All about securities – debt contracts, shares and derivatives

All about securities – debt contracts, shares and derivatives

All about securities – debt contracts, shares and derivatives

Sometimes it’s difficult to know which part of the law applies to your case, especially if you’re dealing with what an outsider might see as a complex financial dispute. If you hold North Carolina securities, where do you go for help? Rest assured, there are business and financial law attorneys who can advise you on securities you may own. But until you’ve hired a local attorney, let’s brush up on some securities law terminology so you’re ready for your first meeting.

What are securities?

A security is a fungible, transferable instrument representing financial value. Most securities will be represented either by certificate or, more often, in electronic form only (uncertificated). As in the rest of the country, securities certificates in North Carolina will be either “bearer” or “registered.” A bearer security certificate is one that entitles the holder to rights simply by holding the security. A registered certificate is one that gives the holder rights only if their name appears in a security registry maintained by the issuer or an intermediary appointed by the issuer.

Securities include shares of corporate stock or mutual funds, corporate or government bonds, stock or other options, limited partnership units, and various other formal investment vehicles. In North Carolina, securities may be issued by commercial companies, government agencies, local governments, and international and supranational organizations (such as the World Bank). The main purpose of purchasing securities is an investment with the possible purpose of obtaining income or capital gain; (capital gain is the difference between a lower purchase price and a higher sale price).

Securities are broadly categorized into three categories.

1. Debt securities:

These include bonds, debentures, deposits, notes and commercial paper (in some circumstances). If you own one of these debt securities, your North Carolina securities attorney will advise you that you are generally entitled to payment of principal and interest on them. There may also be contractual rights that a good lawyer will advise you about, including the right to information.

Debt securities are generally fixed term securities that can be redeemed at the end of the term, they can be secured or unsecured or secured by collateral. Debt securities can 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, creditors can take control of the company and liquidate it to recoup some of their investment. People prefer to buy debt securities because of the generally higher rate of return than bank deposits. However, debt securities issued by the government (bonds) usually have a lower interest rate than securities issued by commercial companies. This applies nationally and to North Carolina securities.

2. Capital securities:

Common stock is the most popular type of stock security. Investors are called shareholders and they own a share of the share capital of a company, trust or partnership. This is like saying that someone who invests in equity securities is buying a small part of a company (or a large part, depending on your budget!). As an investor, you are not necessarily entitled to a payment, such as the regular interest payment on a debt security. If a company goes bankrupt, you may lose your entire investment because shareholders get paid last. If this happens, it may be a good time to call your North Carolina securities attorney for advice.

On the plus side, investing in equity securities can give the shareholder access to profits and capital gains, something that debt securities do not have. The holder of debt securities receives only interest and repayment of principal, regardless of how well the issuer is performing financially. Equity investing can also offer control over the issuer’s business.

3. Derivative contracts:

If you have invested in forwards, futures, options and/or swaps, you have probably purchased a derivative. A derivative is perhaps clearly derived from some other asset, index, event, value or condition (known as the underlying asset). Instead of trading or exchanging the underlying asset, derivatives traders enter into agreements to exchange money 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.

The lawyer can provide more information about the securities

Please note that this is not an exhaustive list of legitimate forms of securities. If you have purchased what you believe to be a type of security but is not covered in the information here, don’t panic! However, for your peace of mind, contact a securities attorney if you believe you have been a victim of securities fraud, if you have been accused of securities fraud or a related crime, or if you simply have a legal question about buying or selling securities.

#securities #debt #contracts #shares #derivatives

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