To answer this question we must look at what securities are: generally speaking securities are debt or equity investments in a company wherein the investor puts up cash to obtain both voting control and a share of the profits whether in dividend or distribution form or a right to specified guaranteed payments. Shareholders buying equity securities have the most risk and the greatest possibility for reward, which is the general nature of investing: the higher the risk the higher the potential reward. Debt securities offer lower risk to investors, due to priority in repayment, and also lower returns. Securities may or may not be freely negotiable/tradable on a public exchange or may be restricted from being sold, either temporarily or permanently, or may require consent of the board of directors to sell in private transactions. Securities may or may not be registered with the Securities and Exchange Commission depending on the type of investor being sought. The regulations governing registration and exemption include Reg D, Reg A, and Title III for crowdfunding.
The more features of a security an ICO token has, the more likely it is to be deemed a “security” and the more likely it is to fall under one of the regulations requiring registration or an exemption. When the ICO tokens being offered provide some form of control or voting power over the enterprise to which those tokens belong that would probably pull such tokens under the definition of securities. If, on the other hand, tokens issued have no voting authority or other control over the enterprise, and are merely stores of value and means of exchange, then such coins will probably not fall under the umbrella of “securities” and not fall under the regulatory authority of the SEC. This agency has recently deemed the DAO ethereum offering to have been an offering in violation of their registration requirements, although no charges will be sought and no further investigation will be made into that offering. Furthermore, if new coins receive regular distributions of new coins nad/or hold some type of security interest in the assets (whether hard or virtual) of the new venture, this will also militate toward them being classified as securities.
If looking to open a coin offering to fund a start-up venture, you would do well to consider what authority your new coins will have and what rights will attach to their holders. Generally, this information should be provided to prospective investors in a Placement Memorandum, something similar to a Private Placement Memorandum under the SEC rules, which will fully disclose, not only the structure of the venture, identities and experience of its governing board, and other matters which would normally be disclosed under SEC rules, but also clearly spell out how the new coins will relate to the new venture. For example, new coins may have no voting or control rights, but entitle holders to services or goods produced by the start-up. Additionally, new coins may have a lock-up period during which new investors may not sell or exchange such coins. New coins may provide for cross-rights with other start-ups and vice versa, if the platforms are compatible. The possibilities are limited only by imagination.