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 companys 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 companys 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 Asiaweeks 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
  customers instruction, funds are transferred
  from the companys 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 firms
  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 customers 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 buyers bank. The buyers 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 banks reply
  may be a current account maintained with us in a
  five figures balance.