All About Securities – Debt, Equity, and Derivative Contracts

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 …