October 12, 2021
Security is a term used often in financial transactions. Generally speaking, a security is a tool used to generate a financial gain.
Most people understand securities to be stocks and bonds and know that special laws apply to securities, but many do not realize that Utah law defines “securities” far more broadly than just stocks or bonds. A security also includes items such as promissory notes, limited partnership interests, LLC interests and oil and gas partnerships.
In fact, a security can be any transaction in which one person gives money to another with the agreement that the money will be returned with a profit. These kinds of arrangements are considered “investment contracts” and are also defined as securities in Section 61-1-13 of the Utah Uniform Securities Act. Securities regulators have even taken actions against promoters who were offering interests in pay phones, Internet kiosks, orange groves, and worm farms.
The bottom line is, it is best to assume that any plan where someone invests money with the hope of receiving a profit due to another person’s efforts is a security.
The Division of Securities strongly recommends one consult with an experienced securities attorney before relying on any representations that capital raising efforts will not involve the offer or sale of a “security.”
For more information on securities and whether to invest, visit the Utah Division of Securities website https://securities.utah.gov/ or call at 801-530-6600.