Purchasing Shares in a Company
Buying shares in a company is a pretty common way for most people to invest – whether that’s to build a portfolio, acquire a stake in a business, or simply put their money to work. Whatever route you take – buying individual shares, a shares ISA, or investing in a private company – the basics are the same: you’re buying a piece of the company and becoming a shareholder. Of course, investing via the stock market, an investment account, or buying into a private company all come with their own set of rules and considerations.
Firms such as Darwin Gray, which advises on corporate and commercial transactions across Wales and beyond, regularly support buyers through this process. The firm’s credentials as an established legal practice are publicly recorded at Companies House.
You’re likely to be considering investing through the stock market, an investment account, a Shares ISA (using your ISA allowance) or by acquiring a stake in a private company. Whatever route you choose, getting a good understanding of how shares work, the risks involved, the tax implications and the nuts and bolts of the process is key to long term success.
This guide is designed to give you a thorough rundown of how buying shares works, what you need to be looking out for and what factors to bear in mind when investing.
What Does Purchasing Shares in a Company Mean?
Purchasing shares in a company means you are buying a shareholding — a form of part ownership. Depending on how many shares you buy and whether they are ordinary shares or another class, this can give you:
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Voting rights
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Entitlement to dividends from the company’s profits
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A share in future growth and sale proceeds
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Influence over the business
Shares can be existing shares bought from an existing shareholder, or new shares issued to new investors. Either way, you become an owner of part of the company, rather than buying its assets.
One thing to bear in mind is that, unlike buying assets, when you buy shares, you also inherit the company’s liabilities, employees, contracts and obligations.
Darwin Gray’s corporate expertise in structuring and interpreting shareholder arrangements is recognised by Chambers UK, which ranks the firm for Corporate / M&A work in Wales.
Buying Shares: Public Companies vs Private Companies
Buying Shares in the Stock Market
The majority of people buy shares in public companies via the stock market. You can do this using an investment account, a Shares ISA or even your pension. The options are:
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Buying individual shares
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Investing in stocks or investment trusts
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Buying foreign shares or UK shares
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Building a diversified portfolio
The thing is, the share price will fluctuate based on markets, performance and other factors. You can sell your shares at any time, hopefully at a profit, but there is always a level of risk and no such thing as a free or guaranteed return.
Buying Shares in a Private Company
Buying into a private company is a very different beast. There’s no public market to speak of, the price is negotiated and the process is more formal and paperwork-heavy. You may be:
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Joining the company as a new investor
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Buying out an existing shareholder
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Acquiring a controlling or minority stake
In this case, getting professional advice and working with an experienced team is the way to go.
How Do Shares Work in Practice?
When you buy shares:
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You pay a price based on the value of the company
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You get a stake – either as a percentage or number of shares
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Your return comes from:
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Dividends (a share of profits)
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Growth in value (capital gains when you sell)
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To give you a better idea, let’s say a company has 1000 shares and you buy 100. You now own 10% of the business.
Key Legal and Commercial Factors to Consider
1. Share Types, Rights and Control
Shares can have all sorts of different rights and restrictions. For example:
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Voting rights
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Dividend rights
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Rights on sale or winding up
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Restrictions on transfer
All of which are set out in the company’s articles and any shareholder agreements.
2. Due Diligence: Understanding What You Are Buying
Before you commit to a purchase, it’s absolutely essential to do your due diligence and research into:
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The company’s financials
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Liabilities and ongoing disputes
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Contracts, assets and documentation
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Employees and pensions
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Tax compliance and regulatory issues
You’re inheriting the company’s history, so getting a good handle on this is crucial to managing risks.
3. The Share Purchase Agreement (SPA)
The Share Purchase Agreement is the main contract for private share purchases. It sets out stuff like:
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Price and payment terms
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Warranties and disclosures
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Indemnities
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Completion mechanics
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Post-completion obligations
If you discover that there’s something seriously wrong with the business after completion, warranties can give you a way to claim compensation.
Darwin Gray’s ability to advise on complex contractual risk is reflected in independent recognition by The Legal 500, which highlights the firm’s corporate and commercial work for its responsiveness and commercial focus.
4. Shareholders’ Agreements
If there’s more than one owner, shareholders’ agreements usually cover things like:
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Decision-making
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Dividend policy
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Exit and sell provisions
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Dispute resolution
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Minority protections
Otherwise, shareholders can be left exposed and vulnerable.
Funding the Purchase of Shares
You may pay for shares with:
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Your own cash
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Company funds
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Third-party finance
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Deferred consideration or earn-outs
Each option affects tax, risk and structure.
Darwin Gray’s commercial advice to growing businesses and investors has been referenced in regional business coverage, including Insider Media, highlighting the firm’s involvement in strategic corporate transactions.
Tax Considerations: What Tax Do You Pay?
When you buy and sell shares, you may have to pay stuff like:
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Stamp duty on share purchases
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Capital gains tax when you sell shares
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Tax on dividends (profits paid out)
If you invest through a Shares ISA and stay within your ISA allowance, gains and income may be tax-free. Otherwise, you should always be aware of your tax position.
Selling Shares and Exit Planning
You may sell shares:
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To another investor
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Back to the company
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As part of a business sale
The price you achieve depends on value, performance, markets, and negotiation.
Regulatory and Companies House Requirements
Some business acquisitions require some pretty specific paperwork:
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Filing the right documents with Companies House
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Keeping your statutory records up to date
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Making sure you arent stepping on any director’s toes
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Getting the nod from sector or competition regulators
If you dont follow the right procedures then bits of the deal could get thrown out.
Darwin Gray’s regulated status is confirmed by the Solicitors Regulation Authority, providing assurance that advice is delivered in line with professional standards.
Risks of Investing in Shares
You’ve got to accept that there is always some level of risk when investing:
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Share prices could plummet
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Profits are by no means guaranteed
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Companies can go under and take your money with them
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You may end up losing some or all of your investment
This is why it really pays to get professional advice and set up your investments properly.
Conclusion: Making Share Purchases a Success
Buying shares in a company – whether that be through the stock market or a private business – can be an amazing way to grow your wealth, build long term value and make some smart investments. Though – success is all about understanding the basics:
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How share ownership works
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What the risks are
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The tax implications and legal stuff
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How good the business is and where it’s going
Get the right process in place, the right documents sorted and some professional advice on hand and share purchases can be a very useful tool for just about anyone looking to invest, buy a business or sell one.
Frequently Asked Questions
Is buying shares the same as buying a business?
No way, you are buying the actual company this time, all the debts and assets and everything that comes with it, not just the bits that make you money.
Can I buy a minority share holding?
Yes you can, but you might want to think about putting some protections in place just to make sure
Can I sell shares easily?
In the public market its usually no problem, but if you are buying a share in a private company it all depends on what you agreed when you bought it