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Simple English definitions for legal terms
investment contract
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A quick definition of investment contract:
An investment contract is an agreement where someone invests money in a project or business with the expectation of making a profit. The investor does not have control over the decisions made by the project or business, and the profit is solely dependent on the efforts of the promoter or a third party. It is like giving someone money to start a lemonade stand and expecting a share of the profits without having any say in how the lemonade stand is run.
A more thorough explanation:
An investment contract is a type of agreement or transaction in which a party invests money in the expectation of profits derived from the efforts of a promoter or other third party. It is a contract in which money is invested in a common enterprise with profits to come solely from the efforts of others.
For example, if an individual invests money in a startup company and expects to receive profits from the company's success, it is considered an investment contract. The investor does not have control over the company's managerial decisions but is relying on the efforts of the company's promoters or third parties to generate profits.
Another example is a guaranteed investment contract (GIC), in which an institutional investor invests a lump sum with an insurer that promises to return the principal and a certain amount of interest at the contract's end. The investor is relying on the insurer's efforts to generate profits and is not involved in the decision-making process.
Overall, an investment contract is a flexible principle that can adapt to various schemes devised by those seeking to use the money of others on the promise of profits.