Rule 504

Primary tabs

Rule 504 (formally 17 CFR § 230.504) is a Securities and Exchange Commission (SEC) regulation that enables issuers to sell under $5,000,000 in securities to an unlimited amount of purchasers in a private placement

Generally, any security offering must comply with the Section 5 of Securities Act, which requires the issuer to file a registration statementSection 4(a)(2), however, exempts “transactions by an issuer not involving any public offering,” i.e. a private placement, from the requirement to file a registration statement. If an issuer complies with the requirements of Rule 504 of Regulation D, then their offering will fall within Section 4(a)(2) and be considered a private placement. 

Rule 504 is not a common method of privately placing securities because the $5,000,000 cap is unattractive to many large issuers. Rule 506, which restricts who can purchase securities in a private placement but does not cap the offering amount, is the more common method of private placement under Regulation D. Compared to Rule 506, however, Rule 504 contains far fewer restrictions. Issuers under Rule 504 may generally solicit their securities, there is no requirement to disclose information to purchasers under Rule 504, and there are no resale restrictions under Rule 504. State securities law may still require disclosures and restrict resales, though. 

[Last updated in January of 2022 by the Wex Definitions Team