What In The World Is A Security? Going Public Lawyers

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.  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:

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.”

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.

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.

For further information about this securities law blog post, please contact Brenda Hamilton at [email protected].  This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group 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 | Going Public Lawyers
Brenda Hamilton, Securities Attorney
101 Plaza Real South, Suite 202 North
Boca Raton, Florida 33432
Telephone: (561) 416-8956
Facsimile: (561) 416-2855
www.securitieslawyer101.com