A limited liability company is a distinct legal entity from its owners. Organized under state law, an LLC can take the same legal actions as a person. This means that an LLC can buy personal property, such as stock. There are some similarities between buying stock as an individual and buying shares as an LLC. The key differences generally lie in the beginning of the stock purchasing process.
Establish that the LLC has the authority to buy stocks. An LLC is organized under an operating agreement, which defines how the LLC operates and what activities it can undertake. If the LLC is prohibited from buying stock, amend the operating agreement using the procedure defined within the agreement.
Read More: Can an LLC Offer Both Preferred & Common Shares?
Determine the party authorized to buy stock. The operating agreement will generally either allow all owners of the LLC to make stock purchases or will identify specific individuals who have the authority to purchase stock. For convenience and consistency, the operating agreement might have a procedure that must be followed for the LLC to buy stock. Follow that procedure precisely.
Do investment research. Review the prospective business’s financial reports. Complete an Internet search on the company to determine how it is viewed in the public and to estimate its long-term growth prospects. Consider whether the stock fits in with your LLC’s broader investment strategy.
Hire a broker if necessary. If the stock you wish to buy is publicly traded, you must have a broker-dealer complete the transaction on behalf of the LLC.
Make the stock purchase. Make sure you buy the correct number of shares at the correct price.
Record the investment in the company's books. You will create a new asset line item to represent the stock. The value of that asset must equal the amount you spent to acquire the stock. Be sure to decrease your cash account by an equal amount.
- Entrepreneur: Limited Liability Company
- Citizen Media Law Project: Limited Liability Company
- Citizen Media Law Project: Operating Agreement
- Barth, Berus & Calderon: March 2010: Member-Managed Vs. Manager-Managed LLCs
- U.S. Securities and Exchange Commission: Guide to Broker-Dealer Registration
- Accounting Coach: Debits and Credits
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.