I recently came across Fukuda v. Nethercott, 2016 U.S. Dist. LEXIS 92462 (D. Utah, July 15, 2016). The case involved claims by the plaintiff that the defendants had sold him securities in violation of the registration requirements of the Securities Act of 1933 and the Utah Uniform Securities Act. The issuer of the security was Sharla Kae Development, LLC, a Utah limited liability company. What caught my attention was that the opinion repeatedly refers to shares of the issuer’s stock. Below are a few examples:
The next day, October 31, 2012, Mr. Nethercott, on behalf of Nethercott, LLC, sold 120 shares of Sharla Kae stock to Mr. Fukuda for $30,000.
Defendants argue that the Section 4(a)(2) private offering exemption applies to the sale of the Sharla Kae stock.
Here, the undisputed material facts establish that Sharla Kae is the issuer of the Sharla Kae stock.
While it is at least theoretically possible that Sharla Kae’s operating agreement denominated membership interests as “stock”, I’m guessing that it didn’t and this opinion is further evidence of the continuing confusion of corporations and limited liability companies.
This set me to thinking about the word “stock”. It is derived from the Old English word stocc, meaning trunk of a tree or a post. At some point, it came to refer to a corporation’s capital. “Stock” isn’t the only word related to posts and trees that has acquired a commercial meaning. “Staples”, derived from the Old English stapol, also originally referred to posts or pilings. England once even had a Court of Staples that applied the Law Merchant. Two other courts also applied the Law Merchant: the borough courts and (my favorite) court of pie powder.
Perhaps staples is a metonym as a result of the association of pilings supporting wharves and piers with commerce and trade. The Law Merchant lives on in numerous California statutes, including Section 3439.12 of the Civil Code, Section 676.13 of the Code of Civil Procedure, and Section 1103(b) of the Commercial Code.