How to Buy Shares in a Company: A Corporate Law Perspective

Buying company shares is a significant decision that requires an understanding of legal, financial, and procedural matters. Whether you’re an individual investor or part of a corporate entity, knowing how to buy shares in a company will help you protect your investment and comply with the relevant regulations.

Understanding Share Acquisition

When you invest in shares, you become part-owner of the company. Share acquisition can happen through:

• Direct Purchase from Existing Shareholders. Buying shares directly from current owners, often through a stock exchange or private sale.
• Subscription to New Shares. Companies raise money by issuing new shares, which investors can subscribe to directly.

Legal Considerations in Share Purchases

Buying company shares requires legal attention:

• Due Diligence. Conduct your own research to review the company’s financials, legal status, and operations. This will help you mitigate risks.
• Share Purchase Agreement (SPA). A legal contract outlining the terms of the purchase, including price, warranties, and conditions.
• Regulatory Compliance. Comply with tax rules, the Companies Act 2006, and any FCA requirements.
• Stamp Duty and Stamp Duty Reserve Tax. Be prepared to pay stamp duty or SDRT where applicable, usually 0.5% of the purchase price.

Steps to Acquire Shares in a Company

1. Find a Company. Choose from companies listed on stock exchanges like the London Stock Exchange.
2. Engage Legal and Financial Advisers. Seek personal advice from professionals or a fund manager to guide your investment decisions.
3. Conduct Due Diligence. Review share prices, company performance, and legal obligations.
4. Negotiate Terms. Agree on the best price, payment terms, and any conditions.
5. Draft the SPA. Document the terms formally.
6. Obtain Approvals. Get consent from the company’s board and regulatory bodies.
7. Complete the Transaction. Execute the SPA, transfer funds, and register your ownership.

Types of Shares

There are different share classes:

• Ordinary Shares. These have voting rights and dividends depending on the company’s performance.
• Preference Shares. These offer fixed dividends and have priority over ordinary shares but may not carry voting rights.

Potential Risks and Mitigation

Investing carries risks, but you can manage them:

• Financial Loss. Diversify your investment across other assets like exchange-traded funds, investment trusts, or corporate bonds.
• Market Volatility. Share prices can fall as well as rise. A diversified portfolio can help mitigate this.
• Legal Liabilities. Ensure all legal documents are accurate and compliant.

Tax Considerations

• Capital Gains Tax (CGT). You may need to pay tax on profits when you sell shares, subject to your annual allowance.
• Dividends. You may receive dividends, which could be taxable.
• ISAs and Tax Benefits. Using a shares ISA can provide tax advantages within your ISA allowance.

Investment Platforms and Accounts

• Investment Account. Required for holding and managing your investments.
• Nominee Account. Many investment platforms hold shares in nominee accounts, meaning the platform is the legal owner, but you retain beneficial ownership.
• Platform Fees. Be aware of dealing charges, platform fees, flat fees, and inactivity fees, which can reduce your returns.

Frequently Asked Questions

1. What is a Share Purchase Agreement (SPA)? A legal contract outlining the sale and purchase of shares.
2. Do I have to pay stamp duty when buying shares? Yes, usually 0.5% of the purchase price. Some exemptions apply for shares in smaller companies.
3. What is due diligence? The process of reviewing a company’s financials, legal status, and operations before investing.
4. Can I buy shares directly from a company? Yes, especially during new share issues. You can also invest through stock markets or investment platforms.
5. What are the legal requirements for transferring shares? A signed share transfer form, payment of any applicable stamp duty, and updating the company’s register of members.

Conclusion

Buying shares in a company involves more than just picking stocks. It requires legal, financial, and strategic planning. Whether you’re investing through the London Stock Exchange, looking at investment trusts, or building a diversified portfolio with traded funds, staying informed is essential. Get investment advice from experienced investors or professionals regulated by the Financial Conduct Authority to make confident decisions.