Rule 504 of Regulation D is an exemption from registration under the Securities Act of 1933 for the offer and sale of up to $5 million of securities in a 12-month period. A company conducting a Rule 504 offering is required to file a notice with the SEC on Form D within 15 days after their first sale of securities. The company must also comply with state securities laws and regulations in the states in which the securities offering takes place.
The following companies are not eligible to use Rule 504:
- Exchange Act reporting companies;
- Investment companies;
- Companies that have no specific business plan or have indicated their business plan is to engage in a merger or acquisition with an unidentified company or companies; and
- Companies that are disqualified under Rule 504’s “bad actor” disqualification provisions.
In general, companies may not use general solicitation or advertising to market securities sold in Rule 504 offerings. And, purchasers receive “restricted securities,” which generally means that they are subject to holding periods before sales are permitted.
General solicitation and advertising, however, is permitted and investors receive non-restricted securities, if the company offers and sells the securities:
- exclusively under one or more state securities laws that require registration, public filing and delivery of a disclosure document to investors before sale;
- in certain other states that do not require registration, public filing and delivery of a disclosure document before sale, if:
- the securities have been registered in at least one other state that provides for such registration, public filing and delivery before sale;
- the company offers and sells securities in that other state under those provisions; and
- the company delivers to all purchasers in any state the disclosure documents mandated by the state requiring registration of the securities; or
- exclusively in a state according to an exemption in such state that permits general solicitation and advertising, so long as sales are made only to “accredited investors.”