Practicing Law in the Sharing Economy: Helping People Build Cooperatives, Social Enterprise, and Local Sustainable Economies by Janelle Orsi

Author:Janelle Orsi [Orsi, Janelle]
Language: eng
Format: epub
Tags: Economies, Law, Non-Fiction, Cities, Urban Planning
ISBN: 9781614385462
Google: bn6EMAEACAAJ
Amazon: B00L9J6DHU
Publisher: American Bar Association
Published: 2012-04-14T23:00:00+00:00

Superficially, this may be so since the construction of a mill and refinery is essential to the conduct of appellant’s intended mining, milling and refining operations. However, it is equally true that every purchaser of a product from a seller, who reinvests the proceeds of the sale in his business operations, contributes to a seller’s business capital. Notwithstanding, such a contribution is an investment in the purchased product and not a contribution of risk capital to a business enterprise within the normal scope of securities regulation.33

In Hamilton Jewelers v. Department of Corporations, the court held that the following offering did not constitute a security under the risk capital test:

Hamilton Jewelers invites you to invest in a ONE CARAT DIAMOND for only $500, and if anytime [sic ] within a three year period you elect to return the Stone, Hamilton will return to you the full purchase price plus 5% interest calculated daily from the date of purchase. A diamond investment of $500 will return $578.81 in cash at the end of a three year period.

The court reasoned that even though the offer to pay interest on an investment would normally fall within the definition of a security, in this case the investor’s capital was not at risk because the investor had a diamond worth at least $500. The court stated, “[t]he customer, being adequately secured, would have placed no ‘risk capital’ with Hamilton; and, therefore, the transaction would not come within the regulatory purpose of the Corporate Securities Law even though 5 percent interest might ultimately be paid to the customer.”34

The risk capital test has been adopted in some form in 16 jurisdictions (in addition to California):35

• By the Supreme Court of Hawaii (1971);

• By the Supreme Court of Arkansas (1987);

• By the District Court of Guam (Appellate Division, 1981);

• By the Court of Appeals of Ohio (10th District, 1975);

• By the Supreme Court of Oregon (1976);

• By statute in Alaska, Georgia, Michigan, North Dakota, Oklahoma, and Washington;

• Through regulatory rule in Illinois, New Mexico, North Carolina, Wisconsin, and Wyoming.

For example, Washington’s statutory definition of a security includes “investment of money or other consideration in the risk capital of a venture with the expectation of some valuable benefit to the investor where the investor does not receive the right to exercise practical and actual control over the managerial decisions of the venture.”36

The Hawaii Supreme Court devised a test that is a combination of the Howey test and the risk capital test established in Sobieski. This test states that an investment contract (and security) is formed when

(1) An offeree furnishes initial value to an offeror, and

(2) A portion of this initial value is subjected to the risks of the enterprise, and

(3) The furnishing of the initial value is induced by the offeror’s promises or representations which give rise to a reasonable understanding that a valuable benefit of some kind, over and above the initial value, will accrue to the offeree as a result of the operation of the enterprise, and

(4) The

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