Defining a security

Question 1

Question #3 (AICPA.930530REG-BL)
Which of the following is least likely to be considered a security under the Securities Act of 1933?

A.  Stock options.
B.  Warrants.
C.  General partnership interests.
D.  Limited-partnership interests.

Answer 1

C. General partnership interests.

When a person invests in an enterprise that is primarily managed by another, the investment will probably qualify as a security. In a general partnership, the partners themselves are in charge of management. Investments in such a venture are likely made only by the partner/managers themselves, and are unlikely to be classified as securities.

Wrong Answer

B. Warrants.
When a person invests in an enterprise that is primarily managed by another, the investment will probably qualify as a security. A warrant is the right to purchase corporate stock for a limited time at a fixed price. Corporations are, of course, generally run by many non-investors.

Question 2

Question #5 (AICPA.101171REG)
Which of the following transactions is subject to registration requirements of the Securities Act of 1933?

A. The public sale of stock of a trucking company
B. A public sale of municipal bonds issued by a city government.
C. The issuance of stock by a publicly traded corporation to its existing shareholders because of a stock split.
D. The public sale by a corporation of its negotiable ten-year notes.

Answer 2

D. The public sale by a corporation of its negotiable ten-year notes.

The 1933 Act applies to sales of securities, including stocks, bonds and notes that are issued for periods over nine months.

A. The public sale of stock of a trucking company

regulated by the Interstate Commerce Commission.
These sales of stock are regulated, but not by the Securities and Exchange Commission (SEC) and not under the 1933 Act. They are exempt.