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Why can’t I invest in all companies?
We explain the types of company that you can and can't by shares in, and why some companies are harder to invest in than others.
According to Companies House records, there are millions of companies registered in the UK alone, and even more worldwide. With some companies, you can invest in them by buying shares listed on a stock exchange. But there are others that you won’t be able to invest in as easily, or at all. Here’s why.
What type of companies can I invest in?
First things first: what does it mean to invest in a company? For the purposes of this article, we’re going to define that as buying a share of an individual company, such that you own part of it, with the expectation of making money by doing so. As with any investment, there’s no guarantee of returns, but that’s typically the plan.
By that definition, you can only invest in companies that allow you to own part of them. Or, as they’re officially known, companies that are “limited by shares”. These are usually businesses that make a profit, where the company is legally separate from the people that own it and has separate finances from its owners. We’ll come onto the type of companies to which these criteria don’t apply a bit later.
Types of company limited by shares
Companies limited by shares broadly break down into 2 types:
- Public limited companies (PLCs). These tend to be companies that are legally allowed to sell shares to the public on a stock exchange. To be a PLC, a company must have issued share capital of at least £50,000 and sold 25% of the value of its shares prior to registration. They must have at least 2 shareholders and need at least 2 directors to register. If you think of a big-name household business, such as BT or Tesco, it’s almost certainly a PLC.
- Private limited companies (LTDs). Private limited companies have shares, just like PLCs. However, they are not able to sell shares to the public on a stock exchange. They also have fewer requirements in terms of minimum share capital, number of directors and number of shareholders. It’s possible for an LTD company to have a single shareholder.
Investing in a PLC is relatively straightforward, as you can easily buy and sell PLC shares on stock exchanges, either through a traditional stockbroker or using an online share trading platform.
Investing in a private limited company, while not always impossible, is both trickier and riskier. Given that even buying publicly traded shares is seen as riskier than some other forms of investing – such as exchange traded funds (ETFs) – investing in private limited companies is really a venture for experienced, wealthy investors.
What types of company can I not invest in?
We’ll come back to how to invest in public vs private limited companies shortly. For now, let’s outline the types of company that aren’t open for investment as most people understand it – so putting money into a company with an expectation (or at least a hope) of return on your investment. You can’t invest in:
- Companies that are limited by guarantee. This usually applies to charities and other non-profits. They don’t have shares or shareholders, and are instead backed by guarantors. Any profits the company makes are usually reinvested in the business. Guarantors do not get any share of the profits.
- Companies that are not legally separate from the people that run them, and where those that control them have unlimited personal liability for the business. This means that, unlike with limited companies, the owner’s personal finances may be intertwined with the business finances. Examples of such companies include sole traders and business partnerships. The gov.uk website has more information on sole traders and business partnerships.
How do I invest in public companies?
If the company you want to invest in is a public limited company (PLC), then the process for doing so should be pretty straightforward. PLCs can sell company shares to the public by listing them on a stock exchange, such as the London Stock Exchange. So investing in the company simply involves buying shares from one of these exchanges.
To buy shares, you’ll need to use either a traditional stock broker that works face-to-face or by phone or, as is becoming more common these days, register with an online share dealing platform. These let you view the shares on offer, make purchases on an “execution-only” basis (this means you get no advice on which shares to buy) and keep track of your investments.
Of course, you’ll need to have done your research into which companies you want to buy shares in, which is worth spending a bit of time on, but the actual transaction should be pretty quick. Most trading platforms charge a fee for buying (and selling) shares, so you’ll need to factor this in.
Our full guide to buying shares in a company breaks down the process in more detail.
Can I invest in a private company?
Private companies can’t list shares on the stock exchange for sale to the public, but they can offer shares directly to individual investors. These early-stage investors are often referred to as “angel investors”. They tend to be experienced, wealthy investors that are willing and able to take the risk of backing companies that are just starting out, and where the chances of the company succeeding may be lower.
Often, angel investors are friends or family members of an entrepreneur, though there are some brokers that specialise in this kind of investing. But, long story short, investing in private companies is not for your average investor and certainly not for beginners.
How can I find out if I can invest in a certain company?
You can find out if a company is listed on the London Stock Exchange by visiting its website and searching its “Prices and markets” page by company name (Shell, for example). You may want to narrow down your choice by “Instrument type” (choose “Equities” then “Stocks”).
Not every company you might want to invest in will be listed on the London Stock Exchange, though – for example some foreign companies. This doesn’t mean you can’t buy shares in them, just that you’ll have to use a different exchange. Many online share dealing platforms let you invest in shares listed on the most popular international stock exchanges, such as the US Nasdaq and Europe’s Euronext. You’ll be able to use the platforms to search for shares to invest in once you open an account.
Is there a limit to the number of companies I can invest in?
Finder expert Zoe Stabler answers
There’s no limit to how many companies you can invest in, or how few. There’s no “magic” number to go for, but “don’t put all your eggs in one basket” applies. It’s generally recommended to diversify your portfolio by investing in several companies across a range of markets. That applies in particular if shares, rather than ETFs or other kinds of fund, are your only investment.
Don’t go too crazy though, as the cost of transaction fees can add up if you hold shares in a very high number of companies. Plus, it can make your investments harder to stay on top of.
Bottom line
You can’t invest in every company. And some are harder – or riskier – to invest in than others. But with more than 1,000 companies listed on the London Stock Exchange alone and many more available to invest in via international stock exchanges or alternative investment markets, you’ll still have plenty of choice and plenty of opportunity to diversify your portfolio.
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