Are there any state or federal laws that regulate the buying and selling of promissory notes linked to businesses?
Full Question:
Are there any state or federal laws that regulate the buying and selling of promissory notes linked to businesses?
08/20/2007 |
Category: Debts and Cr... ยป Promissory N... |
State: ALL |
#8074
Answer:
Securities were originally regulated only at the state level. However the 1929 Stock Market crash cause Congress to adopt federal statutes which regulated the initial sales of securities (Securities Act of 1933) and the secondary trading of stock on the stock markets (Securities Act of 1934).
The 1933 Act regulates the initial sale of securities to the public. The Act does not specifically define what a security is, but lists approximately 20 items that can be considered to be securities. These include stocks, bonds, mineral interests (like an interest in an oil well), and limited partnership interests. The landmark case on the definition of a security is the case of SEC v. Howey Co. The court in this case defined a security as an investment in a common enterprise with profits to come from the efforts of another. Any investment contract that gives a party to the contract evidence of a debt or a business participation right can be a security covered by the Act. However, the U.S. Supreme Court has excluded pension plans from the definition of a security when employees are not required to contribute to the plan.Some types of securities are exempt from the extensive registration and filing requirements of the Act. For example: Bonds issued by federal, state, county, or municipal governments; Commercial paper (e.g., promissory notes) with a maturity of less than nine months; Securities issued by banks and charitable organizations; Insurance policies; Annuities; Securities issued by common carriers; Stock dividends and stock splits. Certain stock issue transactions are also exempt (i.e., exempt from registration with the Securities and Exchange Commission) . The most common exempt transaction that close corporations take advantage of is the intrastate offering. To qualify for this exemption, both the investors and the issuer must all be residents of the same state. The issuer must also meet the following requirements: 80% of its assets must be located in the state; 80% of its income must be earned from operations within the state; 80% of the proceeds from the sale must be used on operations within the state. Also, for nine months after the issuance, the stock can only be sold to state residents.
