Can a Small Business Invest in Stocks?

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All major brokerage firms provide the option for a small business to open an account in the company's name. Once set up, it can then trade stocks and take advantage of other features in much the same way as an individual account, including the ability to buy and sell stocks, bonds, mutual funds and options, as well as access to cash management services.

Corporations

  • A corporation must submit a legally executed corporate resolution authorizing an account to be opened in its name. The president or an authorized officer must certify that the corporation has been legally formed according to its home state's laws, that the resolution authorizing the account does not conflict with any corporate bylaws and that the brokerage firm may perform all reasonable verification and credit checks at its discretion. The resolution also authorizes the account to hold stocks on margin and to trade options if the company wishes to engage in those types of transactions. It must be accompanied by a copy of the articles of incorporation or imprinted with the corporate seal.

Unincorporated Businesses

  • Those organizations not incorporated may also invest in stocks after they submit a resolution of unincorporated business, which must be duly notarized. This document certifies that the business has authorized the opening of a brokerage account and whether it can trade stocks on margin or if it must fully fund share purchases with cash. The resolution must also appoint an authorized representative who can trade on behalf of the organization.

Partnerships

  • A partnership can also invest in stocks by opening an account in its name after submitting a partnership account agreement, which must be signed by all general partners or those otherwise authorized to make trades and conduct other investment-related business. The official agreement that formed the partnership must accompany the account application as well.

Cash Flow

  • The primary caveat that small businesses must keep in mind is that its cash flow needs can vary widely depending on the time of year, the economy and overall demand for its products and services. Those businesses operating on tight budgets should avoid investing in stocks because they may be forced to sell part of their portfolios at inopportune times. Stock trading is a single component that must be considered as part of a prudent overall financial plan.

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