Legal Definitions - face-amount certificate company

A face-amount certificate company is a specific type of investment company that issues "face-amount certificates" to investors. A face-amount certificate is an investment contract where an investor pays a specified amount, either as a lump sum or through periodic installments, and in return, the company promises to pay a fixed, predetermined sum (the "face amount") to the investor on a specific future date. These companies are subject to regulation, often under investment company acts, to ensure investor protection, as they are essentially selling a form of investment product with a guaranteed future payout.

• Example 1: Retirement Savings Certificate

  Imagine "FutureSecure Investments Inc." offers a "Retirement Builder Certificate." An individual commits to paying $400 per month for 25 years. In exchange, FutureSecure Investments Inc. guarantees to pay them a lump sum of $250,000 at the end of the 25-year period. FutureSecure Investments Inc. would be considered a face-amount certificate company.

  This illustrates the term because FutureSecure Investments Inc. issues a certificate where an investor makes periodic payments, and the company promises a fixed "face amount" ($250,000) to be paid at a specific future date.

• Example 2: Child's Education Fund

  "Bright Futures Financial" sells "College Promise Certificates." A parent purchases a certificate for $15,000 today, and Bright Futures Financial guarantees to pay $22,000 to the child when they turn 18, intended for their college education. Bright Futures Financial operates as a face-amount certificate company.

  This demonstrates the term because Bright Futures Financial issues a certificate where a lump sum is invested, and the company commits to paying a specific, larger "face amount" ($22,000) at a predetermined future maturity date.

• Example 3: Future Home Purchase Fund

  "Guaranteed Asset Growth Corp." offers a "Dream Home Down Payment Certificate." A couple invests $30,000, and the company promises to return $38,000 to them in seven years, specifically to assist with a down payment on a house. Guaranteed Asset Growth Corp. is functioning as a face-amount certificate company.

  This exemplifies the term because Guaranteed Asset Growth Corp. issues an investment contract (the Dream Home Down Payment Certificate) where an initial investment leads to a guaranteed, fixed payout (the "face amount" of $38,000) at a predetermined future time.