Sometimes it is difficult to know which part of the law applies to your case, especially if you are dealing with what an outsider may view as a complicated financial dispute. If you hold North Carolina securities, where do you go for help? Rest assured, there are attorneys in business and financial law who can advise you in regards securities that you may hold. But until you have retained the services of a local lawyer, let’s get up to speed on the terminology of securities law so you are ready for your first appointment.
What are securities?
A security is a fungible, negotiable instrument representing financial value. Most securities will be represented either by a certificate, or more commonly, will be in electronic form only (non-certificated). As in the rest of the country, North Carolina securities certificates will be either “bearer” or “registered”. A bearer securities certificate is one that entitles the holder to rights simply by holding the security. A registered certificate is one that only entitles the holder to rights if their name appears on a security register maintained by the issuer or the issuers appointed intermediary.
Securities include shares of corporate stock or mutual funds, corporation or government issued bonds, stock options or other options, limited partnership units, and various other formal investment instruments. In North Carolina, securities may be issued by commercial companies, government agencies, local authorities and international and supranational organizations (such as the World Bank). The primary goal of purchasing securities is investment, with an eventual aim of receiving income or capital gain; (capital gain being the difference between a lower buying price and a higher selling price).
Securities are broadly categorized into three categories.
1. Debt securities:
These include debentures, bonds, deposits, notes and commercial paper (in some circumstances). If you hold one of these debt securities, your North Carolina securities attorney will advise that you are usually entitled to the payment of principal and interest on these. There may also be contractual rights a good lawyer will advise you of, including the right to information.
Debt securities are usually fixed term securities redeemable at the end of the term, they may be secured or unsecured or protected by collateral. Debt securities may offer some control to investors if the company is a start-up or an established business undergoing ‘restructuring’. In these cases, if interest payments are missed, the creditors may take control of the company and liquidate it to recover some of their investment. People favor buying debt securities because of the usually higher rate of return than bank deposits. However, debt securities issued by a government (bonds) usually have a lower interest rate than securities issued by commercial companies. This applies nationally and to North Carolina securities.
2. Equity securities:
Common stock is the most popular type of equity security. Investors are called shareholders and they own a share of the equity interest of capital stock of a company, trust or partnership. It is like saying someone who invests in equity securities is buying a tiny part of a company (or a large part, depending on your budget!). As an investor you are not necessarily entitled to any payment, like the regular interest payment of a debt security. If a company goes bankrupt it is possible to lose your entire investment, as shareholders get paid last. If this happens it might be a good time to call your North Carolina securities lawyer for advice.
On the plus side, investing in equity securities can gives a shareholder access to profits and capital gains, something debt securities will not. The holder of debt securities receives only interest and repayment of principal no matter how well the issuer performs financially. Equity investment may also offer control of the business of the issuer.
3. Derivative contracts:
If you have invested in forwards, futures, options and/or swaps you have probably purchased a derivative. A derivative is perhaps obviously, derived from some other asset, index, event, value or condition (known as the underlying asset). Rather than trade or exchange the underlying asset, derivative traders enter into agreements to exchange cash or assets over time based on the underlying asset. A simple example is a futures contract: an agreement to exchange the underlying asset at a future date.
An attorney can provide more information about securities
Please note that this is not an exhaustive list of legitimate forms of securities. If you purchased what you were lead to believe was a type of security but it is not covered in the information here, don’t panic! However, for you own piece of mind, contact a securities lawyer if you believe that you have been a victim of securities fraud, if have been accused of securities fraud or a related crime, or if you simply have a legal question about buying or selling securities.