Practice question
An enterprise pools participants' money to operate rental facilities. Its managers acquire properties, negotiate leases, collect rents, and distribute investment returns. Each participant must update contact information quarterly and may recommend prospective tenants, but the expected returns depend primarily on the managers' operations. The enterprise argues that any participant activity defeats the investment-contract classification. Is that argument sound?
- Yes, because the test requires total investor inactivity
- Yes, because suggesting a tenant always makes the investor the principal entrepreneur
- No, because all rental contracts are automatically securities
- No, because incidental participant tasks do not negate expected profits primarily from others' efforts
- Yes, because investments involving land are excluded
Legal references
- RA8799, Securities Regulation Code, Section3.1: https://lawphil.net/statutes/repacts/ra2000/ra_8799_2000.html
- Power Homes Unlimited v. SEC, GR164182, February26 2008, main decision: https://lawphil.net/judjuris/juri2008/feb2008/gr_164182_2008.html
- SEC v. Prosperity.Com, GR164197, January25 2012, main decision: https://lawphil.net/judjuris/juri2012/jan2012/gr_164197_2012.html
Answer this question in flashcards to review your response and continue practicing.