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diagram The process is as follows: The consumer (A) purchases a good or service from a business (B). The consumer receives the good or service and also receives points, similar to that of a loyalty program. A separate corporation (C) receives commission from the sale made by the consumer for advertising business (B) to begin with. The corporation invests part of its earnings in (D), causes them to grow and then pays dividends to the consumer (A) over time.

The consumer is receiving a good or service for their money, so they aren't technically investing for the sake of equity. Also, the money invested in the corporation isn't technically the consumer's money, its a cut from business (B)'s revenue. It should also be mentioned that a 30% return for every purchase made from the consumer to business (B) is put aside and not used to grow the corporations revenue. This 30% is returned to the consumer over a period of 30 days and after that, a percentage of the purchase value (also equivalent to how many points they have) is given to the consumer in dividends as long as the corporation is growing.

What's the legality of all of this? Does it avoid the regulations otherwise put on selling stocks to unaccredited investors, or equity crowd-funding?

Thanks

  • Government regulators really are smarter than you think they are. Get a law degree and immerse yourself in SEC regulations for a decade and then you try to cleverly outsmart them. But you'll probably fail. – RonJohn Dec 22 '19 at 1:44
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Part D) is the flaw. The corporation would never give dividends to a consumer. They give dividends to shareholders which are investors. Loyalty points are never equity, and this has been specifically designed such that they aren't equity or even property at all. Read the fine print on loyalty point systems it covers this and nobody deviates from this because of the regulatory issues.

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If the "loyalty points" don't convey the right to vote in corporate elections, or a share of the company's assets in the event the company halts operations when its assets exceed its liabilities, then they probably aren't a form of stock.

So offering these points might not subject the offerer to regulation by the SEC.

But since these points promise the holder future payments, they might be considered a form of bond, or a loan obligation. This would probably mean the issuer has in some sense a greater obligation to the point holder than they would toward stockholders. For example, they might be obligated to pay the promised "dividends" to point holders before paying actual dividends to actual shareholders.

If you're contemplating using this arrangement in an actual business, you should consult a lawyer who represents you about the legality and risks to the business from the plan, rather than ask random strangers on the internet whether the "points" involved could be considered as stock.

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Corporation_D is paying a commission to Consumer_A because of the sale of its stock to Corporation_C ? Consumer_A must meet broker/dealer regulatory requirements.

But no, Consumer_A receives an ongoing dividend from Corporation_D. Well, whatever it is that describes and defines the holding of that dividend position is a security.

There's another problem. Business_B is a merchant, Corporation_C is a marketing company, but what type of company is Corporation_D ?

Now there's also a previous subject here and along the lines of the general subject:

I might overlook something and it could be within the facts that an LLC can have any number of members and that new members can be brought-in. An LLC has percentage members instead of stockholders. Obviously, existing LLC members can have their membership percentage increased or decreased. Now LLC members will owe their percentage of company expenses if the LLC is not profitable. And so an LLC member has to contractually agree to be a member.

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