Reg D Rule 504

Regulation D Rule 504 : A Capital-Raising Solution for Early-Stage Companies

Regulation D Rule 504 is a powerful exemption from SEC registration that allows small businesses and early-stage ventures to raise capital in the U.S. private market. Often overlooked in favor of Rule 506(b) or 506(c), Rule 504 provides a streamlined option for companies seeking up to $10 million in a 12-month period, with fewer restrictions and more flexibility—especially when it comes to non-accredited investors.

For attorneys, entrepreneurs, fund advisors, and startup founders, understanding Rule 504 can unlock early-stage funding opportunities while staying compliant with federal and state securities laws.

What Is Rule 504 of Regulation D?

Regulation D Rule 504 offers an exemption from SEC registration for certain securities offerings, provided the total offering amount does not exceed $10 million in any 12-month period. It is commonly used by small businesses, real estate developers, and private companies looking to raise capital from a mix of accredited and non-accredited investors.

This rule falls under the broader umbrella of Regulation D, which provides different exemptions for private offerings—each with its own requirements for investor eligibility, disclosures, and solicitation.

Key Features of Rule 504

• Offering Limit: Up to $10 million raised in a rolling 12-month period
• Investor Type: May sell to accredited and non-accredited investors
• Solicitation: General solicitation is restricted unless certain conditions are met
• Use Case: Ideal for startups, local businesses, and regional projects

Unlike Rules 506(b) and 506(c), Rule 504 does not preempt state securities laws—meaning state-level registration or exemption filings are still required.

General Solicitation Restrictions

Under Regulation D Rule 504, general solicitation or advertising is generally not permitted—unless:

• The offering is made exclusively under a state law exemption that allows general solicitation, AND
• The securities are only sold in states that require registration and public filing of the offering materials

If these conditions are met, general solicitation may be allowed, but disclosure requirements increase significantly.

Because of this, most companies using Rule 504 rely on direct investor outreach and pre-existing relationships.

Disclosure and Compliance Requirements

While Rule 504 has fewer federal requirements than Rule 506(b) or 506(c), issuers must still follow best practices to protect themselves and investors:

• Prepare a Private Placement Memorandum (PPM): Strongly recommended for any offering, especially when selling to non-accredited investors.
• Use a Subscription Agreement and Investor Questionnaire: To document investor suitability and agreement terms.
• File Form D with the SEC: Must be submitted within 15 days of the first sale.
• Comply with Blue Sky Laws: Each state where securities are sold may require a state-level filing, fee, or registration.

When to Use Rule 504

Rule 504 is best suited for:

• Startups and early-stage businesses looking to raise under $10 million
• Local or regional investment opportunities
• Issuers seeking flexibility to include non-accredited investors
• Offerings involving friends and family rounds or community-based funding

It’s a practical alternative when Rule 506(b) feels too restrictive or Rule 506(c)’s accredited investor verification is too burdensome.

Legal Considerations for Advisors

If you’re advising clients on Reg D offerings:

• Ensure your client understands the limits of general solicitation
• Prepare investor documentation that meets disclosure standards
• Verify and comply with state-specific securities regulations
• Recommend legal review of offering materials—even in smaller raises
• Guide clients through Form D and Blue Sky filing requirements

Working with legal or compliance professionals ensures the offering proceeds smoothly and lawfully.

Summary: Rule 504 at a Glance

Final Thoughts

Rule 504 under Regulation D is a valuable tool for raising early-stage capital—offering flexibility, accessibility, and broader investor reach when used correctly. However, it comes with its own set of compliance obligations at both the federal and state levels.

If you’re an attorney, advisor, or business owner preparing a Rule 504 offering, ensure your documentation is professionally structured and your filings are handled correctly to avoid costly mistakes.

We offer attorney-drafted PPM templates, Subscription Agreements, and Form D support tailored for Rule 504 offerings to help you launch with legal confidence.