Summarized from a memo by Christen Lee, Esq.

The following are characteristics that will make it more likely that a court will consider an instrument to be a security, and therefore subject to securities regulations:

1. the right to receive dividends contingent upon an apportionment of profits;
2. negotiability (i.e., transferability);
3. the ability to be pledged or hypothecated (i.e. used as collateral);
4. the conferring of voting rights in proportion to the number of shares owned;
5. the capacity to appreciate in value;
6. the motivations of the seller and buyer – the seller’s purpose is to raise capital and the buyer’s purpose is to earn a profit;
7. the plan of distribution - there is “common trading for speculation of investment” and the instrument is offered and sold to a broad segment of the public;
8. public perception – the public reasonably perceives the instrument as an investment;
9. the instrument poses a risk to the investing public.

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