identity cards or passports

18. Procedures for opening accounts for a limited company • Search at the Company Registry to confirm the identity of the directors • Complete the account opening forms and mandates • Obtain the specimen signatures of the authorized people of the company to operate the accounts • Have the company chop or seal duly executed in the documents • Obtain the initial deposits to the accounts • Issue cheque book for the current account to the company

19. Types of Business Customers Small and Medium Enterprises (SMEs) Small and medium enterprises in Hong Kong refer to the manufacturing enterprises with fewer than 100 employees and the non-manufacturing enterprises with fewer than 50 employees. There are now about 300,000 SMEs in Hong Kong which are employing about 1.36 million people of the working population. The SMEs in Hong Kong engage in manufacturing industry, import and export trades, wholesale and retail trades, as well as hotels and restaurants.

20. Types of Business Customers Large and Multinational Corporations A multinational corporation is a company with production and distribution facilities in more than one country. The reasons for going global are : to minimize costs of production, to acquire raw materials for production, to explore new markets and to diversify operation risks.

21. Types of Business Customers According to Asiaweek’s survey in 2002, the 10 largest corporations in Hong Kong in terms of business volume are : • Jardine Matheson Ltd. • Hutchison Whampoa Ltd. • Dairy Farm International • Li & Fung Ltd. • Cathay Pacific Airways • Sun Hung Kai Properties • China Light & Power Holdings • China Resources Enterprise • New World Development • PCCW

22. Banking Services for Business Customers Deposit Accounts A deposit account is a convenient place for funds that are surplus to immediate requirements. Business customers can open Hong Kong dollar current account as well as savings account, time deposit account and call deposit account in both Hong Kong dollar and most foreign currencies. But large sums of short-term funds are usually invested in the money market where the interest rates are linked to those of the inter-bank market. The money market financial instruments include short-term floating rate note (FRN), commercial papers and treasury bills of the government.

23. Banking Services for Business Customers Payroll Services After calculating the employees’ remuneration, a company can pass a disk containing the information of its employees and their accounts in other banks to its banker. According to the customer’s instruction, funds are transferred from the company’s account to the employees’ accounts in other banks through the interbank payment system.

24. Banking Services for Business Customers Overdraft The overdraft facility for the current account is very convenient and time-saving for the business customers to meet the short-term financial needs without the expense of negotiation for a loan. The overdraft facility can be secured or unsecured. There is usually a upper limit over a period of time. Besides charging interest on the overdraft amount, the bank also charges an annual fee for providing the facility.

25. Banking Services for Business Customers Loans and advances Loans and advances are offered to business customer for starting up businesses, as working capital and to finance both domestic and foreign trade.

26. Banking Services for Business Customers Loans and advances The finance required by a new venture is basically for acquiring fixed assets and inventory, and for operating expenditures. Since the bank is dealing with a newly-formed business, the bank should be very cautious in processing the loan application. The bank will evaluate the successful rate of return of the potential business and investigate the business experience of those who will participate in the business.

27. Banking Services for Business Customers Loans and advances Working capital is important to a firm’s operations because it finances its cash conversion cycle, which means the time required to convert the raw materials into goods, into sales and then into cash. The loans are usually short-term and revolving, which are used to purchase inventory and pay wages and salaries as well as administrative expenses.

28. Banking Services for Business Customers Loans and advances Short-term and medium-term credit facilities are also required by importers and exporters in international trade which include, for examples, documentary credit and collection facilities, discounting bills of exchange, etc.

29. Banking Services for Business Customers Global cash management Global cash management service is provided by banks to multinational companies with international operations. It is a highly secured computer system linked to the bank which provides timely and accurate portfolio information and gives the business customers control over their finances in both local and overseas accounts. The information includes intra-day balances and real-time balances which can be reviewed and reported in different ways – by accounts, banks or branches, currencies and locations. Customers can also transfer funds through the computer system to third parties or move money between their own accounts.

30. Banking Services for Business Customers Financial Advice The managers of a bank, as financial specialists, are always ready to provide financial and management advice to small and medium-sized businesses. For larger companies, the merchant bank subsidiary of a commercial bank can also give advice on business and financial strategies.

31. Banking Services for Business Customers Financial Advice Status enquiry is an advisory service provided to a business customer which consists of a short report on the customer’s financial standing and is given only to another bank. For example, if a customer is asked to give a financial reference before being allowed to purchase goods on credit, he may give the name of his bank to the supplier. Then the supplier will instruct his bank to request a financial reference from the prospective buyer’s bank. The buyer’s bank will give a report which would seem vague to someone unused to the jargons but is clear enough to the enquiring bank. For instance, the bank’s reply may be “a current account maintained with us in a five figures balance”.