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Definition of Rule 504

Rule 504 of Regulation D is a federal securities exemption that allows startups to offer and sell up to $10 million of securities in a 12-month period to an unlimited number of investors, whether accredited or non-accredited. At first glance, Rule 504 looks like a promising exemption for startups to rely on. However, it’s not often used by startups largely because, unlike Rule 506(b) and Rule 506(c), it doesn’t preempt state securities regulations. That means a startup relying on Rule 504 would also have to comply with all applicable state securities regulations, a potentially expensive and time-consuming process.

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