9.1.1. Definitions of Issuer and Securities
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 laymen’s terms, an issuer is someone who creates, or publicly declares that it will be creating, a security that can be purchased by investors. A person 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. Even though the USA’s definition says “person,” the definition is not limited to “natural” living and breathing persons. The USA includes entities that are considered “legal persons,” including companies, governments and their agencies, and nonprofit associations. Most issuers of securities are entities rather than individuals.
What makes this definition more complex is that the word “security” is thrown in. The U.S. Supreme Court, in its “Howey Decision,” 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 investors expect to make a profit that will (4) 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 addresses only 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 (re