This post addresses Amenity’s distribution of stock shares.
Amenity, Inc. was incorporated with 1 million authorized shares, which were issued to Capital General
Corporation (CGC) for $2,000. CGC distributed 90,000 of those shares to about 900 of its clients, business associates, and other contacts to create and maintain goodwill among its clients and contacts. CGC did not receive any monetary or other direct financial consideration from those receiving the stock. Amenity had no actual business function at this time, and its sole asset was the $2,000 CGC had paid for the 1 million shares. Through CGC’s efforts, Amenity was acquired by another company, which paid CGC $25,000 for its efforts.
The Utah Securities Division sought to suspend the public trading of Amenity stock on the grounds that when CGC distributed the shares it had sold them in violation of the Utah Securities Act.
Was CGC’s distribution a sale of securities?