Monday, February 2, 2009

Hey! I am looking for investors!!

I must hear the phrase "I am looking for investors" every. single. day.

What most innocent folks don't know is that they are violating securities laws by uttering those very words. Now these normally law abiding citizens don't mean to offend the SEC or their local, friendly state securities board, but unfortunately, they are, because they may just have made an offer to sell securities.

The definition for a "security" was outlined in SEC V. HOWEY CO., 328 U. S. 293 (1946):

"Under Section 2(a)(1) of the Securities Act of 1933, “unless the context
otherwise requires,” the term “security” includes
any note, stock, treasury stock, security future, 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, any put, call, straddle, option, or privilege on any security,
certificate of deposit, or group or index of securities (including any
interest therein or based on the value thereof), or any put, call,
straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or
instrument commonly known as a “security”, or any certificate of
interest or participation in, temporary or interim certificate for,
receipt for, guarantee of, or warrant or right to subscribe to or
purchase, any of the foregoing."

This means that any time you ask for money, that you will have control over, to gain a profit for the "investing" party, you have sold a security. It does not matter if you term it as a loan or as a "percentage of the profits." It's a security.

What about a partnership?
Is the individual (or company) investing as a "partner" only investing money and has no control over the company or the money? It's a security.

What if it's only a small investment?
It's a security - it could be $10 - it's a security.

What if I tie the investment to real estate?
It does not matter, if there is no control over the estate or the underlying investment, it's a security. As a matter of fact, the Howey case that defines a security, was about land: the defendants in the case had sold one acre parcels of land to the investors. The investors were on the title of the land, but the defendants had also said to the investors "purchase this land and we will farm the land, sell the fruit from those farming efforts, and give you the profits." This was deemed a security.

So how can a small business owner avoid such malfeasance? Well, for starters, they can check out future blogs....(and that's what we call a "cliffhanger" in the biz...)

I am extremely important


My name is Jillian Ivey Sidoti. I use my maiden name not to be one of those hyphenated jerks, but because if you were to search the California Bar website for my name under "Jillian Sidoti", alas, you will not find me.

I am an attorney in California. Like most attorneys, I think I am very important and like to use big words as to confuse those around me. Also like most attorneys, I am an attorney because I can't hack it as a doctor. (I was never good at the "sciences" if you will, and I don't like the sight of blood.) If you will notice, I am located in California - this makes me even more of a!

I am also a professor at the University of Redlands. I teach business, finance, and accounting. I am not sure why they won't let me teach law...maybe it's because they don't have a law least I am hoping that's the reason. This designation of "professor" allows me to be even more pompous.

So why am I here? Well, so I can bestow all of my wonderful knowledge on you, silly! Isn't that exciting? I knew you would be excited! And guess what? It's all FREE! I am going to give you FREE information. Hopefully you will find it as useful as the folks who pay me for it....

However, before I go on, here is the legal disclaimer that you must expect from an attorney:

"The materials on this web site have been prepared by Jillian Ivey Sidoti, Esq. for information purposes only and are not intended as legal advice. This web site is not an offer to represent you. Our transmission of this information and your receipt of this information is not intended to create and does not constitute an attorney-client relationship. Internet subscribers and on-line readers should not act upon this information without seeking advice from professional counsel. Jillian Ivey Sidoti, Esq. does not maintain and is not responsible for the information, contents, accuracy, completeness, usefulness or adequacy of any resources that can be accessed with hypertext links from this site.

"Jillian Ivey Sidoti, Esq. articles and publications should not be construed as legal advice on any specific facts or circumstances. Their contents are intended for general information purposes only and may not be quoted or referred to in any other publication or proceeding without the prior written consent of Jillian Ivey Sidoti, to be given or withheld at our discretion. "

Now, I would have been an awful attorney if I did not write that....

So with that out of the way - enjoy reading. I hope you find something useful here!