Promisory Notes

What is a Promissory Note?

Promissory notes are a written promise to pay a specified amount to a specific entity at a specific time or upon demand, with or without interest. Promissory notes are presumed to be securities. For this reason, individuals purchasing or issuing promissory notes need to make sure the transaction complies with securities regulations.

Promissory notes offered to retail investors carry significant risk. When investing, higher returns are accompanied by a proportionate amount of risk. A track record of paying high interest and even repaying principal is not an assurance that you will get your money back if the company fails. Promissory notes are rarely suitable for retirement money, or money borrowed against home equity.


Registration Concerns

Most promissory notes are sold with little or no disclosure information. Moreover, the person offering a promissory note may need to be licensed. Prior to making an investment, you should know whether the investment is:

  1. registered under Utah’s Securities law;
  2. exempt from registration under Utah law; or
  3. a federal covered security, notice file in Utah.

In many cases, promoters fail to properly follow securities laws and offer unregistered securities to Utah investors, which is a violation of the law.

Disclosure Concerns

Many promoters fail to provide investors with adequate disclosure documents. Some promoters will mislead or misrepresent the information and risks in their disclosure documents. Omission or misrepresentation of material information in the offer or sale of a security is considered securities fraud. The information should include a clear description of the issuer's business, risks of the business, audited financials, and commissions to be paid to the person soliciting your investment.

Licensing Concerns

A promoter may or may not need to be securities licensed as a broker-dealer or investment adviser. Licensing is required anytime a sales agent or promoter sells a security and receives compensation or renders advice regarding a security for compensation.

Key Questions Before Investing