However you choose to invest money as a business owner depends on your perception of risk, the type of company you own, and your personal financial status. Using a limited company to buy shares (either your regular company, or a separate investment company specifically set up as part of your wider financial strategy), reduces your personal financial risk considerably. These are some of the advantages compared to investing as an individual:
- Corporate investments via limited company investing yield better capital gains tax rates on profits made when selling shares
- If you lose money on an investment, then this loss can be offset against investment profits to potentially reduce the corporation tax rate
- Dividend income paid out to shareholders is taxed at lower rates than that received by personal investors
To invest money in shares as a limited company, you’ll need to understand the stock market and invest intelligently, ideally diversifying your investment portfolio. This increases company profits and protects business assets. Below, we guide you through how to invest in shares as a limited company, consider any disadvantages, and look at other investment options.
What Does Investing In Shares Mean?
When you invest in shares, you buy and own part of a company’s stock alongside any other investors who have also bought shares in that company. Essentially, you’re part owner and are therefore entitled to dividends paid out to you as a share of the company profits.
However, there are potential risks. Investments can lose money as well as make money, especially if the company you invest in performs poorly. There are different classes of shares in large companies, and not all may pay dividends.
Why Invest In Shares Through Your Company?
When you use your own limited company to make an investment in shares, you not only increase your tax efficiency, but you also reduce some of the personal risk you would otherwise face if you were investing as an individual. You may be able to take advantage of certain tax reliefs which can equate to significant tax savings and reduced tax paid overall.
It’s important to be aware of your capital gains tax threshold if you are investing on a smaller scale. You can only earn £3,000 in capital gains tax free in the 2026-2027 tax year, before you’ll need to pay tax. For most companies, this will be exceeded.
When investing as a company, you can draw funds down from the business to help with personal expenses and investments. As a company, your investments will be much easier to manage but be aware that not all your shareholders may be happy with how their money is being used. You don’t need a complete consensus when investing as a limited company, but a majority decision is required. If you don’t have many shareholders and you are the majority shareholder, this can mean faster decision making but can also make you solely responsible should your investments go wrong.
How To Buy Shares In The UK
Before you jump right in, corporate investing should form part of a wider overall financial strategy, not something you just start on a whim.
If you’re ready, however, then either as an individual investor or company, you can buy shares online or through a stockbroker who is a stock market specialist who can offer professional advice. It’s always advisable to undertake some due diligence on the company you’re investing in and to understand that you may lose money if things don’t go as planned. That’s why investing in multiple revenue streams is usually a smart decision, either as a trading company or an individual investor.
Ensure you liaise with investment experts if you’re new to investing. It’s understandable that you don’t just want your profits just sitting in cash bank accounts without earning anything for the business. However, it’s always best to seek professional advice to ensure you’re investing intelligently and protecting your business as much as possible by reducing risks.
When Buying Shares Through A Limited Company
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Start by establishing an investment strategy and considering different investment types. Get to know historically stable securities and familiarise yourself with current opportunities. Research any potential company you are thinking of investing in and only invest if you’re confident in their ability to grow. |
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Speak to an independent financial adviser to get the best advice and review how much of your surplus cash you want to invest. Risk is also relevant. A company that trades in precious metals will probably have a much more volatile share price and dividend than one in the so-called ‘stable stocks’ market, fields that have proven operational and economic resilience. |
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Discuss whether investing with your current company or setting up a new investment company is best for you. |
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Present any investment plan to partners and shareholders to keep everyone in the loop. |
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Use administrative executives and accountants to track your investments, leaving you free to carry on with running your business. |
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Invest with a stockbroker or on an investment platform you trust. |
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Consider hiring a specific investment manager to handle this side of your business. |
Advantages Of Investing In Shares Through A Limited Company
Some of the advantages to investing through a limited company include:
Encouraging Other Companies To Invest In Your Business
Investing can be a great way to bring attention to your company, and others may choose to invest in your business too, supporting development and success.
Dividends Pay Out
When the company you invest in performs well, you’ll make a profit and this can be paid to you in dividends, giving your business a steady stream of investment income.
Buy And Sell Shares To Generate A Profit
Shares are smart short- and long-term investments, depending on the business you invest in. You can trade these shares to increase your profit even more or just enjoy the dividends.
A Simple Form Of Investing
If you’re new to investing as a limited company, shares are a much more accessible form of investing compared to some of the other options. However, you still need a targeted and strategic plan and identifiable investment goals.
Protection
Registering as a limited company with HMRC provides you with the protection of the corporate veil. That means your personal assets are separate from your business assets and investments, and you benefit from limited liability. Even if your shares make a loss, your personal assets are still protected.
Reputation
When you make wise investment choices as a limited company, you increase your business’ credibility and reputation regardless of whether your limited company is specifically set up for investment purposes or if it’s your regular company that you’re simply using to invest some of your profits.
An increased reputation can lead to investors being interested in your business and potentially increase growth and sales.
Having Access To Funds
When you invest as a limited company it’s actually much easier to access the money you have invested, either by cashing in and selling shares as their values rise, or by using dividends to increase business cash flow. Either way, it’s much easier to access cash as a business investor vs. as a personal investor.
