Promissory Notes as Investments
What Every Investor Should Know
When you borrow money, you are selling a note to the person or company lending you the money. Both the Federal Securities Act of 1933 and the Arizona Securities Act define the term "security" to include "any note." Both acts
include in their definition, however, the phrase "unless the context otherwise requires." In some contexts, the courts have determined that a note should not always be considered a security. An analysis of court interpretations is in order
to understand when a note may not be a security, which is a time-consuming and complicated task.
Further, the Arizona Supreme Court has said that all notes are securities and must register unless the Arizona Securities Act provides an exemption.* Many transactions in which you borrow money (sell a note) are probably exempt from registration requirements
because they are private placements, which include borrowing money from a close relative or borrowing money from a bank or savings institution.
The main point you need to know is that when selling a note, you may be creating a security. Thus, before you even attempt to "sell" a note within or from Arizona, you should consult with a licensed attorney knowledeable in Arizona's
*See State vs Tober, 173 Ariz. 206, 841 P.2d 206 (1992).