Rule 504

Revised Rule 504: Another Tool in the Toolkit to Raise Capital

By Daniel DeWolf and Brian Novell

If there is one common theme that entrepreneurs tend to have, it is fire – meaning, many entrepreneurs are passionate about an exciting idea that they seek to turn into a business.  However, entrepreneurs often quickly realize that, in order to make their fire glow high and bright for the world to see, they need fuel – meaning, capital.  While bootstrapping is a smart practice that can keep the embers burning for a period of time, even fantastic ideas will likely sooner or later need a major capital injection – thereby adding fuel to the fire – to take the venture to the next level.  This is where the newly revised Rule 504 of Regulation D may be a good option for early stage companies.  For qualifying companies, Rule 504 provides an exemption from the registration requirements of the Securities Act of 1933, thereby facilitating the ability of startups to raise capital.  Often well-suited for friends and family or seed rounds of funding, Rule 504 provides flexibility to smaller companies seeking assistance with capital formation.