The Risks And Limitations Of Investing In Shares Through A Limited Company
There are always risks involved in investing, but the following are especially relevant here:
Investments Are Not Seen As Trading Expenses
Investments aren’t trading expenses, instead they’re an asset for your business, so you will need to pay tax on any shares you own, and there will be no corporation tax relief for the investments you make. You can, however, record share losses against your investment profit, reducing the annual bill when you pay corporation tax.
Taxed When You Sell
When you sell your shares, you will need to pay tax on any profits made.
Investment Should Not Be Your Main Trade
Whilst you can open a trading and investment company if that’s what you’re truly interested in, it’s usually unwise to rely solely on investments for making money. Corporate investments are no less likely to be affected if the stock market crashes, so you’ll lose money; investing is never guaranteed. Most business owners will enjoy investments as a side stream, rather than a main form of income.
When You Make A Loss
Although you can offset your loss if certain shares perform poorly, you actually can’t offset it from your overall business profit, but rather your investment activity profits. The different tax implications are an important distinction. Employing skilled investment accountants may be necessary and comes with extra costs.
Additional Admin
When you invest through a limited company, you’ll have extra admin for all your investments and you’ll need to keep track of exactly where your company cash has gone for accounting and tax purposes. You’ll likely need to rely on an accountant for this, which is an additional cost for the business. However, professional third-party advice will also ensure that the management of holding investments is being carried out properly, with investments correctly logged and profits and losses closely monitored and disclosed. Keeping precise and detailed records is essential.
Tax Considerations When Investing Through A Limited Company
Taxation is everything in business, and even more so when you’re investing through your limited company. All investment income will be taxed at the main rate of 25% when paying tax on an investment profit that has been recently received, but this will increase to 40% if the investment stays in your business account for more than 18 months. To make the most money, you must move quickly, hence the need to track all your investments carefully.
When selling your investment shares you can withdraw the income to a business bank account, but you will need to pay Capital Gains Tax (CGT) on this profit. Speak to your tax adviser or accountant to ensure you know how much tax you’ll pay when you sell your investment shares.
What If I Have Shareholders In My Company?
With any limited company, you’ll still need to consult shareholders if you plan on investing their money in another company to earn extra cash for the business. This is often a wise idea, because experienced shareholders who have already invested in your company may be able to offer advice about any investments you’re planning.
Investing is never guaranteed to be successful. There are risks involved, and when those risks affect other people’s money you must be careful. Make sure you’re as thorough with your research as possible and rely on professional advice where necessary.
Alternative Investment Options For Limited Company Owners
There are plenty of other investment opportunities that are worth considering if you think stock market investing isn’t right for you or your company.
Invest Through A Separate Company
It can be a good idea to set up a separate investment company – but only if you’re a confident stock market investor. For many, earning through investments is a side income, not a main income for a new company.
It can help minimise trading costs if you use loans to support your investments, providing you with a greater investment opportunity. However, this comes with its own risks, so speak to an investment expert and financial adviser before going ahead with this option.
Invest In Your Pension
When you own your own business, it can be tempting to get lost in the now to ensure your business success, but don’t forget your future, too, and future generations if this is a business you intend to pass on. By investing in your pension funds, you’ll receive corporation tax relief and can start building your pension pot through increased pension contributions – it’s completely zero risk.
Re-invest In Your Company
If you have extra cash and higher profits than expected, then why not just reinvest that cash surplus in your company again? Think about upgrading your manufacturing processes and equipment or you could spend money on training your staff to support continued business development.
Property
Of all the investment vehicles available to you, owning property is one of the most reliable, but bricks and mortar are significant investments so it’s always worthwhile taking professional advice. You could purchase business property to save on rent or just buy properties to let out to other businesses, generating rental income as another revenue stream. Purchasing property through your limited company can be an excellent idea.
FAQs
Am I legally able to invest in shares through my limited company?
Yes, you are legally allowed to invest in shares through your limited company, provided that the investments comply with all applicable laws and regulations.
Why do business owners invest in shares through their limited companies?
Business owners invest in shares through their limited companies as a way to diversify their portfolios and generate additional income without risking their personal assets. They can enjoy higher returns and less onerous tax obligations. For a higher rate taxpayer or a basic rate taxpayer whose share yield is going to increase their total income elevating them to a higher tax bracket, using a limited company to invest could mean you’ll pay tax at a much lower rate.
Conclusion
When you invest in stocks and shares through a limited company, you’ll boost your revenue stream and increase the likelihood of future profits for your business, all without risking your personal finances. Using a limited company to buy stocks and shares generates different tax treatment by avoiding personal income tax so you’ll need to understand the different tax implications of investing personally or using a limited company. You will have to disclose investment income on your corporation tax returns.
It can prove to be a lucrative financial strategy for those companies willing to work with investment professionals and find the right businesses to invest in. But remember that no investment is without risk, and although this method does protect you to a certain degree, you do risk upsetting shareholders or business partners if things go wrong.
Work with the right professionals, do your research, and ensure you make an informed decision, and invest wisely. How much you want to pay, the views of other company directors, the company structure, and the timespan for withdrawing money are all individual factors unique to each business. A professional adviser will be able to highlight appropriate investments, take advantage of things like any annual exemption and entrepreneurs’ relief if relevant, and manage the maths when it comes to producing your annual accounts.
