How to Buy Shares in a Company the Right Way (Step-by-Step)

If you are planning to grow your wealth, you might be wondering how to buy shares in a company, right? Buying shares, also called stocks, allows you to own a small portion of a business. You benefit from that business’s success through rising share prices and dividends. 

Thanks to digital technology, buying shares has become easier than ever. In the UK, buying shares is now accessible to anyone with a smartphone and a small amount of capital. The process is simple as long as you understand the basics of the UK financial system. 

This guide explains how to buy shares in a company, the costs, and the risks involved in buying shares.

What Are Shares?

Shares represent ownership units in a company, with the total number issued determining ownership percentages. When a person buys a share, they are essentially buying a small piece of that business. If a company has 1,000 shares and a person buys 10, they own 1% of that company.

Companies typically have at least one share and can have no maximum limit. Shares are like slices of a cake, which can be divided equally or unequally among shareholders.

Are Shares Worth Buying?

Whether shares are worth buying depends on an individual’s personal financial goals. For many investors, buying shares is a key tool for building long-term wealth. Historically, investing in shares has often outperformed cash savings over the long term, although returns are not guaranteed.

The UK stock market, including the FTSE 100, has experienced periods of strong performance. Some analysts predict continued growth, which generally makes investing in shares more profitable. However, forecasts remain uncertain and depend on the economic conditions of the UK.

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How to Buy Shares in a Company?

If you want to buy shares in a company, follow these simple steps:

1. Choose Your Share-Dealing Platform

Before buying shares, you first need to find and compare online share dealing platforms. You can choose between investment apps (like Freetrade) or traditional execution-only brokers.

Before selecting a platform, consider questions like:

• Do you want to manage your investments on your own?
• Have you used your Individual Savings Account (ISA) allowance?
• What information is necessary for your investment?
• What pricing structure do you favour?
• What assistance do you require?

These inquiries will help determine the most suitable trading platform for your needs. If you are a beginner, a user-friendly app might be a better option for you. Don’t forget to look out for dealing fees and platform fees.

1. Pick the Right Account Type

When considering how to buy shares in a company, where you put them matters. For UK residents, a stocks and shares ISA is a popular choice. You can invest up to £20,000 per tax year (current ISA allowance). Within the ISA, any profits or dividends you earn are completely tax-free.

You can also use the General Investment Account (GIA) if you have already maxed out your ISA. However, you may have to pay tax if your profits exceed the annual allowance.

1. Research the Company

Don’t just choose a name you recognise. Before buying the company’s share:

• Check the London Stock Exchange (LSE). This will help you see the company’s performance and current share price.
• Review the financials of the company through its annual reports, future growth plans, and dividend history.
• Don’t put all your money into one company to reduce risk. Spread your risk across different sectors.

4. Place Your Order

Once your account is funded, search for the company. You can search by name or its ticker symbol, like VOD for Vodafone.

Market Order

A market order allows you to buy shares immediately at the current market price. This way, you can buy shares immediately at the current market price.

Limit Order

A limit order lets you set a maximum purchase price or a minimum selling price for shares. Unlike a market order, which guarantees execution, limit orders do not ensure execution by the broker.

5. Monitor Your Investments

Another crucial step in how to buy shares in a company is to monitor your shares’ performance. To be an effective investor, buying a stock is just the beginning. It involves ongoing monitoring of the company, including tracking earnings and staying informed about the industry.

As the company’s performance improves, investors can increase their investment. However, at some point, stock values may drop temporarily. In such situations, understanding the company is crucial for making informed decisions about selling or purchasing more shares at a lower price.

6. Be Aware of Stamp Duty

In the UK, when an individual buys shares in a British-incorporated company, they usually have to pay Stamp Duty Reserve Tax (SDRT). SDRT is typically charged at 0.5% on UK share purchases. Yes, it is automatically charged by the broker at the time of purchase.

Now that you know how to buy shares in a company, let’s discuss how much money you need to buy shares.

How Much Money Do I Need to Start Investing in Shares?

In the UK, you can start investing in shares with as little as £1 to £100, depending on the platform.

Several brokers, like Trading 212 or Freetrade, offer fractional shares, so you don’t have to pay a large amount. This allows you to buy a small piece of expensive stocks like Apple that might otherwise cost hundreds of pounds for a single full share.

Which Platform is Best for Buying Shares?

While understanding how to buy shares in a company, it is important to learn about the top platforms for buying shares.

The best platform depends on your investment style, whether you prioritise comprehensive research and account types or low costs. Some of the best platforms for buying shares are:

Trading 212

This platform is best for beginners. It offers 0% commission on share trading. Also, there are no platform fees.

Freetrade

Freetrade is another one of the best platforms for beginners. It has no commission fees for buying or selling shares. Moreover, you can start with a very small amount.

Interactive Investor

Interactive Investor is best known for its strong customer service and research. It is more expensive than other apps. Typically charges a fixed monthly fee rather than a percentage-based platform fee.

Can I Buy Shares In Companies Outside the UK?

Yes, you can buy shares in companies outside the UK by using a platform like Trading 212 or Freetrade. Through these platforms, you can invest in US, European, and other international stocks.

How Do You Store Your Shares Once You’ve Bought Them?

Another important aspect of understanding how to buy shares in a company is knowing how to store your shares once you have bought them. Your shares are stored electronically in an account with your broker.

As soon as you buy shares, they are kept in a nominee account. The broker holds the shares on your behalf, and you are still the beneficial owner.

What Is the Difference Between Buying Individual Shares and Investing in a Fund?

Investing in a fund means your money is spread across many companies. This lowers risk and gives instant diversification. However, it comes with fees and less control over exact holdings.

Whereas buying individual shares means you own a portion of a company. Buying shares has a higher potential reward, but there is a higher risk too if that company performs poorly.

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Do I Have to Pay Tax When I Sell Shares?

Paying tax on your shares depends on the profit you make. If your shares are in a stocks and shares ISA, you do not pay tax on profits. However, if your shares are outside an ISA, you may have to pay Capital Gains Tax (CGT) if your gains are more than the annual tax-free allowance.

How Do Beginners Buy Shares?

To buy shares in a company as a beginner, you first have to choose a stockbroker or trading platform like Freetrade. After choosing the platform, you need to open an account, providing your ID and proof of address.

After funding the account, research companies and compare their financial performance, growth potential, and dividends. You can then buy shares using a market or limit order. If you are a beginner, it is recommended to start small and monitor your investments regularly.

Final Thoughts

Buying shares in a company can be a way to grow your wealth over time. The first step is to know how to buy shares in a company. By picking a reliable broker, choosing a tax-efficient ISA, and staying informed about the UK tax regulations, like Stamp Duty, you can start your investment journey.

However, you need to keep in mind that the value of the investments can go down as well. Therefore, it is recommended to invest money you are prepared to invest for at least 5–10 years.

Disclaimer: The information provided on AccountingFirms.co.uk is for informational purposes only and should not be considered as financial advice. Always consult with a professional accountant to ensure compliance with UK laws and regulations.