The transaction you make for buying another person stock can be basically the same as the transaction you make when buying for yourself. However, based on the legal complications involved, you’ll want to get the details of the transaction in writing, along with instructions on how to handle a loss, profit, sale and other factors. You can use the same stock trading platforms you normally use, making these transactions simple to finalize.
Why Do This?
There may be times when a friend or family member asks you to buy stock for them because they aren’t able to use their regular platform to make a buy, or because they’ve never bought stock before and want your help.
For example, your brother wants to get in on a hot IPO or stock that’s shooting up and asks you to buy some stock for him. You might want to buy a share of stock in one or more of the companies that make your child’s favorite toys or movies to teach them about the stock market.
Read More: What Happens After You Buy Stock?
Get the Details
Make sure you know exactly what you’re being asked to do. For example, your friend might ask you to buy 100 shares of a stock, but that’s based on the current market price. If the price shoots up overnight and it’s $10 per share more by the time you’re ready to make the buy, should you do it? Get the number of stock shares, and/or price per share, along with the total maximum purchase price your friend is authorizing you to buy.
Is your friend asking you to short a stock he thinks might be going down in value? How long are you supposed to hold the stock before you sell it, and does your friend want you to put a sell order on it based on when it reaches a certain price? Get all of the details in writing before you make the buy.
Discuss Your Liability
Make sure you and your friend know what your liability is if you buy the stock. Depending on the timing of the purchase and if the stock increases in price, you might have tax issues, depending on how long you keep the stock in your portfolio and when you sell it. Once you turn the stock or profits over to your friend, you can erase your tax liability, but talk to your broker or financial planner to make sure.
What if your friend has some financial hardship and can’t pay you for the stock purchase? You might want to secure the purchase with an asset your friend owns, which you can take and sell if your friend can’t pay you back.
Make a Regular Purchase
Depending on the transaction, you can purchase the stock for your friend just as you would any other stock. You can use a broker, e-account or one of your stock apps. The only difference in this situation is how you will dispose of the stock and deal with its gain or loss later.
Read More: How to Transfer Stock Certificates
Do a Stock Transfer
Once you purchase stock for a friend, you can transfer the stock to her using a stock certificate that’s issued in her name. You’ll get her permission, contact the firm that’s holding the stock, then request the transfer. If you don’t know how to do this, get help from your trading platform or financial advisor, which might include help using the Automated Customer Account Transfer Process, or ACATS. If your friend has a brokerage account, you’ll need her account information to make the transfer.
Read More: Investment Loss & Tax Deduction
Give a Gift of Stock
You can buy stock for someone else, such as a family member or friend, as a gift. You can do this with a new transfer, or gift existing stock shares, which can provide a tax benefit for you. When you transfer the stock to them, depending on the amount, timing and giftee’s tax situation, your giftee might not have to pay taxes, either. You can contact a stockbroker to make the gift transaction digitally or, if you have the certificate, you can sign it over, like endorsing a check.
Get the Details in Writing
Protect yourself by getting the person who is receiving the stock to put in writing their intentions and exactly what they want you to do before, during and after the stock purchase. Make sure they state how they will pay you for the stock, when and how.
List possible scenarios, such as the stock suffering a loss or large gain. For example, if you buy the stock and then sell it after it gains 5 percent, your partner might say, “I verbally told you not to sell it until it reached 10 percent. Based on the capital gains I have to pay, I’m not interested in this anymore.” Or, your partner might say, “Hold onto it for a while. I’ll pay you when I see how well it does in a few weeks or months.”
