How to Buy Shares in a Company? Legal Guide

Are you interested in buying shares in a UK company? Well, it can be challenging to know where to start. Whether you want to invest in established companies or build long-term wealth, understanding how to buy shares in a company is an important first step. Buying shares can be an exciting step, and it is one of the most effective ways to invest money in the UK market. Since shares represent a small ownership stake in a business, when the company performs well, the value of your shares may rise. Read this guide to understand how you can buy shares in the UK, the costs involved, the accounts you may need, and the key risks to consider before investing.

What is a Share?

Before going into the details of how to buy shares in a company, it is important to understand the meaning of shares. Shares represent a unit of ownership in a company. So, when you buy shares, you own a small part of that company depending on the number of shares you hold. Owning shares may give you certain rights, such as:

• Voting on important company decisions.
• Receiving dividends if the company chooses to distribute profits.
• Opportunity to sell your shares in the future, potentially for a profit.

A person or organisation can own one or more shares in a business, and they are called a shareholder.

What Does It Mean to Buy Shares?

Let’s understand the meaning of buying shares before diving into the process of how to buy shares in a company. Buying shares in a company means becoming a shareholder. You may receive returns in the form of capital growth (if the share price increases), dividends, and voting rights. For instance, if you buy shares in a company such as Barclays, you own a small portion of that business.

What are the Benefits of Buying Shares In a Company?

There are several potential advantages of buying shares in a company:

Profit From Company Growth

If the company performs well, the value of its shares may increase over time. A shareholder can sell their shares for more than they paid for them.

Dividends

Many companies distribute dividends to shareholders from their profits. This can provide a regular income stream for shareholders in addition to any growth in the share price. Understanding how to buy shares in a company may help you increase your income streams.

Influence in Decision-Making

Owning shares often grants voting rights. This allows you to take part in the company’s decisions, such as approving mergers or electing directors.

Build Long-Term Wealth

Even though returns are not guaranteed, shares have often delivered higher long-term returns than cash savings. You can reinvest dividends, which can further increase growth through compounding.

Portfolio Diversification

When you invest in shares, it can diversify your portfolio, spreading risk across different companies or industries.

How to Buy Shares in a Company: Step-by-Step Process

Follow these steps to buy shares in a company:

• Choose a Share Dealing Platform

The first step to buy shares in a company is selecting an investment platform or broker. Search for some UK platforms and compare them.  Some of the popular platforms include Hargreaves Lansdown, AJ Bell, Interactive Investor, Freetrade, and Trading 212.

• Open the Right Investing Account

Choosing the right investing account is also an essential part of how to buy shares in a company. Before buying shares in a company, open one of these accounts:

Stocks and Shares ISA

You should consider this account first as you can invest up to £20,000 per financial year completely tax-free. Any capital gains or dividends earned from a Stocks and Shares ISA are exempt from Income Tax and Capital Gains Tax (CGT).

General Investment Account (GIA)

If you hit your £20,000 ISA limit, use a GIA. Capital gains above your available annual exempt amount may be subject to Capital Gains Tax.

Self-Invested Personal Pension (SIPP)

This account is perfect for retirement. The UK government adds a tax relief top-up to shareholders' deposits. However, your money is locked away until age 55 (57 from April 2028).

• Verify Your Account

The next step in “how to buy shares in a company” is to verify your account. To verify your account, you will need your National Insurance (NI) number and a valid UK ID.

• Deposit Money

After verifying your account, deposit capital through UK bank transfer, debit card, or Apple Pay. Many platforms allow regular monthly investing or one-off payments.

• Research the Company

Don’t forget to research the company you are investing your money in, as it is an essential part of how to buy shares in a company. Check the company’s revenue and profit growth, recent financial results, debt levels, dividend history, and industry outlook.

• Place Your Trade

Choose the company and number of shares you want to purchase. You can usually place market orders (buy immediately at the current price) and limit orders (buy only if the price reaches your chosen level).

