What is a Security?

Defining a Security

Most people understand that stocks and bonds are securities and know that special laws apply to securities, but many do not realize that Utah law defines "securities" much 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. Such arrangements are deemed "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

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 you 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."