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What In The World Is A Security?

A company going public must understand which capital raising methods involve a "security". A company is only subject to federal and state securities laws if it is selling what is defined as a “security.” If you are selling stock in your initial public offering or a direct public offering, you know you are selling a security.

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What In The World Is A Security?

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  1. What In The World Is A Security?

  2. A company going publicmust understand which capital raising methods involve a "security". A company is only subject to federal and state securities laws if it is selling what is defined as a “security.”  If you are selling stock in your initial public offering or a direct public offering, you know you are selling a security.  But Section 3(a)1 of the Securities Act of 1933 tells you all kinds of other instruments you sell may also be securities, as follows:

  3. The term “security” means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, …, or, in general, any interest or instrument commonly known as a “security.”

  4. The Supreme Court broadly defined an investment contract mentioned in the above definition as follows: • An investment of money due to • an expectation of profits arising from • a common enterprise • which depends solely on the efforts of a promoter or third party.

  5. The bottom line is this:  Before you engage in any transaction in which you will be taking money from investors to fund your business, check with a knowledgeable securities law professional to find out if what you are selling is a “security” which subjects you to federal and state securities laws.

  6. For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real South, Suite 202 North, Boca Raton Florida, (561) 416-8956, by email atinfo@securitieslawyer101.comor visit www.securitieslawyer101.com.  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group, P.A. and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship.  Please note that the prior results discussed herein do not guarantee similar outcomes. Hamilton & Associates| Securities LawyersBrenda Hamilton, Going Public Attorney101 Plaza Real South, Suite 202 NorthBoca Raton, Florida 33432Telephone: (561) 416-8956Facsimile: (561) 416-2855www.SecuritiesLawyer101.com

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