3.1.1. Issuer and Securities—Definitions
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
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 also includes entities that are considered legal persons, including companies, governments and their agencies, and even non-profit associations.
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 determine whether a particular example on the exam is a security.
The Uniform Securities Act only addresses financial instruments that are considered securities. It 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 government, including debentures)
• Any evidence of indebtedness
• Certificate of interest
• Participation in any profit sharing agreement
• Collateral trust certificate
• Preorganization certificate or subscription
• Transferable share
• Mutual fund (regardless of what it invests in)