Legal Definitions - risk-capital test

The risk-capital test is a method used to determine whether a transaction involves the sale of a security and is therefore subject to securities laws. This test is based on whether the seller is seeking risk capital to develop a business venture.

If a company is seeking investors to provide funding for a new business venture, the risk-capital test would be used to determine whether the transaction involves the sale of a security. If the company is soliciting risk capital, then the transaction would be subject to securities laws.

Risk distribution is the way in which a legal system assigns responsibility for harm between the person who suffers the loss and the person who caused it.

If a person is injured in a car accident, the legal system will determine who is responsible for the harm and assign liability accordingly. This may involve assigning a percentage of fault to each party involved in the accident, or it may involve holding one party entirely responsible for the harm.

These examples illustrate how the risk-capital test and risk distribution are used to allocate risk and responsibility in different situations.