Howey Test
The Supreme Court test for whether an arrangement is an “investment contract,” and therefore a security: an investment of money in a common enterprise with an expectation of profit derived from the efforts of others.
The Howey test comes from SEC v. W.J. Howey Co. (1946). An arrangement is an “investment contract,” and therefore a security subject to federal and state securities laws, if it involves (1) an investment of money, (2) in a common enterprise, (3) with a reasonable expectation of profit, (4) derived predominantly from the efforts of others.
The test reaches well beyond stocks and bonds. It is the framework courts and the SEC apply to novel instruments, including many digital assets and tokens. Whether a token is offered and sold as a security turns on the economic reality of the arrangement, not on the label the issuer chooses.
Classification drives everything downstream: registration or a valid exemption such as Regulation D, what may be said and to whom, and how an offering is structured. Resolving the Howey question at the outset is far cheaper than restructuring an offering already underway.
Texas application
Texas applies a substantively similar analysis under the Texas Securities Act, recodified at Tex. Gov't Code Title 12, Subtitle B. An instrument that is a security under Howey is generally subject to Texas registration or exemption requirements as well as federal ones.