Rule 504 Offerings
Rule 504 of Regulation D lets an eligible company raise up to $10 million in a 12-month period without requiring investors to be accredited. Unlike Rule 506, Rule 504 securities are not covered securities, so each state where you sell can require registration or an exemption. It also has limits on general solicitation unless state registration is obtained, and it excludes reporting companies and investment companies.
Key features
| Feature | Rule 504 |
|---|---|
| Raise limit | $10 million in any 12-month period |
| Investor qualification | None required under the federal rule |
| General solicitation | Generally restricted unless sold under state registration or limited exceptions |
| State law | Applies. Registration or a state exemption is typically needed. |
| Resale | Restricted unless the offering is registered under state law or meets conditions |
| Filing | Form D |
Who cannot use it
- Companies subject to Exchange Act reporting.
- Investment companies.
- Blank check companies.
- Issuers disqualified under the bad actor provisions.
The state compliance problem
Because Rule 504 offerings are not covered securities, states retain the power to require registration. Many states offer exemptions for small offerings, such as limited offering exemptions based on the number of purchasers or an accredited investor exemption, and some states offer streamlined registration. In practice, a sponsor using Rule 504 must analyze every state where investors live, which makes it more work than Rule 506 for many offerings. See Texas notice filings for the 506 comparison.
Bad actor and disclosure issues
The bad actor disqualification rules apply to Rule 504 offerings, so the issuer should collect questionnaires from its covered persons just as in a Rule 506 offering. Anti-fraud rules apply as well, so even a small raise from non-accredited investors deserves written disclosure of the business, the risks and how the money will be used. Non-accredited investors are more likely to claim they were misled when a business struggles.
When Rule 504 makes sense
- A small raise from non-accredited friends and family, where a 506(b) offering would require heavy disclosure.
- A company that plans to register the offering in one state and wants to advertise there.
- A raise under $10 million where the state analysis is simple because investors are in one state.
Compare the alternatives
Rule 506(b) is more flexible when investors are accredited. Regulation Crowdfunding and Regulation A suit public raises. An intrastate offering may suit a local business raising in one state. See 506(b) vs 506(c), Regulation Crowdfunding and the intrastate exemption.
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Book Free ConsultationFrequently asked questions
Can non-accredited investors invest under Rule 504?
Yes. The federal rule does not require investors to be accredited, though state rules may add conditions.
Is Rule 504 a covered security?
No. States can require registration or an exemption for each sale.
Do I file a Form D for Rule 504?
Yes, after the first sale.
Is Rule 504 good for a fund?
Funds are investment companies and cannot use Rule 504 unless an exclusion applies and the rule's other conditions are met.