What is the 7% Rule in Shares?

When learning how to buy shares in a company, you must understand shares and the special rules. The "7% rule" in shares is a risk-management guideline where you set a strict stop-loss limit to automatically sell a stock if its price falls 7% below the purchase price. This risk-management strategy is designed to help limit losses by selling an investment if its price falls around 7% below the purchase price. However, actual returns can be higher or lower and are not guaranteed.

How Do I Buy Shares Directly in a Company?

If you are wondering how you can purchase shares in a company, the process is similar whether you invest through an ISA or a General Investment Account. Choose a platform and the right investing account. Open the account, deposit money, and finally, place your trade. Still, you should also know that most investors buy shares through a regulated investment platform or stockbroker, which purchases shares on their behalf through the relevant stock exchange.

What are the Costs of Buying Shares In a Company?

When considering how to buy shares in a company, remember that investing is not free. The costs depend on the types of shares you buy and the investment platform you use. You may have to pay for many distinct categories of expenses: transaction fees, dealing fees, platform fees, and government taxes.

Dealing Fee

A dealing fee is a charge for placing a buy order, and it can vary. Some UK platforms charge a fixed fee, while others offer commission-free trading.

Platform Fee

An annual or monthly fee for holding investments on the platform.

Stamp Duty Reserve Tax (SDRT)

It is a mandatory UK government tax (usually 0.5%) on most purchases of UK incorporated shares.

Foreign Exchange Fee

A foreign exchange (FX) conversion cost is triggered when you buy non-UK shares, such as US tech stocks.

Can I Buy US Shares From the UK?

Yes, most UK stockbrokers offer direct access to US markets. At the same time, major US stocks like Apple and Microsoft are highly accessible to UK investors. To buy US shares from the UK, you just need a UK investment account such as a General Investment Account or a Stocks and Shares ISA. Additionally, you need a broker that offers access to US markets and, of course, funds in your account.

Do I Pay Tax on Shares In the UK?

Another important part to understand when considering how to buy shares in a company is to know that investments held within a Stocks and Shares ISA are generally free from UK Income Tax and Capital Gains Tax. Investing through a Stocks and Shares ISA allows you to pay zero tax on your profits. Shares held inside a Stocks and Shares ISA are free from Income Tax and CGT. However, you may pay tax on dividends or capital gains if they are held outside a Stocks and Shares ISA and your profits exceed the relevant tax allowance.

Is 1000 Pounds Enough to Invest?

Yes, £1,000 is enough to begin buying shares. Many UK investment platforms have minimum deposit requirements. The requirement can be as low as £1 to £25. This means starting with £1,000 can be enough to build a simple, diversified investment portfolio.

How Much Money Do You Need to Buy Shares?

Once learning how to buy shares in a company, people often wonder how much money they need. Some people assume that buying shares may require them to invest thousands of pounds. However, that’s incorrect. Many UK platforms now allow fractional shares and low-cost share dealing. This means you can start buying shares in a company with a relatively small amount of money.

What are the Risks of Buying Shares?

Share prices can rise and fall, and you could receive back less than you invest. Past performance does not guarantee future returns. Therefore, investors should only invest money they can afford to leave invested over the long term.

The Bottom Line

Learning how to buy shares in a company is a valuable financial skill for long-term investing. The process is straightforward. You just have to choose a regulated investment platform, open a suitable account such as a Stocks and Shares ISA, deposit money, research the company, and place your order. If you are a beginner, the most important step for you is not finding the “perfect” share but developing a disciplined investment approach. Start with an amount you can afford to invest, diversify your holdings, and focus on long-term growth rather than short-term market movements. Furthermore, if you want professional help, we have got you covered. Our accountants at MicroEntityAccounts can help you understand the tax implications of investing and offer other accounting services like payroll, VAT returns, and bookkeeping services. We can also help you plan investments in a tax-efficient way. Disclaimer: All the information provided in this article is general in nature; it does not intend to disregard any professional advice.