Scrooge is thinking of selling his money lending business. He has been the sole owner for 6 years since his partner died. He has three employees – Bob, Cindy, and Dale. He decides to sell the company to the three of them. The business is worth $120,000. Each employee puts in $40,000 to buy the company. According to the Howey Test, was a security issued?

SWFT Comprehensive Vol 2020
43rd Edition
ISBN:9780357391723
Author:Maloney
Publisher:Maloney
Chapter15: Taxing Business Income
Section: Chapter Questions
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Scrooge is thinking of selling his money lending business. He has been the sole owner for 6 years since his partner died. He has three employees – Bob, Cindy, and Dale. He decides to sell the company to the three of them. The business is worth $120,000. Each employee puts in $40,000 to buy the company. According to the Howey Test, was a security issued?


A. Yes, because there was an equal investment of money
B. No, because he did not register with the SEC
C. Yes, because there was a common enterprise
D. No, because there was a complete sale of the business
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