A Business Law Blog for Entrepreneurs, Startups, Venture Capital, and the Private Fund Industry.
This post is the fifth in a series exploring when securities laws impact business transactions.
In my previous posts, I provided a general overview of the definition of a “security” under federal securities laws, and covered when various categories of instruments constitute a security, including partnership and limited liability company interests and promissory notes. In this post, we’ll explore when corporate stock falls within the definition of a security under federal law. [Read more…]
This post is the fourth in a series exploring when securities laws impact business transactions.
In my previous posts, I provided a general overview of the definition of a “security” under federal securities laws, and covered when various categories of instruments constitute a security, including partnership and limited liability company interests. In this post, we’ll explore when a promissory note falls within the definition of a security under federal law. [Read more…]
This post is the third in a series exploring when securities laws impact business transactions.
In my previous posts, I provided a general overview of the definition of a “security” under federal securities laws. One of the categories of investments that constitutes a “security” under federal law is an “investment contract.” The term is a rather open-ended one, but under the so-called Howey Test, the term includes any arrangement or transaction that is “an investment in a common venture premised on a reasonable expectation of profits to be derived from the entrepreneurial or managerial efforts of others.” As a result, any transaction which constitutes an investment contract is a security under federal securities law. In this post, we’ll explore when an interest in a limited liability company (“LLC”) or a partnership constitutes an investment contract, and consequently, a security. [Read more…]
This post is the second in a series exploring when securities laws impact business transactions.
In my previous post, I provided a general overview of the definition of a “security” under federal securities laws. The Securities Act of 1933 provides for a very far reaching definition of a security, including “any note, stock… investment contract…, or, in general, any interest or instrument commonly known as a ‘security’…” As explained in my prior post, this definition, taken literally, can result in both overinclusiveness and underinclusiveness. I’ll discuss the issue of overinclusiveness and how it is addressed in future posts; this post will discuss how the inclusion of an “investment contract” within the definition of a security allows the definition to include classes of investments that are not specifically listed, like limited liability company interests and limited partnership interests, which are both concepts that had not even been invented when the Securities Act was passed. [Read more…]
Business owners and attorneys without a securities background will often engage in transactions that, while on first blush do not involve securities regulation, but actually are a securities transaction, and thus subject to federal and state securities laws. For instance, real estate developers often finance projects by bringing in outside investors as limited partners. They are likely to hire a real estate attorney to complete the deal, who will dutifully draft a limited partnership agreement for the transaction. What neither of them often realize is that a securities transaction is occurring as part of the deal. The sale of limited partnership interests is usually a securities transaction under federal and state law. This means that the interests are subject to registration with the SEC and with the state of each investor’s residence[1], unless an exemption can be found. In addition, all statements made in discussions with limited partners are subject to the anti-fraud rules. [Read more…]
Strictly Business is a business law blog for entrepreneurs, startups, venture capital, and the private fund industry. The author is Alexander J. Davie, an attorney at Riggs Davie PLC based in Nashville, Tennessee. His practice focuses on corporate, securities, and business law. He works mainly with technology companies, including startups and emerging companies, and private equity, venture capital, and hedge funds.
