Definition of Person
Understanding who qualifies as a "person" under the Uniform Securities Act is foundational because this definition determines who can then be classified as a broker-dealer, agent, investment adviser, or issuer.
What Is a "Person"?
Under the USA, "Person" means any:
- Individual (natural person)
- Corporation
- Partnership
- Limited Liability Company (LLC)
- Association
- Joint-stock company
- Trust (including business trusts)
- Unincorporated organization
- Government or political subdivision
- Any other legal or commercial entity
Key Point: The definition of "person" is extremely broad. Essentially, if it can legally conduct business or own property, it's a "person" under the USA.
Natural Person vs. Person
| Term | Definition | Examples |
|---|---|---|
| Natural Person | A human being | Individual investor, registered representative |
| Person | Any legal entity | Corporations, partnerships, LLCs, trusts, governments |
Exam Tip: Agents must be natural persons (individuals). Broker-dealers and investment advisers can be any type of "person" (including corporations and partnerships).
Broker-Dealer Definition
A broker-dealer is any person engaged in the business of effecting transactions in securities for the account of others (broker) or for its own account (dealer).
Key Elements
| Element | Description |
|---|---|
| "In the business" | Regular, ongoing activity—not occasional transactions |
| "Effecting transactions" | Executing or facilitating securities trades |
| "For others or own account" | Acting as agent (broker) or principal (dealer) |
Who Is NOT a Broker-Dealer?
The following are excluded from the broker-dealer definition:
| Exclusion | Reason |
|---|---|
| Agents | Individuals who represent broker-dealers |
| Issuers | Entities selling their own securities |
| Banks, savings institutions, trust companies | Separately regulated |
| Persons with no place of business in the state | Who deal only with other broker-dealers or institutional investors |
Agent Definition
An agent is any individual (natural person), other than a broker-dealer, who represents:
- A broker-dealer in effecting or attempting to effect purchases or sales of securities, OR
- An issuer in effecting or attempting to effect purchases or sales of the issuer's securities
Critical Points About Agents
| Point | Explanation |
|---|---|
| Must be an individual | Only natural persons can be agents—never corporations |
| Represents someone | Always acts on behalf of a broker-dealer or issuer |
| Officers and directors | Are agents only if they effect securities transactions |
| Clerical staff | Generally not agents if they don't effect transactions |
Exam Tip: A partner, officer, or director of a broker-dealer is an agent only if they actually effect securities transactions. Administrative or clerical functions don't trigger agent status.
Investment Adviser Definition
An investment adviser is any person who, for compensation, engages in the business of advising others about securities.
Three-Part Test (ABC Test)
To be an investment adviser, ALL three elements must be present:
| Element | Requirement |
|---|---|
| A - Advice | Provides advice about securities |
| B - Business | Engages in this activity as a regular business |
| C - Compensation | Receives compensation for the advice |
Who Is NOT an Investment Adviser?
| Exclusion | Condition |
|---|---|
| Banks and bank holding companies | Federally regulated |
| Lawyers, accountants, engineers, teachers | If advice is solely incidental to their profession |
| Broker-dealers | If advice is solely incidental and no special compensation |
| Publishers | Of bona fide newspapers/magazines of general circulation |
| Federal covered advisers | Registered with the SEC |
Investment Adviser Representative (IAR)
An IAR is any individual who:
- Makes recommendations or renders advice regarding securities
- Manages client accounts or portfolios
- Determines which recommendations or advice should be given
- Solicits or negotiates for the sale of investment advisory services
- Supervises employees who perform any of these functions
Key Distinction: IARs are always individuals who work for investment advisers—similar to how agents work for broker-dealers.
Issuer Definition
An issuer is any person who issues or proposes to issue a security. This includes:
- Corporations issuing stock
- Governments issuing bonds
- Investment companies issuing fund shares
- Any entity creating or offering securities
Key Takeaways
- "Person" includes any individual or legal entity
- Agents must be natural persons (individuals)
- Broker-dealers and investment advisers can be any type of person
- The IA definition requires advice + business + compensation
- Exclusions remove certain persons from these definitions entirely
Under the Uniform Securities Act, which of the following can be an "agent"?
An attorney provides investment advice to clients as part of her legal practice and does not charge separately for the investment advice. Under the USA, is she an investment adviser?
A director of a broker-dealer firm spends all of her time on corporate governance and never interacts with customers or effects securities transactions. Is she required to register as an agent?
1.3 Definition of Security
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