Investing as a business is a route open to limited companies with excess funds, which might have been raised from business savings, the sale of an asset or other means. But investing as a business, also known as corporate investment, is a little different from investing as an individual.
Read on to find out about corporate social investment, whether your limited company can invest in stocks and shares, taxation of corporate investment and much more.
What is corporate investment?
Just like an individual who has some extra money in their bank account, a business with excess funds can invest money in a number of different ways. Corporate investment refers to the practice of one business investing its money like this.
You might think that this is an activity that is only for big business owners, but small companies can still engage in corporate investment. Small business investing can mean equity investment, real estate or even becoming an angel investor.
The simplest way to do this is to open a limited company dealing account, also known as a corporate share dealing account or company account, which will allow your limited company to build and develop a portfolio of investments.
It’s key to remember that seeking professional advice from a financial adviser can be helpful for small businesses if you do not know how to invest your company’s money.
What is an LEI number?
A legal entity identifier, or LEI number, is necessary for all businesses that invest their money. It is a unique 20-digit alpha-numeric sequence designed to identify the legal entities involved in a transaction. The system is mandatory for businesses within the G20, as well as some additional jurisdictions.
This means that any business involved in a purchase of securities can be identified, regardless of the nation they call home.
If you want your company to invest in bonds, stocks or other financial securities, an LEI number is a legal requirement.
To obtain an LEI number for your business, you will need to apply via an accredited local operating unit (LOU) in the UK. These organisations can also help with the annual renewal of your business’s LEI number, along with other related services. A list of accredited LOUs is available on the Global Legal Entity Identifier Foundation (GLEIF) website.
Both your initial registration and annual renewal will cost money, with prices varying between providers but generally coming in at less than £70 per year.
How to invest as a limited company
Businesses looking to invest their excess cash have a lot of options available to them. A key consideration before leaping headlong into any form of investment is your strategy. Flinging money willy-nilly with the hope of netting some significant returns might be tempting, but you need to consider which investments are right for your business.
Think about your:
- appetite for risk
- goals and timelines
- available capital
- future financial commitments
- ethics and ideology
In addition, it’s worth considering the amount of time you are willing to dedicate to evaluating and monitoring your investments.
With a firm idea about these different factors, you might be ready to start investing. In the below section, we’ll explore some of the different types of investment available to limited companies.
Can a business invest in stocks and shares?
Purchasing stocks and shares is one of the simplest and most common forms of investing. Businesses can get involved in the stock market and enjoy the potential for higher returns offered by this form of investment.
Businesses can invest in the stock market by creating an account with an online brokerage platform that offers company accounts.
However, before you get excited about making millions by spotting the next Amazon, bear in mind that investing in individual stocks can be a high-risk strategy. The limited diversification offered by individual stocks can leave your portfolio open to significant volatility. You can mitigate this risk by spreading your investments across a great variety of stocks and shares, but this can be a time-consuming and complex task.
Can a business invest in funds and ETFs?
If you still want your business to be exposed to the gains and dips of the stock market, but don’t have the risk appetite for picking stocks and shares, funds and exchange-traded funds (ETFs) are other options you can invest in via a brokerage account on an investment platform.
While they have lower upside potential than stocks and shares, funds are a much simpler form of investment that offer greater diversification, lower risk and less research required on behalf of the investor. For example, index funds, also known as passive or tracker funds, essentially allow your investments to track the performance of an index like the FTSE 100 or S&P 500.
Can a business invest in property?
Property investment is another route open to limited companies, either by purchasing commercial or residential space. However, with no exemption from stamp duty and higher mortgage rates than are on offer for individuals, this can be an expensive investment.
In addition, buy-to-let lenders can be unwilling to offer mortgages to limited companies and may require a personal guarantee from a company director.
On the other hand, some related expenses, such as mortgage interest and property taxes, are tax deductible for a limited company. As such, the viability of this type of investment depends on the property involved, its market value and the circumstances of your limited company.
What is corporate social investment?
For those who like the idea of investing in ethical causes, there is also corporate social investment. This gives businesses a chance to do some good by investing their excess cash to back social initiatives that aim to benefit a group or cause.
Some investors use this as an opportunity to exercise their sense of social responsibility while still aiming for a profit, but others simply see it as an opportunity to support charities and other organisations. While there may not be financial returns, this kind of action and investment can improve a company’s reputation among employees and consumers.
Pros and cons of corporate investment
Pros
- Potential returns: Invested funds could be more productive than simply leaving excess funds in a business bank account or business savings account.
- Diversification: Investing your business’s surplus cash can diversify its revenue streams, making it less reliant on success in one or two specific areas.
- Tax benefits: Certain types of investing, such as contributing to and investing through a pension scheme, could reduce the amount of corporation tax paid by your limited company.
- Passive income: Some investments have the potential to provide passive income, meaning your business can get money coming in for very little effort. Rental properties, dividend-paying stocks and the interest paid on bonds could all be a source of passive income.
Cons
- Higher risk: Investments can be risky and may yield low returns or even result in your business losing money. Using a business savings account is a considerably lower-risk strategy to store excess cash and earn interest.
- Cash flow: With your business’s money locked away in investments, quickly accessing this capital can sometimes be difficult. This may lead to cash-flow problems.
- Complexity: Investing wisely is a tricky business and can be overwhelming if you have never done it before.
- Sacrificing reinvestment: Any funds that you choose to invest in stocks, shares, ETFs or other financial products are monies that you are not reinvesting in the growth of your business.
Are corporate investments taxed?
Just as with personal investments, corporate investments are subject to taxation. However, the way this works is significantly different. Limited companies do not pay capital gains tax, with any gains made on the sale of assets. Instead they are subject to corporation tax.
The amount of corporation tax a limited company is charged depends on the gains it has made, as well as allowances or reliefs that are claimed.
In 2024/25, corporation tax is split into different rates:
- Profits under £50,000: Subject to the small profits rate of 19%.
- Profits over £250,000: Subject to the main rate of 25%.
- Profits between £50,000 and £250,000: Subject to marginal relief, which means the business will pay the main rate but can reduce this below 25% on a sliding scale.
Check out NerdWallet’s full dive into business tax for more information.
In addition, if you are unsure about investing, tax implications and how this will impact your business accounts, consider whether your business needs an accountant who can help with your decision-making.
WARNING: This page does not constitute advice as we cannot tell you if any form of investing is right for you. Your capital can be at risk and you may get back less than you originally paid in.
Image source: Getty Images
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