The risk capital test is a much easier standard to meet than the __________ test because it requires neither commonality nor that the profit be derived from the efforts of others.

Question

Quizplus · Accepted Answer

The correct answer is the Howey test. The Howey test is a standard derived from a Supreme Court case for determining whether a transaction qualifies as an "investment contract," and thus a security under federal law. It requires an investment of money in a common enterprise with an expectation of profits predominantly from the efforts of others. The risk capital test, by contrast, focuses on the risk to the capital invested, without necessarily requiring commonality or the effort of others for profit generation, making it a less stringent standard.

The Risk Capital Test Is a Much Easier Standard to Meet