Issuer and Securities—Definitions
Once again, the Uniform Securities Act attempts to make it very clear who would be considered an issuer of securities. An issuer is:
a person who issues or proposes to issue a security
A big old thanks here to the authors of the Uniform Securities Act for using the word we’re trying to define, in the definition itself. That doesn’t actually tell us what someone does that makes them an issuer.
In layman’s terms, an issuer is someone who creates, or publicly declares that they will be creating, a security that can be purchased by investors. Even though the USA’s definition says “person,” the definition is not limited to natural, living, and breathing persons. A person also must be 18 or over and legally competent. Thus, a 14-year-old, a dead person, or an individual who has been declared incompetent would not be considered a person under the USA. The USA may also include entities that are considered legal persons, including companies, governments and their agencies, and even non-profit associations.
Pretty simple, huh? Not really.
What makes this a little more complex is that the word security is thrown in. In a decision called “The Howey Decision,” the U.S. Supreme Court came up with four characteristics that define a security. A security involves (1) an investment of money that (2) involves a common enterprise (3) in which the investors expect to make a profit, and (4) the profits will be derived from the efforts of someone other than the investor. This definition will help you to determine whether a particular example on the exam is an investment contract or not.
The Uniform Securities Act only addresses financial instruments that are considered securities. The Uniform Securities Act specifically states that a security (which will inevitably be issued by an issuer), can be a:
- • Stock (preferred or common shares, treasury stock)
- • Bond (corporate or governme