Rule 504 of Regulation D: The $10M Exemption and Its State Registration Cost

Rule 504 of Regulation D exempts up to $10,000,000 of securities sold in any rolling 12-month period, but it is not a federally preempted offering: every sale must be separately registered or exempt under the securities law of each state where it occurs. That single difference — no NSMIA preemption — is why most issuers who could use Rule 504 end up filing under Rule 506 instead, and why the issuers who do use 504 are almost always running a deliberately narrow, geographically concentrated raise.

Rule 504 is the least-discussed exemption in Regulation D, and it occupies an awkward middle ground: administratively heavier per dollar raised than Rule 506(c) despite the lower ceiling. Understanding when it earns its place requires reading three things together — the offering limit, the three narrow doors that permit general solicitation, and the state-level filing burden the rule hands back to the issuer.

What Rule 504 actually permits

The exemption sits at 17 CFR 230.504, titled "Exemption for limited offerings and sales of securities not exceeding $10,000,000." Its operative terms:

• Offering limit. Rule 504(b)(2) caps the aggregate offering price at $10,000,000, reduced by the aggregate offering price of all securities sold within the 12 months before the start of and during the 504 offering, or sold in violation of Section 5(a) of the Securities Act.
• Issuer exclusions. Rule 504(a) is unavailable to issuers subject to Exchange Act Section 13 or 15(d) reporting, to investment companies, and to development stage companies with no specific business plan or whose stated plan is a merger or acquisition with an unidentified company — the blank-check exclusion.
• General conditions. Rule 504(b)(1) requires compliance with Rule 501 and Rule 502(a), (c) and (d) — integration, the general solicitation prohibition, and resale limitations — except where one of three specific state-law conditions is satisfied.
• Bad actor disqualification. Rule 504(b)(3) imports the disqualification standard of Rule 506(d) for events on or after January 20, 2017, and requires Rule 506(e)-style written disclosure of qualifying events that predate that date.
• Federal filing. Rule 503 requires a Form D notice no later than 15 calendar days after the first sale in the offering, the same deadline that applies to Rule 506.

Note what is absent. Rule 504 imposes no federal accredited-investor requirement, no federal purchaser count, and no federally mandated disclosure document. Those constraints, where they exist at all in a 504 deal, come from state law — which is precisely the point.

Rule 504 against the alternatives

Read across the "state blue sky preemption" row and the economics become obvious. Section 18 of the Securities Act, as amended by the National Securities Markets Improvement Act of 1996, preempts state registration for "covered securities," and Rule 506 offerings fall inside that definition. Rule 504 offerings do not. An issuer selling into ten states under Rule 506(c) files ten notice filings and pays ten fees. The same issuer under Rule 504 faces ten separate registration or exemption analyses, each with its own review timeline, disclosure standard, and in some states a merit review of the offering terms themselves. Our breakdown of state blue sky filings and NSMIA preemption covers that mechanic in detail.

The three doors to general solicitation

Rule 504 defaults to the Rule 502(c) prohibition on general solicitation and the Rule 502(d) resale restriction. Rule 504(b)(1) lifts both only where the offers and sales are made:

1. (b)(1)(i) — Registered-state route. Exclusively in one or more states that provide for registration of the securities and require the public filing and delivery to investors of a substantive disclosure document before sale, with the offering conducted in accordance with those provisions.
2. (b)(1)(ii) — Registered-plus-spillover route. In states with no registration or pre-sale disclosure regime, provided the securities have been registered in at least one state that does require registration, public filing and pre-sale delivery; sales in that state comply with its provisions; and the disclosure document is delivered before sale to all purchasers, including those in the non-registering states.
3. (b)(1)(iii) — Accredited-only state exemption route. Exclusively under state law exemptions from registration that permit general solicitation and general advertising, so long as sales are made only to accredited investors as defined in Rule 501(a).

Door three is the one that draws marketing interest, because it produces a publicly promotable offering with unrestricted securities without SEC qualification. It is also the narrowest. It requires that every state in which offers and sales occur has adopted an exemption permitting general solicitation, that the offering fits each of those exemptions, and that no non-accredited investor is admitted. A single sale outside that perimeter puts the entire offering back under Rule 502(c). Issuers considering this path typically compare it against Rule 506(c), which reaches all fifty states on one federal analysis — the tradeoffs are set out in our comparison of Rule 506(b) versus 506(c) solicitation rules.

Where Rule 504 genuinely fits

Across 200+ campaigns supported spanning Reg-CF, Reg-D 506(c), Reg-A+, and tokenized securities offerings, the fact patterns where Rule 504 is the live candidate rather than the default are consistent:

• Single-state or two-state raises with a local investor base. A community operator, regional bank holding company, or local real estate sponsor raising within one state absorbs one registration process rather than fifty. The blue sky burden is a fixed cost that stops scaling against the issuer.
• Raises that must include non-accredited investors without a portal. Rule 506(c) is accredited-only. Reg-CF requires an intermediary and caps at $5,000,000. Rule 504, where state law permits, admits non-accredited investors directly.
• Issuers wanting unrestricted securities at closing. The (b)(1)(i) and (b)(1)(ii) routes produce securities that are not restricted under Rule 502(d) — materially different from the position of a Rule 506 purchaser.
• Offerings under roughly $2,000,000 where state registration is realistically achievable. Below that size the incremental legal spend of a multi-state 506(c) program compresses against the raise itself.

