Rule 504

The basics

• Limit: $10 million in any 12 months, less what you sold in the prior 12 months under Rule 504 or in violation of the registration requirement. The limit rose from $5 million in March 2021.
• Investors: accredited and non-accredited, with no federal cap on the number.
• Disclosure: no federal disclosure document is required, but the antifraud rules apply and states often require one.
• Form D: required within 15 calendar days after the first sale.

Who can’t use Rule 504

• Companies that file reports with the SEC under the Exchange Act
• Investment companies
• Blank check companies with no specific business plan, or whose plan is to merge with an unidentified company
• Issuers disqualified under the bad actor rules, which apply to Rule 504 as they do to Rule 506

Advertising and resale

By default, a Rule 504 offering can’t use general solicitation and the securities are restricted. Both limits fall away if the offering is:

• registered in one or more states that require a public filing and delivery of a disclosure document before sale;
• registered in such a state and also sold in states without that requirement, as long as every purchaser receives the disclosure document before sale; or
• sold only under state exemptions that allow general solicitation, and only to accredited investors.

State law matters more here

Rule 504 securities aren’t “covered securities,” so states keep full authority over them. Each state where you sell can require registration, such as through the Small Company Offering Registration form, or its own exemption. Plan state compliance before you choose Rule 504; for many issuers it is the deciding factor.