On this Private Money Minute, Jillian Sidoti gives a checklist to test if a deal would be classified as a security.
“This week on the Private Money Minute we’re gonna talk about what a security is, and why do you care, and we’re gonna do that right now. A security is basically an investment contract. It’s when one party invests money and the other party does all the work. So there is a test to determine whether or not you might be selling a security when asking investors for money. Number one, is the investor investing money? If so, you pass this part of the test. Number two, is there more than one investor and is it in a common enterprise? In other words, are all the investor’s money working towards the same particular purpose? Number three, do the investors expect profits? Now profits can come in many different forms. It can come in a form of interest on a note, preferred equity, equity in a company, or perhaps some other kind of profit interest. And number four, it’s through the efforts of a promotor. In other words, are you doing all the work on behalf of your investors? So if you answered yes to all of those questions, then you’re probably selling a security. And why do you care? You care because there are rules and regulations in place if you’re indeed selling a security. And you have to follow those rules and regulations. I’m Jillian Sidoti and this is the Private Money Minute”.
For another Private Money Minute Video about intrastate offerings, click here.
For more information on what a Security is, click here.