Conversely, Rule 504 is generally the wrong instrument for a nationally marketed campaign, for any issuer intending to run paid acquisition across all fifty states, or for a raise expected to exceed the $10,000,000 ceiling within twelve months. Issuers in that position typically evaluate the Reg-CF versus Reg-A+ cost and limit comparison instead.

What Rule 504 does to the marketing plan

An offering that is not federally preempted changes campaign architecture, not just legal budget. Four operational consequences follow.

Geographic gating becomes a compliance control, not a targeting preference

Under Rule 506(c), state geography affects notice filings. Under Rule 504, geography defines the legal perimeter of the offering. Paid media, landing pages, and investor portals must enforce state eligibility at the point of interest capture — not at subscription — because an offer made into a state where the offering is neither registered nor exempt is itself the problem. That means state-gated forms, geo-fenced ad delivery, and suppression of organic traffic from ineligible states.

Timeline runs on the slowest state, not the SEC

There is no SEC qualification step in Rule 504. There is a state review step in every registering state, and review timelines vary widely, including merit review standards in some jurisdictions. Campaign launch dates track the slowest state clearance in the plan.

The disclosure document does double duty

Under the (b)(1)(i) and (b)(1)(ii) routes, a substantive disclosure document must be delivered before sale. That document is also the primary conversion asset, and issuers who treat it as a legal filing that must survive a first-time reader tend to convert better than those who treat it as a filing alone.

Investor pool math is tighter

A $10,000,000 ceiling inside a two-state perimeter is a materially smaller addressable audience than a nationwide 506(c) program. Cost-per-qualified-investor has to be modeled against that constrained pool before media budget is committed.

Compliance items issuers most often miss

1. The 12-month lookback is backward and forward. Rule 504(b)(2) subtracts securities sold in the 12 months before the offering starts as well as during it. A prior SAFE round consumes headroom.
2. Bad actor screening still applies. Rule 504(b)(3) imports Rule 506(d), so the same covered-person diligence a 506 issuer performs is required here. Directors, officers, 20% beneficial owners, and compensated solicitors all fall inside the screen.
3. Form D is not optional. Rule 503 applies to Rule 504 offerings on the same 15-calendar-day clock as Rule 506. Our guide to Form D filing requirements and deadlines covers amendments and late filings.
4. Integration is live. Rule 502(a) applies through Rule 504(b)(1). A concurrent or recent offering under another exemption can be integrated, collapsing both analyses.
5. Compensated promoters are securities-law actors. Paying a percentage of capital raised to a marketing party raises broker registration questions independent of which exemption is used.

Frequently Asked Questions

What is the maximum an issuer can raise under Rule 504?

Rule 504(b)(2) sets the aggregate offering price limit at $10,000,000, less the aggregate offering price of all securities sold within the 12 months before the start of and during the Rule 504 offering. The lookback means prior rounds reduce available headroom. The limit is measured across the offering, not per investor.

Can a Rule 504 offering be advertised publicly?

Only under the specific conditions in Rule 504(b)(1)(i) through (iii). Absent one of those three state-law routes, the general solicitation prohibition in Rule 502(c) applies to a Rule 504 offering the same way it applies to a Rule 506(b) offering. The most commonly discussed route is (b)(1)(iii), which requires state exemptions permitting general solicitation and sales limited to accredited investors.

Does Rule 504 preempt state blue sky registration?

No. Section 18 of the Securities Act preempts state registration for covered securities, and Rule 506 offerings qualify as covered securities while Rule 504 offerings do not. A Rule 504 issuer must register or find an exemption in every state where offers and sales occur. This is the single largest practical difference between Rule 504 and Rule 506.

Who is disqualified from using Rule 504?

Rule 504(a) excludes Exchange Act reporting companies, investment companies, and development stage companies with no specific business plan or whose plan is a merger with an unidentified company. Separately, Rule 504(b)(3) applies the bad actor disqualification standard of Rule 506(d) to events occurring on or after January 20, 2017, with written disclosure required for earlier qualifying events.

Is a Form D required for a Rule 504 offering?

Yes. Rule 503(a)(1) requires an issuer relying on Rule 504 or Rule 506 to file a Form D notice of sales with the Commission no later than 15 calendar days after the first sale of securities in the offering. If that deadline falls on a weekend or holiday, it moves to the next business day. Amendments are required to correct material errors and to reflect certain changes.

Why do most issuers choose Rule 506(c) over Rule 504?

Rule 506(c) carries no dollar ceiling, permits general solicitation nationwide on a single federal analysis, and preempts state registration so that only notice filings and fees are due. Rule 504 caps at $10,000,000 and hands the state-law burden back to the issuer. Rule 504 tends to win only where the raise is geographically concentrated, needs non-accredited investors without a funding portal, or benefits from unrestricted securities at closing.

Where to take this next

Rule 504 is a structuring decision with direct campaign consequences: it fixes the states you may address, the audience you may admit, and the ceiling you may reach. Determine the perimeter with counsel first, then build acquisition around it rather than retrofitting compliance onto a live campaign. Growth Turbine's Reg-D equity crowdfunding marketing practice handles state-gated investor acquisition for Regulation D offerings, and our Reg-CF marketing services cover the portal-intermediated alternative when non-accredited reach matters more than offering size. Across 23+ crowdfunding platforms and 25+ industries, Growth Turbine has provided marketing support across more than $490M in aggregate issuer-reported totals. To map your exemption against your target raise and investor geography, get in touch with our team.

Disclaimer: The information provided in this article is for educational and informational purposes only and does not constitute legal, financial, or investment advice. Always consult with qualified legal counsel and financial advisors before launching a capital raise.