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 Securities Lawyer's Deskbook
                         published by The University of Cincinnati College of Law
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General Rules and Regulations
under the
Securities Act of 1933

Rule 505 -- Exemption for Limited Offers and Sales of Securities Not Exceeding $5,000,000

  1. Exemption. Offers and sales of securities that satisfy the conditions in paragraph (b) of this section by an issuer that is not an investment company shall be exempt from the provisions of section 5 of the Act under section 3(b) of the Act.

  2. Conditions to be met

    1. General conditions. To qualify for exemption under this section, offers and sales must satisfy the terms and conditions of Rule 501 and Rule 502.

    2. Specific conditions

      1. Limitation on aggregate offering price. The aggregate offering price for an offering of securities under this Rule 505, as defined in Rule 501(c), shall not exceed $5,000,000, less the aggregate offering price for all securities sold within the twelve months before the start of and during the offering of securities under this Rule 505 in reliance on any exemption under section 3(b) of the Act or in violation of section 5(a) of the Act.

        Note: The calculation of the aggregate offering price is illustrated as follows:

        Example 1. If an issuer sold $2,000,000 of its securities on June 1, 1982 under this Rule 505 and an additional $1,000,000 on September 1, 1982, the issuer would be permitted to sell only $2,000,000 more under this Rule 505 until June 1, 1983. Until that date the issuer must count both prior sales towards the $5,000,000 limit. However, if the issuer made its third sale on June 1, 1983, the issuer could then sell $4,000,000 of its securities because the June 1, 1982 sale would not be within the preceding twelve months.

        Example 2. If an issuer sold $500,000 of its securities on June 1, 1982 under Rule 504 and an additional $4,500,000 on December 1, 1982 under this Rule 505, then the issuer could not sell any of its securities under this Rule 505 until June 1, 1983. At that time it could sell an additional $500,000 of its securities.

      2. Limitation on number of purchasers. There are no more than or the issuer reasonably believes that there are no more than 35 purchasers of securities from the issuer in any offering under this section.

        Note: See Rule 501(e) for the calculation of the number of purchasers and Rule 502 (a) for what may or may not constitute an offering under this section.

      3. Disqualifications. No exemption under this section shall be available for the securities of any issuer described in Rule 262 of Regulation A, except that for purposes of this section only:

        1. The term "filing of the offering statement required by Rule 252" as used in Rule 262(a), (b) and (c) shall mean the first sale of securities under this section;

        2. The term "underwriter" as used in Rule 262 (b) and (c) shall mean a person that has been or will be paid directly or indirectly remuneration for solicitation of purchasers in connection with sales of securities under this section; and

        3. Paragraph (b) (2) (iii) of this Rule 505 shall not apply to any issuer if the Commission determines, upon a showing of good cause, that it is not necessary under the circumstances that the exemption be denied. Any such determination shall be without prejudice to any other action by the Commission in any other proceeding or matter with respect to the issuer or any other person.

Regulatory History

47 FR 11262, Mar. 16, 1982, as amended at 54 FR 11373, Mar. 20, 1989; 57 FR 36473, Aug. 13, 1992

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