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An IRA, whether Roth or traditional, can hold your money in almost any type of investment except collectibles. It's perfectly legal for a Roth to buy stock, but the law does limit who the Roth can buy from and whose stock it can invest in. Making a prohibited Roth transaction results in tax penalties.
Outside of buying collectibles, the IRS investment options are open -- but dealing with a disqualified person is completely prohibited. Even if you have a self-directed Roth where you decide what to buy and sell, you can't do business with your Roth, and neither can your beneficiary or members of your families. The fiduciary -- the account trustee -- is also disqualified from doing business with your Roth.
The IRS has a long list of prohibited transactions for you and other disqualified people. The no-no dealings include transferring Roth money or assets to you or using them for your benefit, selling to the account, borrowing from the Roth or leasing Roth property. This doesn't affect your rights as the owner of the plan, though. You can, for example, withdraw contributions from your Roth legally, then invest them in your company without problems.
According to "The Journal of Accountancy," if your Roth buys stock in a company where you're the majority stockholder or an officer, the IRS would probably class that as a prohibited transaction. You're also in trouble if your Roth buys company assets such as accounts receivable for less than the market value. Even if you come up with some investment plan that isn't specifically prohibited, the IRS can still potentially review it and decide you're gaming the system.
If the IRS catches you in a prohibited transaction, you're not going to be happy. The tax code says that when a traditional or Roth IRA engages in any forbidden investment, it stops being an IRA and becomes just an account with money in it. You've already paid tax on your original contributions in a Roth, but all your earnings then become taxable income. You may have to pay a tax penalty for withdrawing your earnings early.